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December 21, 2023

The Importance Of Incentives For Start-ups And Enterprises

I. INTRODUCTION AND IDENTIFICATION OF INCENTIVES SPECIFIC TO START-UPS

Although there is more than one way for start-ups and enterprises to benefit from incentives and exemptions, the only way to benefit from these incentives and exemptions is for start-ups and enterprises to be located in the “Technology Development Zones” (“TDZ”) regulated under the Technology Development Zones Law No. 4691 (“Law”). By establishing start-ups in this zone, it becomes possible to benefit from various incentives such as VAT exemption and insurance premium support in addition to income and corporate tax exemptions, and in this way, for example, it will be possible for start-ups and enterprises which aim to solve problems in land, sea and/or air transportation by operating in these sectors, to reduce and/or exempt the tax and other obligations that may arise during transportation.

II.WHAT ARE INCENTIVE AND EXCEPTION PACKAGES IN GENERAL?

1. As it is known, there are many different incentive and exemption programs for start-ups and enterprises wishing to benefit from incentives and exemptions in general, but in order to benefit from these programs, a number of conditions specific to each program must be met, and if these conditions are not met, it is not possible to benefit from the incentive in question. In this context, start-ups and enterprises wish to benefit from any incentive, it is necessary examine the conditions regarding the incentive and exemption to be benefited from, to evaluate whether it is operationally possible to comply with the relevant conditions within the framework of the output obtained as a result of the examination, and to determine whether it is possible to benefit from the incentive as a result of this evaluation.

2. What are these incentives and exemptions in general? There are various incentive and support programs provided by, mainly those provided by the Small and Medium Enterprises Development Organization (“KOSGEB”) the Scientific and Technological Research Council of Türkiye (“TÜBİTAK”), the Ministry of Industry and Technology (“Ministry”) and the Ministry of Trade, and each program addresses different start-ups in terms of their field of activity, sector and service content.

3. Accordingly, some of the incentive/support programs provided by KOSGEB are as follows;

 

Incentive/Support Program

Purpose of the Incentive/Support

Prerequisites for the Incentive/Support

Scope of the Incentive/Support

1.

Traditional Entrepreneur Support Program

Increasing the survival rate of new businesses.

  • Completion of entrepreneurship training
  • The enterprise being in the status of either a real or legal person
  • The share of the entrepreneur as a founding not being less than 50%
  • The business must have been established at least one year prior to the application date

It covers establishment and performance supports to be granted to real and legal persons. It is provided during the establishment phase and based on the number of days of operation. The program also includes certification support.

2.

Advanced Entrepreneur Support Program

Increasing the survival rate of new businesses.

  • Completion of entrepreneurship training
  • The enterprise being in the status of either a real or legal person
  • The share of the entrepreneur as a founding not being less than 50%
  • The business must have been established within the last year as of the application date

The program covers establishment and machinery, equipment and software support, as well as mentoring, consultancy and business coaching support for real and legal persons. The program also includes certification support.

3.

Business Development Support Program

Increasing the competitiveness of small and medium enterprises (“SMEs”), their level of institutionalization, branding and their share in the national economy

  • The enterprise being in the status of either a real or legal person
  • Business being registered in KOSGEB system

The program covers support for domestic fairs, overseas business trip support, support for acquiring qualified personnel in industry, design support, industrial property rights support, test and analysis support, energy efficient electric motors replacement support, disaster period business support, digital transformation consultancy support.

4.

SME Energy Efficiency Support Program

Establishing necessary strategies and meeting priority needs in order to increase energy efficiency of SMEs

  • The enterprise being in the status of either a real or legal person
  • Business being registered in KOSGEB system

Supports for electric motor survey and replacement costs, energy audit services, and efficiency-enhancing costs are supported at different amounts.

5.

lnternational Accelerator Support Program

For technological products whose R&D and innovation activities are carried out in our country to take place in international markets

  • Application to the KOSGEB being made and approved

Support includes monthly needs, participation, personnel, accommodation, daily expenses and transportation at different rates.

6.

SME Technological Product Investment Support Program

Production and support of products resulting from R&D and P&D innovation activities and products in the field of medium-high/high technology that will contribute to the current account

  • The product to be supported must be created as a result of R&D / R&D / innovation projects and R&D / innovation projects supported by other public institutions, organizations or international funds, patent certificate, etc. and the prototype work must have been successfully completed

It covers different amounts of support for low/ medium low/ medium high/ high technology products.

 

4. Although there are various other support programs provided by TÜBİTAK, programs in question are generally as follows;

 

 

Incentive/Support Program

Purpose of the Incentive/Support

Prerequisites for the Incentive/Support

Scope of the Incentive/Support

1.

TÜBİTAK SME R&D Start-up Support Program

Increasing the productivity of SMEs through technology development and innovation activities and guiding them towards products and services with higher added value

  • Meeting the conditions of being an SME as determined in the Regulation on the Definition, Qualifications and Classification of SMEs
  • Being a Türkiye-based capital company that creates added value at the firm level

The support period is a maximum of 18 months and the upper limit of support is set at a maximum of TRY 500.000 and covers R&D qualified project expenditures and incentive awards.

2.

Research Technology Development and Innovation Projects in Priority Areas

Supporting R&D and innovative projects of organizations that create added value based in Türkiye by launching calls in national priority areas

  • Being a Türkiye-based capital company that creates added value at the firm level

Unless otherwise stated, there are no limitations the duration and amount of support, but it includes grant support in various amounts in terms of R&D qualified projects, as well as overseas service procurement and overhead support.

3.

Entrepreneurship Support Program

Supporting the activities of individual entrepreneurs from the idea stage to the market so that they can transform their technology and innovation-oriented business ideas into enterprises with high potential to create added value and qualified employment

  • Being a student, graduate or doctoral student who can graduate from any undergraduate program of a formal education university within one year, or an entrepreneur who has received one of the bachelor’s, master’s or doctoral degrees at most 5 years prior to the application date

The enterpreneur whose application is approved, a maximum of TRY100.000 capital and overhead support is foreseen.

4.

TÜBİTAK International Industrial R&D Projects Grant Program

Supporting R&D and innovative projects of Türkiye-based organizations that create added value and take part in international joint support programs (EUREKA, EUROSTARS, programs that call for joint projects under the European Union Framework Programs and similar international programs and projects)

  • Being a Türkiye-based capital company that creates added value at the firm level

Unless otherwise stated, there is no limit for the duration and amount of support, but it includes 60% grant support for large organizations and 75% grant support for SMEs.

5.

TÜBİTAK SME R&D Start-up Support Program

Providing advantageous support to the first 5 projects of SMEs in order to encourage SMEs to develop technology, increase their productivity, and focus on high value-added products and services

  • Meeting the conditions of being an SME determined in the Regulation on the Definition, Qualifications and Classification of SMEs
  • Being a Türkiye-based capital company that creates added value at the firm level

The support period is a maximum of 18 months and the upper limit of support is set at a maximum of TRY500.000 and includes 75% grant support for R&D qualified project expenditures and an incentive award of TRY7500 for successful projects.

 

5. In addition to all these programs, various incentives/supports such as income tax withholding incentive, insurance premium incentive, stamp tax exemption can be benefited from if the R&D Center certificate is granted as a result of R&D Center applications to the Ministry.

6. Again, various supports such as Product-Service Registration Support, Trademark Foreign Registration and Protection Support, Fair Participation Support, Domestic Promotion-Training Support, Consultancy Support, especially to develop exports, international branding, and to become permanent in the markets can be accessed through applications to be made through the Support Management System of Ministry of Trade.

III. WHAT ARE THE TECHNOLOGY DEVELOPMENT ZONES SUPPORTS?

1. Start-ups and companies located in a TDZ, which, according to the definition in the Law, refers to “a site or a technopark with these characteristics where companies using high/advanced technology or oriented towards new technologies produce/develop technology or software by making use of the facilities of a specific university or institute of high technology or R&D center or institute, where they operate to transform a technological invention into a commercial product, method or service and thus contribute to the development of the region, within or near the same university, institute of high technology or R&D center or institute area”, are in a very advantageous position in terms of benefiting from incentives and supports and can benefit from various exemptions by being covered by many different incentives.

2. In this context, the prerequisite for benefiting from incentives and supports is to be located in the TDZ, and in order to be located in this zone, it is necessary to be in various categories based on the type of initiative to be determined. Accordingly, in order to be located the zone;

  • Registered Taxpayer Enterprises. Application to the TDZ Managing Company is required, with information on R&D, design and/or software-oriented, technological, innovative and high value-added projects and a “Project Acceptance Certificate” must be issued by the Managing Company Commissions as a result of the application. Otherwise, space allocation will not be possible.
  • New Entrepreneurs who are Non-Tax Payers: It is a category organized for entrepreneurs who have a business idea or a project they want to launch and have not yet established a business subject to income and corporate tax, and can allocate space in the Incubation Center for up to 36 (thirtysix) months, taking into account the R&D period.
  • Technological Product Production Investors: It is a category organized in order to make the necessary investment for the production of the technological product that emerged within the scope of the projects they started within the TDZ, and in order to be included in this category, the investment requestor must apply to the Managing Company with the Investment Feasibility Report, which includes the investment area and cost amount, machinery and equipment information, production technology, process, environmental pollution that the process and product may cause and the measures to be taken against them, personnel needs, market research etc. together with the Technological Product Identification Certificate. Following the application, the commission to be formed within 1 (one) month will finalize the application by evaluating the product according to various criteria such as whether it meets an existing need at a better level, whether the product has the potential for export or import substitution, and whether it has been tested in accordance with market standards and relevant regulations.

It should be stated that above explained categories require different application and evaluation processes.

3. If the application is in the scope of one of these categories, start-ups will be able to benefit from the incentives and supports that will be provided specifically for start-ups in TDZs. In this respect, although there are many different incentives and support packages to be provided to existing enterprises in TDZs, it is very important for entrepreneurs and Start-Ups to benefit from the support and incentives suitable for them in order to achieve the goal they aim through their initiatives. As a matter of fact, the incentives and supports to be received are critical in achieving the goal as they will constitute the basic/supporting capital of the initiative or the exemption element in terms of some obligations. Accordingly, for start-ups and enterprises located in TDZ, below given incentives and supports are foreseen, which are not limited to but including;

  • Discounted rental fee support for startups in incubation centers,
  • Income and corporate tax exemptions for earnings: For taxpayers located in TDZs, earnings from software, design or R&D activities are exempted from income and corporate tax until 31.12.2028. 
  • Tax and duty exemptions for goods to be imported by start-ups and enterprises: Goods imported for use in research related to software, R&D, innovation and design projects are exempted from customs duty and all kinds of funds, stamp duty and fees. 
  • Employee income tax withholding exemption for start-ups and enterprises: The income tax calculated after applying the minimum living allowance on the wages of R&D, design and support personnel working in TDZs until 31.12.2028 will be deducted from the tax accrued on the withholding tax return to be submitted.
  • Supporting half of the employer’s share of the social security insurance premium: Half of the employer’s share of the insurance premium calculated over the wages obtained as a result of the activities carried out in relation to the existing employees within the TDZ will be covered from the Ministry of Finance appropriation.
  • Wage support for the employment of personnel with at least a bachelor’s degree: For companies employing R&D personnel with at least a bachelor’s degree, the portion of the monthly wage paid to each of these personnel equal to the monthly gross amount of the minimum wage applied for that year will be covered from the Ministry’s appropriation for 2 years. 
  • VAT exemption for software sales ???? Deliveries and services in the form of system and data management, business applications, sectoral, internet, gaming, and military command and control application software produced within TDZ are exempt from value added tax.
  • Labor support for foreign employees,
  • Supports to facilitate the investment process for technological products,
  •  

In order to benefit from these supports and incentives, the necessary conditions must be fully met, and the application process must be initiated and maintained in full by obtaining the necessary legal support.

IV. CONCLUSION 

Taxes, bureaucratic processes and capital deficiencies, which constitute a major problem for many start-ups and entrepreneurs and negatively affect the development of these investments by acting as a barrier to investment and technological product development, can be overcome through the support and incentives provided by KOSGEB, TÜBİTAK, relevant ministries and TDZs, and in this way, the problems of start-ups and entrepreneurs, especially in terms of capital, organization and personnel, are solved so that they can achieve their goals. By utilizing the support and incentives to be provided in this way, many sectors such as the logistics technology, health, retail and many other sectors, can be reached and the problems hindering the functioning of society and commercial life can be eliminated.

With Regards,

Kılınç Law & Consulting

Authors

Duygu Doğan Şahiner

Duygu Doğan Şahiner

Partner

Batu Uslu

Batu Uslu

Lawyer

Alptekin Dayı

Alptekin Dayı

Associate