Doing Bussiness in Turkey - MAZARS by MARLET CORPORATE PUBLICATIONS

DOING BUSINESS IN

TURKEY

A B U S I N E S S A N D TA X P RO F I L E O F T U R K E Y

A BUSINESS AND TAX PROFILE OF TURKEY

DOING BUSINESS IN TURKEY Enlarged and Revised Edition 2010

MAZARS İSTANBUL

PROKON

Address: Hürriyet Mh. Dr. Cemil Bengü Cad. Hak İş Merkezi No: 2 Kat 1-2 34403 Çağlayan-Kağıthane / İstanbul

Address: Fulya Mh. Mevlüt Pehlivan Sk. Gül Apt. No:21 D:2 Gayrettepe / İstanbul

Tel: (90) 212-296 51 00 Fax: (90) 212-296 51 44 E-mail: denge@mazarsdenge.com.tr Contact: Leon Aslan Coşkun (CEO)

Tel: (90) 212-347 06 47 Fax: (90) 212-275 94 28 E-mail: prokon@prokon-tr.com Contact: Virna Ender Levi Website: www.prokon-tr.com

MAZARS ANKARA

MAZARS BURSA

Address: Kızılırmak Mh. Muhsin Yazıcıoğlu Cad. 1451. Sk. Hayal Apt. No:4 D: 1-4 Çukurambar-Çankaya / Ankara

Address: Kükürtlü Mh. Manolya Sk. Aka Plaza No:1/1 D:7 Osmangazi / Bursa

Tel: (90) 312-284 01 02 Fax: (90) 312-284 67 00 E-mail:dengeankara@mazarsdenge.com.tr Contact: R. Uğur Kaylan

Tel: (90) 224-233 69 61 Fax: (90) 224-233 78 71 E-mail: dengebursa@mazarsdenge.com.tr Contact: Şevki Boran

This booklet has been prepared by Denge Denetim YMM A.S., Turkish member of Mazars, to provide foreign entrepreneurs and individuals with explanatory information about Turkey for only introduction purposes. The ideas and views suggested in this paper are subject to change in accordance with the legislation and administrative opinions that they are based on. In order to get definitive and exhaustive opinions, readers are strongly recommended to consult with professional advisers. This document has been revised and enlarged for 2010 Edition by The Tax Department of Mazars/Denge. It reflects current information as of September 1, 2010. The latest available version of this guide may be reached at our web site: www.mazars.com.tr If you would like further information on the topics covered in this guide, please do not hesitate to contact any of the following Mazars Offices in Turkey.

Contents : Mazars / Denge Tax Department Design & Print : Marlet Advertisement Studios / www.marlet.com.tr

CONTENTS 1. INTRODUCTION 1

1.1 Geography 1 1.2 Population 2 1.3 Language 2 1.4 Currency 2 1.5 The Political System 2 1.6 International Economic Relations 3 1.7 Economics and Business Climate 3 1.7.1 Privatization 4 1.7.2 Freedom of Investment 4 1.7.3 International Dispute Settlement 4 1.7.4 Recent Economics Indicators 4

2. LEGAL BUSINESS ENVIRONMENT 5

2.1 The Legal System 5 2.2 Foreign Direct Investment Law 5 2.3 Commercial Law and the New Draft Code 6 2.4 Accounting Principles 6 2.4.1 Ministry of Finance Regulations 6 2.4.2 Capital Market Board Regulations 7 2.4.3 Accounting Regulations Set By Other Authorities 7 2.4.4 The IFRS 7 2.5 Social Security System 8 2.5.1 Social Security and General Health Insurance 8 2.5.2 Social Security Premiums 8 2.5.3 Social Security Support Premium 9 2.5.4 Unemployment Insurance Premium 9 2.5.5 Social Security Incentives 9 2.5.5.1 5% Social Security Premium Support Where No Premium Debts Exist 9 2.5.5.2 Social Security Premium Support That Shall Be Made For The Hiring Of Additional Employees Until 31.12.2010 9 2.5.5.3 Supporting Of Research and Development Operations 9 2.5.5.4 Social Security Premium Support That Shall Be Made For The Hiring Of Unemployed Persons 9 2.5.5.5 Social Security Premium Support That Shall Be Made For The Hiring Of Handicapped Persons 10 2.5.5.6 Social Security Premium Support As Part Of Investment Incentives 10 2.6 Labor Law 10 2.6.1 Employment Contracts 10 2.6.1.1 Working hours 10 2.6.1.2 The Minimum Wage 10 2.6.1.3 Annual Vacation 10 2.6.2 Notification Period 11 2.6.3 Service and Retirement Indemnity 11 2.7 Employment of Foreign Personnel 11 2.7.1 Residence Permit 11 2.7.2 Work Permit 11 2.8 Property and Land Registry Law 12 2.8.1 Real Estate Acquisition of Foreign Real Persons 12 Doing Business In Turkey by Mazars / Denge

2.8.2 Real Estate Acquisition of Foreign Companies 12 2.9 Competition Law 13 2.10 Regulations Made To The Turkish Citizenship Law 13 2.11 Electronical Notifications 13

3. BASIC BUSINESS STRUCTURES 14

3.1 Companies 14 3.1.1 Formation Procedures 14 3.1.2 Company Organization 15 3.1.2.1 Board of Directors 15 3.1.2.2 Tax Liability of Directors and Managers 15 3.1.2.3 Legal Auditor 16 3.1.2.4 General Assembly 16 3.1.3 Legal Reserves 16 3.1.4 Loss of Share Capital (Technical Bankruptcy) 16 3.2 Branches 16 3.3 Liaison Offices 16 3.4 Joint Ventures 17

4. GRANTS AND INCENTIVES 18

4.1 Tax Incentive on R&D Expenditures 18 4.2 Free-Trade Zones 18 4.3 Techno parks 18 4.4 Incentives Increasing Investment and Employment 19 4.5 KOSGEB Supports Available for SMEs 20

5. TAXATION OF BUSINESS OPERATIONS 21

5.1 Principal Taxes 21 5.2 Taxpayers 21 5.3 Taxable Period and Tax Declarations 21 5.3.1 Income and Corporate Tax Declarations 21 5.3.1.1 Regular Taxable Period 21 5.3.1.2 Special Taxation Regime for Specific Construction Works 22 5.3.2 VAT and Withholding Tax Declarations 22 5.4 Corporate Tax 22 5.4.1 Tax Liability 22 5.4.2 Tax Rate 23 5.4.2.1 Corporate Tax Rate 23 5.4.2.2 Withholding Tax Rates For Limited Liability 23 5.4.3 Exemptions 23 5.4.4 Deductions 24 5.4.5 Disallowable Expenses 24 5.4.6 Depreciation Methods 25 5.4.7 Carry-forward Losses 25 5.4.8 Taxation of Non Resident Entities 25 5.4.9 Significant Corporate Taxation Issues 26 5.4.9.1 Controlled Foreign Company (CFC) Regulations 26 5.4.9.2 Special Taxation Method for Foreign Transportation Companies 26 5.4.9.3 Thin Capitalization 27 5.4.9.4 Transfer Pricing 27 5.4.9.5 Precautionary Tax-Heaven Measure 28

Doing Business In Turkey by Mazars / Denge

5.4.9.6 Merger, Demerger, Spin-Off, Share Swap 28 5.4.9.6.1 Merger 28 5.4.9.6.2 Demerger 29 5.4.9.6.3 Share Swap 29 5.5 Individual Income Tax 30 5.5.1 Tax Liability 30 5.5.2 Tax Rate 30 5.5.3 Deductions 31 5.5.4 Exemptions 31 5.5.4.1 On Dividends 32 5.5.4.2 On Wages 32 5.5.4.3 On Rents 32 5.5.5 New Tax Regulation on Securities Income 32 5.6 Value Added Tax (VAT) 33 5.6.1 Tax Liability 33 5.6.1.1 VAT Credit Mechanism 33 5.6.1.2 VAT Responsibility 33 5.6.1.3 VAT Refund 34 5.6.2 Tax Rates 34 5.6.3 Exemptions 34 5.7 Other Taxes 35 5.7.1 Stamp Tax 35 5.7.2 Banking and Insurance Transaction Tax 35 5.7.3 Special Consumption Tax 36 5.7.4 Property Tax 36 5.7.5 Inheritance and Gift Tax 37 5.7.6 Resource Utilization Support Fund (KKDF) 37

6. SAMPLE CORPORATE TAX CALCULATION 38 Appendix Appendix Appendix Appendix Appendix Appendix Appendix

1: 2: 3: 4-a: 4-b: 5-a: 5-b:

Tax Treaties 39 Bilateral Social Security Agreements 43 Free Trade Zones and Techno parks 44 Regions of Investment Incentive Executions 45 Large Scale Investments 46 Withholding Tax Rates (Corporations) 47 Withholding Tax Rates (Individuals) 48

7. ABOUT MAZARS 49

7.1 MAZARS TURKEY 49 7.2 MAZARS WORLDWIDE 49 7.3 RANGE OF SERVICES 50

Doing Business In Turkey by Mazars / Denge

III

1. INTRODUCTION KARADENİZ

EGE DENİZİ AKDENİZ

1.1 Geography

Situated in one of most historical and strategically important areas in the world, Turkey is a country of great contrasts and vast potential. Straddling the continents of Europe and Asia, it is a gateway to the CIS countries and at the same time a big market in itself. With an area of 779,452 square kilometers, 90% of the Turkish landmass is in Asia, separated from the European part by the Bosphorus, the Sea of Marmara and the Dardanelles. Two bridges join the continents across the Bosphorus. Turkey has a long coastline, bounded on the north by the Black Sea, on the west by the Aegean, and on the south by the Mediterranean. It has land borders in the west with Greece and Bulgaria, in the east with countries of the former Soviet Union (Georgia, Armenia and Azerbaijan) and Iran, and in the southeast with Syria and Iraq.

Doing Business In Turkey by Mazars / Denge

1.2 Population According to the last 2009 census, the population of Turkey was 72.5 million. In the year 2009, nearly 48 % of the inhabitants lived in one of the ten largest urban areas.

Major Cities Istanbul Ankara Izmir Bursa Adana Konya Antalya Icel (Mersin) Gaziantep SanlÄąurfa

Population in 2009 12,561,312 4,650,802 3,868,308 2,550,645 2,062,226 1,992,675 1,919,729 1,640,888 1,653,670 1,613,737

Source: Turkish Statistical Institute

1.3 Language The language of Turkey is Turkish, which since the 1920â&#x20AC;&#x2122;s has been written using the Latin alphabet. The Turkish spoken in Turkey is one of the families of dialects spoken across Asia in the Turkish republics of the former Soviet Union and in the west of China.

1.4 Currency The currency unit of the Republic of Turkey is Turkish Lira. The hundredth part of Turkish Lira is Kurus. One Turkish Lira (TL) is equivalent to One Hundred Kurus (Kr). The value of TL against the major foreign currencies is fluctuating depending upon the stability of the economy. As of this text was edited on September 1, 2010, 1 TL was equal to: 0.518 Euros 0.657 US Dollars 0.426 GB Pounds 0.671 Swiss Francs 55.57 Japan Yens

1.5 The Political System Turkey is a republic in which, power is divided between the legislature, the executive and the judiciary. Under the 1982 constitution the Turkish parliament (TBMM) is the sole legislative body, exercising supreme power. Executive power is exercised by the President and the Council of Ministers, in accordance with the constitution and the law. The Judiciary operates independently on behalf of the state.

Doing Business In Turkey by Mazars / Denge

The parliament (TBMM) consists of 550 deputies who are directly elected by universal adult suffrage. Elections take place every four years or less at the discretion of the government. The Council of Ministers (the cabinet) is headed by the Prime Minister and is responsible to Parliament. After an election the President invites the leader of the largest party to form a government. If successful, he or she is then appointed Prime Minister and nominates ministers who are in turn approved by the President.In the past, the president is elected by the members of parliament. As from now, the president will be elected by public body’s voting for a period of five years.On that score it has been expected related bill is going to passed by parliament in the near future.

1.6 International Economic Relations Turkey has been a member of ☼☼ ☼☼ ☼☼ ☼☼ ☼☼

the the the the the

UN since 1946, Council of Europe since 1949, GATT since 1951 (from GATT to the WTO in 1995), NATO since 1952 and OECD since 1961.

In addition Turkey has bilateral agreements on preferential free trade, on the promotion and protection of investments, on the prevention double taxation between the countries (see Appendix 1) and on social security (see Appendix 2). Relations between the European Community (EC) and Turkey began on December 1st 1964 with the Ankara agreement. A “Joint Protocol” detailing the stages, by which Turkey would gain integration with the EC, came into effect on January 1st 1973. Turkey applied for full membership of the EC on April 1st 1987 and designated as a candidate in 1999. On January 1, 1996, Turkey joined to the Customs Union with the European Union (EU). In its Communication of December 2004 the European Commission finds that Turkey sufficiently fulfils the Copenhagen political criteria and recommends opening accession negotiations with Turkey. It does however set certain conditions for opening negotiations. The European Council decided that the European Union would open accession negotiations with Turkey on 3 October 2005. The negotiations will be based on the principles proposed by the Commission in its recommendation of December 2004.

1.7 Economics and Business Climate Prior to the 1980’s the Turkish economy was dominated by “State Economic Enterprises” -SEESand “Public Economic Enterprises” - PEES. The majority of the economy was state controlled, either directly or indirectly. The private sector was relatively small. During the 1980’s the economy underwent a rapid transition. Whereas before it had been a closed economy and was mainly concerned with gradual industrialization, it became far more outward looking and export oriented. Rapid economic expansion led to reduced reliance on agriculture and a switch to manufacturing industry, construction and service industries - in particular tourism and transportation.

Doing Business In Turkey by Mazars / Denge

1.7.1 Privatization In 1986 the government started a program of privatization of SEES in order to relieve the budget deficit, encourage modernization through the implementation of modern management techniques and promote the wider ownership of shares. The Privatization Law No. 4046 took effect in 1994 was aiming at taking into consideration the recommendations of political parties and trade unions. In line with the Law, the Privatization High Council and the Privatization Administration are responsible for carrying out privatization.

1.7.2 Freedom of Investment Foreign investors can freely make direct foreign investments in Turkey unless stipulated otherwise by international treaties and specific law provisions. Foreign investors are treated the same as domestic investors. The new basic principles concerning Foreign Direct Investments are stated in the Foreign Direct Investments Law No. 4875, and related regulations. With the new Law dated 2003, instead of the “permit system”, an “information-based system” has been adopted for statistical purposes only. For further information please visit: www.invest.gov.tr

1.7.3 International Dispute Settlement Disputes arising out of investment contracts under private law and investment disputes arising out of public contracts signed between the foreign investor and the Government can be referred to competent local courts as well as, depending on whether or not the conditions in the legislation are satisfied and the parties so agreed, can be referred to national or international arbitration or other dispute settlement procedures.

1.7.4 Recent Economics Indicators A worthwhile development with the Turkish economy in recent years was the decline in inflation from 70 percent levels on average in the last decade to single digits. This performance has been accomplished with continuous growth in GDP and with the effect of the record level of global energy prices. Annual inflation was realized as 6.53 percent in CPI and 5.93 percent in PPI in 2009. Foreign direct investment inflows, which was averaged around 1 billion dollars in the past, increased to 20.2 billion dollars in 2006, to 22.05 billion dollars in 2007 and to 18.19 billion dollars in 2008 due to acquisitions in private sector, progress in privatization and acceleration in investments. This trend is expected to continue in coming years as Turkey promotes the efforts on improving investment environment and makes headway in EU accession.

Doing Business In Turkey by Mazars / Denge

2. LEGAL BUSINESS ENVIRONMENT 2.1 The Legal System The legal system in Turkey is divided into three departments: criminal law, civil law and administrative law - the last of which deals with disputes between individuals, companies etc. and the offices of the state i.e.; the government, the local councils, and tax and customs authorities. The highest court in the legal system is the Constitutional Court which works to ensure the continued functioning of the democratic system and to safeguard against abuses of power. The Court of Appeal is the court for reviewing the decisions and judgments pronounced by Courts of Justice. Decisions of the Commercial Courts are resolved in the Court of Appeal. The Council of State Court is the highest judicial body in tax litigations and administrative disputes. It is the last place of review for decisions and judgments given by the Administrative Courts and Tax Courts. It oversees the interpretation of the law by the other Administrative Courts.

2.2 Foreign Direct Investment Law According to “Direct Foreign Investment Law” published on 17.06.2003 various permissions and related procedures obstructing foreign investment have been abolished. Currently, there is no need to obtain permission for investments. The new Law guarantees national treatment and comprehensive investor rights. All companies established with a foreign capital contribution and under the rules of the Turkish Commercial Code (existing and newly established foreign companies) are regarded as a Turkish company. Therefore equal treatment both in rights and responsibilities as stated in the Constitution and other laws is applicable to all such companies (including national treatment, a guarantee against expropriation without compensation, ability to own real estate, transfer of proceeds, expatriation of personnel and international arbitration or any other means of dispute settlement). Accordingly, foreign investors are welcomed to operate in Turkey as follows: ☼☼ ☼☼ ☼☼ ☼☼ ☼☼ ☼☼

Industrial investments Portfolio investments Subsidiary placement Liaison offices License, know-how, technical assistance and management agreements International loan agreements

For further information, please visit: www.treasury.gov.tr

Doing Business In Turkey by Mazars / Denge

2.3 Commercial Law and the New Draft Code The Turkish Commercial Code (TCC) is the main legislation regulating business environment. Containing almost 1,500 articles, the Code determines the types, establishment and management of legal entities, describes the commercial papers and securities, and regulates maritime and insurance business. Some of its articles related to business establishment will be explained briefly on the next chapter titled as “Basic Business Structures”. The TCC was adopted in 1956, inspired by Swiss and German commercial law. Although it contained the most contemporary codes of its age, the need for harmonization of the EU laws, and its inadequacy for today’s disputes, forced the lawmakers to prepare a new draft code of TCC. By targeting to adjust the legislation to the recent changes in the local and global business environment as well as including the EU legislation, the draft of the new TCC was introduced to the public opinion earlier in 2005. It is now on the legislative agenda. The draft brings new regulations on contemporary issues such as principles of corporate governance, preventing unfair competition, regulating multi-company groups, consumer rights, transactions made by electronically, etc. Above all, adopting a revolutionary approach, the new draft is introducing two new compulsory requirements for capital companies (i.e. joint stock –A.S.- companies, and limited liability –LTD- companies): ☼☼ Appointment of professional accountants as statutory legal auditors ☼☼ Adopting IFRS based Turkish Accounting Standards as statutory bookkeeping standards. The new draft actually is an effort for an overall change. It should be expected that some of the proposed items will be revisited or postponed in the legislative process; however there is no doubt that it will help to develop an investor-friendly business environment in Turkey.

2.4 Accounting Principles Turkish Commercial Law does not specify the generally accepted accounting principles and so practical application is in accordance with the tax law.

2.4.1 Ministry of Finance Regulations The Ministry of Finance has issued a Communiqué about the standardization of financial statements and charts of accounts. The Companies have to apply the Standard Chart of Accounts and prepare the financial statements as described in this communiqué. Valuation standards, depreciation methods and other commonly used accounting policies are determined by the Tax Procedural Law. According to the Law, accounting books must be kept in Turkish language and Turkish currency terms. However, with recent amendments to the Law, keeping the books in foreign currencies has been allowed under certain conditions. The permission may be given by the Council of Ministers to the companies of which paid capital exceeds 100 millions USD or its equivalent, and at least 40% of shares belong to non-residents. In recent years the chartered accountants (called Sworn Financial Advisers) have assumed some audit responsibilities relating to the Turkish tax laws and regulations, as a result of which they

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submit certification reports to the Ministry of Finance. The major one is called full tax certification. This work consists of auditing and certification of the financial statements and the corporate tax return of the company.

2.4.2 Capital Market Board Regulations SPK has issued “The Communiqué Regarding Accounting Standards in Capital Market” (the Serial number: XI-29) in April 9, 2008 which has become effective for the first interim financial statements of the period ending after the date of January 1, 2008. In respect to this Communiqué, all listed companies are obliged to apply the International Financial Reporting Standards’ version of which was accepted by European Union. Capital market companies whose shares or bonds are quoted on the stock exchange are required to publish yearly audited financial statements and also half year financial statements subject to limited review. There are no restrictions on foreign portfolio investors trading in the Turkish capital markets. Decree No. 32 passed in August 1989, removes all restrictions on overseas institutional and individual investment in securities. Real persons and legal entities residing abroad (including investment trusts and investment funds abroad) can freely purchase and sell all sorts of securities and other capital market instruments. A foreign institutional or individual investor should use a Turkish intermediary institution for securities activities. (Such as, buying and selling securities, repo, reverse repo, portfolio management, investment consultancy, underwriting, margin trading, securities lending etc.) Also a foreign investor can hedge currency risk by trading at ISE Derivative Market.

2.4.3 Accounting Regulations Set By Other Authorities Insurance and reinsurance companies are obliged to keep their books in line with the standard chart of accounts issued by the Treasury. Banks and similar financial institutions are obliged to comply with the standards and the uniform chart of accounts set by the Banking Regulation and Supervision Board.

2.4.4 The IFRS Currently, voluntary IFRS audits and compilation studies are requested usually by multinational companies and also by some Turkish companies for control, consolidation or credibility purposes. Turkish Accounting Standards Board has been active since 2002. The aim of the Board is to produce nationwide accounting and reporting standards by making official interpretations of the International Financial Reporting Standards (the IFRS). Currently the Board has released more than 40 standards. The newly proposed Turkish Commercial Code, which is entirely drafted and waiting in the legislative process, is expected to oblige all Turkish companies to maintain the statutory books in line with the IFRS. The draft code proposes to make the standards released by Turkish Accounting Standards Board compulsory for all Turkish enterprises.

Doing Business In Turkey by Mazars / Denge

2.5 Social Security System The three laws governing social security in Turkey ☼☼ Social Security Statute covers public and private sector workers, employed by one or more employer. ☼☼ Pension Fund Statute relates to the social security arrangements of the public sector officials. ☼☼ Self employer (Bağ-Kur) Statute governs the social security provisions for the self employed. Had been consolidated into a single combined system, a new Law, titled as Social Security and General Health Insurance Law and released on July 01, 2008. And most of the articles have been effective from October 01, 2008.

2.5.1 Social Security and General Health Insurance Public and private sector employees and self-employed persons are covered by the Social Security and General Health Insurance Law. The coverage of such security includes illness, maternity, disability, old-age, death & job accidents and diseases. Citizens of countries that have signed social security agreements with Turkey are exempt from the provisions of the Law, provided that there is full compliance with the conditions of the treaty for the countries having bilateral agreements with Turkey (see Appendix 2).

2.5.2 Social Security Premiums The social security premiums (paid by employers and personnel to the Social Security Institution) are calculated over the gross salary with a ceiling (an upper limit) determined in the Law. As of the year 2010, the ceiling amount for the monthly salary is TL 4,738.50 for the first half of the year and 4,943.25 for the second half of the year. The ceiling is subject to semi-annual adjustment. In case gross salary exceeds this ceiling, the premiums are calculated up to the ceiling. If there are secondary benefits paid, the amount exceeding the ceiling is to be added to the following two months’ salary amounts for comparison with the ceiling. Social security premium rates for employers and employees are as the following beginning from October 01, 2008.

Insurance Branches Long-term branches Short-term branches General health insurance Total social security premiums

Employee’s Share 9% 5% 14%

Employer’s Share 11% 1% 7.5% 19.5%

Total 20% 1% 12.5% 33.5%

Long-term insurance branches cover disability, old-age and death insurances. Professional disease and work accident insurances fall into the scope of short-term branches. Please note that employer’s share for short-term branches may vary between 1% and 6,5% depending upon the class risks of the work place for occupational hazards. 8

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Hence, total premium may increase from 33.5% to 39% for specific job categories.

2.5.3 Social Security Support Premium In the event of employment of a retired person, who is receiving pension payment from the system, social security support premiums must be paid to the Institution (The rate is %30). Please note that employer’s share for short-term branches may vary between 1% and 6.5% depending upon the class risks of the work place for occupational hazards.

2.5.4 Unemployment Insurance Premium It is furthermore necessary to pay an unemployment insurance premium of 3% (1% worker’s share, 2% employer’s share) on the social security base of normal wage earners.

2.5.5 Social Security Incentives 2.5.5.1 5% Social Security Premium Support Where No Premium Debts Exist Further to Article No 81/i of Law No 5510 dated May 31, 2006 about Social Security and General Health Insurance’s amended with Article No 24 of Law No 5763 dated May 15, 2008; Social Security Institution (SGK) has put into effect the regulation that contemplates for a five point reduction from the portion of disabled, old age and death insurance premium rates that belong to the employer’s share to relieve the burden on employment as of 01 October 2008. Only employers who do not have any payable insurance premiums, unemployment insurance premiums, administrative monetary fines that are not fixed and should be immediately paid and related default fines or interest debts may benefit from this regulation.

2.5.5.2 Social Security Premium Support That Shall Be Made For The Hiring Of Additional Employees Until 31.12.2010 Within the meaning of the Law No. 4447 (changed with Law No.5921 and Law No.5951), social security premiums of newly hired personnel who are hired in accordance with provisional Article 9 of Unemployment Insurance Law No. 4447 will be covered by the Unemployment Insurance Fund for a period of six months until 31.12.2010. This regulation relieves employers of their new employment load for a period of six months.

2.5.5.3 Supporting Of Research and Development Operations Within the meaning of the Law No: 5746, half of the social security premium employer’s share of researchers, technicians, directors, laborants, workers, technical and support employees in assigned at technology centers and Tubitak projects is paid by Ministry of Finance for each employee during five years.

2.5.5.4 Social Security Premium Support That Shall Be Made For The Hiring Of Unemployed Persons Within the meaning of the Law No. 4447 (changed with Law No.5921), social security premiums of newly hired personnel who are hired after 01.10.2009 and in accordance with Article 50 of Unemployment Insurance Law No. 4447 will be covered by the Unemployment Insurance Fund for a period of unemployment relief. Doing Business In Turkey by Mazars / Denge

2.5.5.5 Social Security Premium Support That Shall Be Made For The Hiring Of Handicapped Persons Within the meaning of the Law No. 4857 (changed with Law No.5763), social security premiums of newly hired personnel who are hired after 01.07.2008 and in accordance with Article 30 of Labour Law No. 4857 will be covered by the Treasury.

2.5.5.6 Social Security Premium Support As Part Of Investment Incentives These incentives are arranged in Investment Incentives Law No 5084 (changed with Law No.5838 and Law No.5951) and Cabinet Decision on State Aid to Investments No. 2009/15199.

2.6 Labor Law 2.6.1 Employment Contracts The Labor Law (Statute No. 4857) governs relations between the employers and employees who work in accordance with an employment contract. An employment contract may be for a specific period of time or an indefinite period.

2.6.1.1 Working hours The official working time in Turkey is 45 hours per week. Upon the agreement of parties, the total working time can be allocated in different combinations to the working days, provided that the working hours shall not exceed 11 hours a day. Upon 45 hours per week is the overtime. Overtime may not exceed 270 hours per year. Usual overtime rates involve a 50% daytime premium on weekdays and Saturdays and 100% on Sundays and public holidays.

2.6.1.2 The Minimum Wage The Committee of Minimum Wages sets the minimum gross wages annually. For the period of first six-month of 2010, the minimum monthly gross wage is TL 729.00. For the second half of the year the amount will be TL 760.50.

2.6.1.3 Annual Vacation After one year of employment, employees are entitled to a paid annual vacation. The periods of paid annual vacation (incl. working days and Saturdays) are as follows:

Length of Employment 1-5 years 5-15 years 15 and over

Paid Annual Vacation 14 days 20 days 26 days

Doing Business In Turkey by Mazars / Denge

2.6.2 Notification Period If either party wishes to terminate the employment contract, the other party must be given advance notice. The notice periods are as follows.

Length of Employment Less than 6 months 6-18 months 18-36 months More than 36 months

Notice Period 2 4 6 8

weeks weeks weeks weeks

2.6.3 Service and Retirement Indemnity When an employment contract is terminated, an employee is entitled to a service and retirement indemnity in condition of being employed for more than a year. This indemnity is equivalent to 30 days pay for each full year of service starting from the date of employment. The amount of a service award is the latest gross salary including fringe benefits and other premiums and bonuses. The government fixes a ceiling, which is periodically adjusted, on the service award calculation base. If the gross salary exceeds this ceiling, the service award is calculated up to the ceiling. For 2010, the ceiling amount is TL 2,427.04 for the first half of the year and TL 2,517.01 for the second half of the year.

2.7 Employment of Foreign Personnel The employment of foreign personnel is possible in Turkey. However, there are some limitations on several job categories for employing foreigners (e.g. doctors, dentists, pharmacists, notaries, certified public accountants, attorneys, private security officers, responsible managers of periodicals). Expatriates need a work permit and a residence permit along with a working visa in order to be employed in Turkey.

2.7.1 Residence Permit A foreigner living in Turkey requires a residence permit from the authorities in his place of residence. This permit will only be granted if the foreigner can demonstrate his ability to support himself financially. If this support is resulted from a job to be acquired in Turkey, then s/he needs to get a work permit. Residence permit is obtained from the Ministry of Internal Affairs.

2.7.2 Work Permit In order to work in Turkey, foreigners must obtain a work permit from the Ministry of Labor and Social Security. Foreign employees having residence permits with validity of at least 6 months (which did not expired yet) can apply within Turkey. Applications regarding the working permits are done by the local employer directly to the Ministry in Ankara. As of August 2, 2010; all of applications must be submitted on the web address of the Ministry Of Labor And Social Security which shown below. Doing Business In Turkey by Mazars / Denge

Foreigners who do not have a valid residence permit (usually for the first time applications) should apply to the Turkish Consulate in their mother country or the country where they reside. In such a case, documents requested during the application shall be presented to the Ministry by the Employer of that foreign employee within 3 working days from the date of application of the employee to the Turkish Consulate. Foreigners could obtain preliminary work permit until their academic and professional qualification procedures completed (maximum one year) by Law No.5951 dated February 05, 2010. Furthermore, permission applications will be concluded within 30 days. Foreign individuals under the employment of the parent company and who do not draw a salary from the Turkish company do not require work or residence permits when temporarily visiting Turkey for the purpose of negotiating joint investment agreements or in assisting the commencement of operations for particular projects. In this situation “temporarily” means less than 183 days per calendar year. Further information on the web is provided by the Ministry of Labor and Social Security. www.yabancicalismaizni.gov.tr

2.8 Property and Land Registry Law Real estate acquisition of foreigners is regulated by Land Registry Law (Law No.2644 amended with the Law No.5444). Some restrictions are valid for foreign real persons and the companies having their legal personalities established in foreign countries according to the laws of those countries. Real persons can acquire real estates in line with the reciprocity principles, but foreign companies can have real estates only under some specific laws. Therefore, the subject has been analyzed by dividing into two categories, as regarding foreign real persons, and foreign companies, below.

2.8.1 Real Estate Acquisition of Foreign Real Persons As it is stated in the Article 35 of the Land Registry Law, foreign real persons can acquire specified real estates; ☼☼ with the reservations of reciprocity and ☼☼ compliance with the legal restrictions. In implementation of the reciprocity principle, it is stipulated that in addition to legislative regulation of reciprocity principle, practical applicability of it is also required for its existence. In other words, for the existence of reciprocity between Turkey and a foreign country about real estate acquisition, reciprocity must be both in law and in practice.

2.8.2 Real Estate Acquisition of Foreign Companies Foreign companies with their legal head outside Turkey can acquire real estates and limited real rights on real estates in Turkey according to the provisions of special laws. Relevant special laws are: ☼☼ Tourism Encouragement Law numbered 2634 ☼☼ Petroleum Law numbered 6326 ☼☼ Industrial Regions Law numbered 4737 12

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Please note that further information is available on the web: www.tkgm.gov.tr

2.9 Competition Law The Law No. 4054 titled as Protection of Competition has been effective since 1994. Competition policy focuses on three main areas of intervention directed at the realization of all these objectives: ☼☼ Prevention of agreements restricting competition and abuse of dominant position, ☼☼ Control of mergers and acquisitions, prevention of attempts for mergers and acquisitions which would create a dominant position in the market and adversely affect competition, ☼☼ Monitoring of state aids, prohibition of state aids contrary to efficiency and competition. Mergers and acquisitions which create a dominant position or strengthen an existing dominant position as a result of which effective competition shall be significantly impeded in the country or in a part of it, shall be considered contrary to the Law and not be permitted. According to the Communiqué No: 1997/1 issued by the Competition Board, in case the total market share of the undertakings that carry out the merger or acquisition exceeds 25 % of the market in the relevant product market within the whole or a part of the territory, or even though it does not exceed this rate, their total turnover exceeds TL 25,000,000, it is compulsory for them to take the authorization of the Competition Board. If the parties fail to give required notifications of merger and acquisitions agreements to the Board within the required period, high amount of penalties are applied to the relevant legal and real persons. Further information is available on the web: www.rekabet.gov.tr

2.10 Regulations Made To The Turkish Citizenship Law Law No. 5901 on Turkish Citizenship that allows foreign nationals who invest in industrial facilities in Turkey to acquire Turkish Citizenship has been promulgated. Pursuant to “Law No. 5901 on Turkish Citizenship” published in the Official Gazette dated 12.06.2009 and numbered 27256, foreign nationals are granted the opportunity to acquire Turkish Citizenship upon satisfaction of certain conditions and approval of the relevant Ministry.

2.11 Electronical Notifications Within the meaning of the Law No: 6009, it has given authority to Ministry of Finance to serve notifications by e-mail, In this context, coming into effect of necessary legal regulations are expected.

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3. BASIC BUSINESS STRUCTURES All Turkish legal entities are defined in the Turkish Commercial Code, the authoritative source for all Turkish Companies as well as the commercial law. Businesses may be carried out in Turkey in a variety of forms. These include; ☼☼ ☼☼ ☼☼ ☼☼ ☼☼

Companies: The Joint Stock Company (A.S.) and the Limited Liability Company (LTD) Branches Joint Ventures Liaison Offices Free Trade Zone Companies/Branches

Although the foreign investor is free to choose from these forms of businesses, in practice the A.S. or LTD. are preferred. (In case the business is for a long term period.) Joint ventures are possible only for specific contracts. Liaison offices are acceptable, provided that they do not engage in commercial activity. It is not possible for a non-resident foreigner to establish a sole proprietorship in Turkey. Resident foreigners may, under certain circumstances, receive permission to do this. FTZ are mostly used for companies having export activities. 3.1

Companies

The joint stock company (Anonim Sirket or “A.S.”) and the limited liability company (Limited Sirket or “LTD”) are the main types of the privately owned commercial corporations under Turkish law. An “A.S.” is a corporation where the capital is split up into shares and the liability of the shareholders is limited to the nominal value of the shares. An “A.S.” must have at least 5 (five) shareholders and a minimum capital of TL 50.000. A limited liability company (LTD) differs from an “A.S.” in that it should have from 2 (two) to 50 (fifty) shareholders and a minimum capital of TL 5.000. The share certificates of the “LTD” are not issued. In light of the Foreign Direct Investment Law, foreign real and legal persons can be founders of companies in Turkey.

3.1.1 Formation Procedures For foreign investors, there is no special permission to be obtained for company foundations. Foreign investors are treated equally as the local ones. The routine procedure for company establishment is as follows: ☼☼ The articles of association of the Turkish entity will be prepared in Turkish. ☼☼ The articles of association must be signed by the shareholders or their proxies before a public notary. ☼☼ 4/10.000 of the registered capital is deposited to a bank to the account of the 14

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Competition Board. ☼☼ The accounting books of the new entity should be bought and approved by a public notary. ☼☼ The documents are presented afterwards to the Trade Registration Office and the Chamber of Trade in the region where the activity is deployed. ☼☼ A Circular of Signatures which shows the authorized signatories and their authorization levels will be prepared and approved by a public notary based on the articles of association of the company. ☼☼ An opening check shall be done by the tax office at the registered address of the company and a tax number is issued to the new entity.

3.1.2 Company Organization 3.1.2.1 Board of Directors The legal representative and the management organ of the “A.S.” is the board of directors consisting of at least three members. The directors do not have to be Turkish citizens or be resident in Turkey. An “A.S:” is managed by its board of directors. The directors must be appointed from among shareholders at the general assembly meeting of the company. Legal entities may appoint realperson representatives to act as Board members. The members of the board of directors shall serve for at most 3 (three) financial years. The board’s duties include drawing up the annual financial statements, reporting of the business to the shareholders and calling shareholders to meetings. The board of directors may delegate its powers and duties to member(s) to be nominated among members or to manager(s) which are not required to be a shareholder. In this context, “managers” are the managerial employees or officers with signatory authority granted by the Board. On the other hand, an “LTD” does not have board. As a rule, the company managed and represented by all partners. With a partners’ resolution, the partners shall appoint manager(s) from among themselves as well as from third parties.

3.1.2.2 Tax Liability of Directors and Managers In accordance with the tax laws, tax liabilities of a company belong to the company. However, in case a company fails to pay its taxes the Tax Procedural Law and Public Receivables Collection Law held the directors and managers responsible for payment of the taxes, default payment charges, and penalties. If an “LTD” fails to pay its taxes, the shareholders shall be liable to pay these taxes proportionally by their capital contributions. The same rules are applicable in case of a company’s failure to pay the social security premiums.

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3.1.2.3 Legal Auditor “LTD” companies with more than twenty shareholders and “A.S.” companies must appoint at least one statutory auditor. This individual is charged with reviewing the statutory financial statements of the Company to ensure that they comply with the law and with the articles of association.

3.1.2.4 General Assembly The general assembly meeting must be held within three months after the end of the financial year. The financial year is from January 1 to December 31. The directors and the legal auditor(s) are appointed by the shareholders in the general assembly meeting.

3.1.3 Legal Reserves Turkish Commercial Code requires companies (excluding branches) to set statutory reserves aside out of their profits. In every profitable year, A.S and LTD companies must add 5% of their profits to the first level legal reserves. When the reserve reached 20% of paid capital, the requirement is over. The second level legal reserves are mandatory in case the profits are distributed to the shareholders of the company. The reserve amount is roughly calculated as 1/11 of the distributable profit.

3.1.4 Loss of Share Capital (Technical Bankruptcy) If the company loses more than two-thirds of its share capital, the Turkish Commercial Code requires the board of directors to announce an extraordinary general assembly. The shareholders are able to decide either to increase the share capital or to continue its operations in order to become profitable. 3.2

Branches

There is not any minimum capital required to open branches. A branch has not a legal personality and has no formal management structure apart from a branch manager. In order to open a branch of a foreign entity in Turkey, the permission should be obtained from the Ministry of Industry and Trade. The branch manager to be appointed is required to be either resident in Turkey or having a valid residence permit. The Ministry has some special requirements for the proxy to be given to the branch manager as well. After getting the permission for the establishment of the branch, the branch will be registered to the Trade Registry Office and to the tax office. 3.3

Liaison Offices

Foreign entities may establish a non-trading, unincorporated liaison office under the framework decree on the basis of a permit from the FID. Liaison Offices may not trade in their own names or on their own account. If they do, the manager will become liable for heavy penalties. It must keep records of all expenditure and income which should be available for inspection by

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the authorities of the Ministry of Finance. Liaison offices shall regularly report their activities to the Foreign Investment Directorate of the Treasury. 3.4

Joint Ventures

The concept of joint ventures is a formation including foreign partners established for the completion of a specific contract. In recent years the government and municipalities have engaged foreign contractors for specific projects.

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4. GRANTS AND INCENTIVES Incentives are equally available for both domestic and foreign investors. The incentives available for investors are presented below. Other tax incentives, which are designed as tax exemptions, are explained in next chapter titled as Taxation of Business Operations.

4.1 Tax Incentive on R&D Expenditures Both corporate and individual income taxpayers are allowed 100 % of their enterprises’ research and development expenditures to deduct from their taxable income on their annual tax returns. The amount must be spent solely for searching for a new technology and information.Beside of that, income tax and social security premium support for assigned personnel at r&d centers and r&d projects, stamp duty exemption and other grants are given by the state.

4.2 Free-Trade Zones The areas within the free zone boundaries are treated as extraterritorial for customs duties purposes (See Appendix 3 for a list of FTZ). The zones were primarily designed to encourage trade to and from Turkey and to encourage foreign investment which is not primarily directed at the Turkish market. However, with the arrangements made in 2004 and 2008, under current situation, the Free Zones are expected especially to perform activities related to production. Although the permits that have been granted to companies already existing in the free zones, are still valid, companies that are willing to operate in free zones are obliged from now on the make production investments. 4.3 Techno parks Technology development zones (Techno parks) have been founded in order to produce technological information to make innovations in products and production techniques, to support technology intense productions, to support entrepreneurship and to provide technological basis that will enhance foreign investment flow to Turkey (See Appendix 3 for a list of Techno parks). The techno parks that have been organized like Free Zones under the Technology Development Zones Law (No.4691) are indicated in Appendix 3. The number of these techno parks is expected to increase in the future. Tax and similar advantages in the zones are as follows: • • • •

Income and corporate tax payers operating in techno parks are tax exempt from income derived from R & D and software production until 31.12.2013. The salaries of personnel are tax exempted until 31.12.2013. Software sales are VAT exempted. As of 1 April 2008, a new incentive was put into effect. According to this incentive, the half of employer’s share of the social security contribution for the salaries which are exempted from income tax because of above mentioned exemption are covered by Ministry of Finance for each employee during five years. This incentive will be valid until the end of 2023.

Managing companies incorporated as joint stock companies to undertake the management and operation of these areas, are exempt from all taxes, duties and charges in transactions related to the implementation of the Law. 18

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4.4 Incentives Increasing Investment and Employment Governmental economic units have taken some economic measures to decrease the negative effects of the global economic crisis. Law No. 5084, Law No. 5838 and Law No. 5951 regulate the most important measures. The said laws set the objectives of putting into effect income tax withholding and social security premium incentives in some provinces, providing energy support to increase investment and employment opportunities. Apart from these, “Cabinet Decision on State Aid to Investments No. 2009/15199”, a more comprehensive regulation for fighting the crisis and encouraging investment has been published in the Official Gazette Dated 16.07.2009 and numbered 27290. In accordance with this regulation, 81 provinces are divided into 4 regions and the following incentives were regulated in accordance with such categorization. (See Appendix 4-a for a list of the regions and provinces contained) ☼☼ Regions I and II; »» Tax relief, »» Insurance Premium employer’s share support, »» Investment place allocation. ☼☼ Regions III and IV; »» Tax relief, »» Insurance Premium employer’s share support, »» Investment place allocation, »» Interest support. Additional incentives are granted to large-scale investments contained in Appendix 4-b regardless of region; ☼☼ ☼☼ ☼☼ ☼☼ ☼☼

Customs duty exemption, VAT exemption, Tax relief, Insurance Premium employer’s share support, Investment place allocation.

Before all else, the regulation on application of corporate tax to investors at a reduced rate from tax incentives shall be very important. In accordance with the regulation contained in Law No. 5520 and exclusive of certain restrictions, reduced corporate tax shall be applied to income obtained from investments that are secured by an incentive certificate by the Treasury. In accordance with such regulation, where corporate taxpayer makes investments, part of these investments shall be financed by the state as they will incur reduced taxes. Investment amount to be financed by the state and the applicable corporate tax rate shall be as follows:

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Regional Execution (Appendix 4-a)

Large Scale Investments (Appendix 4-b)

Regions

Investment Contribution Rate (%)

Corporate Tax or Individual Income Tax Discount Rate (%)

Investment Contribution Rate (%)

Corporate Tax or Individual Income Tax Discount Rate (%)

I II III IV

10 15 20 25

25 40 60 80

25 30 40 45

25 40 60 80

However, where the investments are initiated before 31/12/2010 the following changes shall take place:

Regional Execution (Appendix 4-a)

Large Scale Investments (Appendix 4-b)

Regions

Investment Contribution Rate (%)

Corporate Tax or Individual Income Tax Discount Rate (%)

Investment Contribution Rate (%)

Corporate Tax or Individual Income Tax Discount Rate (%)

I II III IV

20 30 40 60

50 60 80 90

30 40 50 70

50 60 80 90

4.5 KOSGEB Supports Available for SMEs Enterprises and entrepreneurs operating in the manufacturing industry and employing from between 1 to 150 workers may benefit from KOSGEB subsidies (Small and Medium Industry Development Organization). Enterprises that are owned by large corporations and employing more than 150 workers and enterprises with a 50% share in the capital owned by Special Provincial Administrations may not benefit from these subsidies. Enterprises must belong to the SMEs Membership System in order to benefit from these subsidies. The rules and procedures that apply to identifying sub-categories, upper and lower limits, regional support elements, applications and evaluations, approvals and assessments for these subsidies have all been specified in the KOSGEB Subsidies Regulation. Subsidies provided by the KOSGEB are for: ☼☼ Loan interest support ☼☼ SME Project Support Programme ☼☼ Thematic Project Support Programme ☼☼ Cooperation and Capability Association Support Programme ☼☼ R&D, Innovation and Industrial Execution Programme ☼☼ General Support Programme ☼☼ Entrepreneurship Support Programme Further information on the government and KOSGEB subsidies is available at the following addresses: www.treasury.gov.tr , www.kosgeb.gov.tr 20

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5. TAXATION OF BUSINESS OPERATIONS 5.1 Principal Taxes From a foreign investor point of view in Turkey, the most important taxes are stated below; ☼☼ ☼☼ ☼☼ ☼☼ ☼☼ ☼☼

Corporation Tax (Kurumlar Vergisi) Individual Income Tax ( Gelir Vergisi) Value-added Tax (Katma Değer Vergisi) Bank and Insurance Transactions Tax (Banka ve Sigorta Muameleleri Vergisi) Stamp Duty (Damga Vergisi) Special Consumption Tax (Özel Tüketim Vergisi)

Various other taxes, such as motor vehicle, property, inheritance and capital transfer taxes exist, but these are all minor from the standpoint of the revenue they raise and from their effect on business transactions.

5.2 Taxpayers Both corporations and individuals can be either limited or unlimited taxpayers. Unlimited taxpayers are liable for tax on their worldwide income. Limited taxpayers are subject to tax on income derived in Turkey. Corporations are regarded as unlimited taxpayers if either their statutory head office or actual business center is located in Turkey. Thus, fully foreign-owned subsidiaries established in Turkey under the Turkish Commercial Code are regarded as unlimited taxpayers, whereas foreign branches are treated as limited taxpayers. With regards to individuals, the tax status is determined according to the criterion of “residency”. Turkish citizens are accepted as resident, unless they have evidence of residence abroad. Foreigners are regarded as resident if they stay in Turkey without interruption for more than six months in a calendar year other than for reasons of imprisonment, illness or assignment for specific and temporary projects. Partnerships (joint venture and consortia) are not taken into consideration in determining tax status. The partners’ residence status is taken into account for tax treatment.

5.3 Taxable Period and Tax Declarations 5.3.1 Income and Corporate Tax Declarations 5.3.1.1 Regular Taxable Period Both for individuals and corporations, the tax year in principle is the calendar year. However, a permit for special accounting period could be obtained from the Ministry of Finance for a different fiscal period. Annual corporate tax return is filed in the period between 1st and 25th days of the fourth month following the close of the related fiscal year. The tax must be paid until the last day of the month in which the return is submitted.

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Annual individual income tax return is submitted to the tax office from 1 March to 25 March for the last yearâ&#x20AC;&#x2122;s earnings. Income tax is paid in two installments in March and July. An individual, whose income consists only from wages from a single employer, is not obliged to file an annual return. The employer is responsible for withholding the tax from employee and transferring it to the tax office.

5.3.1.2 Special Taxation Regime for Specific Construction Works According to the Turkish tax legislation, construction and repair works extending over more than one calendar year are subject to a special taxation regime. The regime mostly covers the works within the scope of Public Procurement Law; however the taxation principles are applicable to all sorts of construction, repair, erection, assembling and similar works regardless of the fact that they are committed to public or to private bodies. Unless the work was not completed within the same calendar year as it was started, it falls into the scope. Under this regime, the period between commencement and handover dates is deemed as the taxable period for this specific work. Therefore the progress payments and the expenses incurred in such project must be accumulated in balance sheet accounts until the date of obtaining the take-over certificate. Since the year in which take-over certificate is obtained, is considered as the final year of work, the whole profit (or loss) of project is included in the annual tax declaration of that specific year. Both individuals and corporations dealing with the works within the scope are subject to the same taxation principles, and a 3% tax is withheld over their progress payments. This is considered as a tax-credit in the final yearâ&#x20AC;&#x2122;s taxation.

5.3.2 VAT and Withholding Tax Declarations The Ministry of Finance has established monthly taxable periods for regular VAT taxpayers. Liable VAT taxpayers should submit their monthly declarations to the tax office before 24th day of the following month. VAT payments are made by the 26th day of the month in which the VAT return is submitted. Furthermore, monthly withholding tax declarations should be submitted to the tax office before 23rd day of the following month. Withholding payments are made by the 26th day of the month in which the withholding return is submitted.

5.4 Corporate Tax Enacted in June 2006, Corporate Tax Law (No. 5520) replacing the former corporate tax law dated 03.June.1949 (No. 5422). The new Law, applicable from 01.01.2006, reduces the corporate tax rate from 30% to 20 % while re-regulating the earnings exempt from tax and the reductions.

5.4.1 Tax Liability Resident companies are liable for corporation tax on their worldwide income, while non-residents are taxable for only the income earned in Turkey. Whether or not a company is subject to full tax liability depends on its status of residence. A

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company that has a statutory domicile or a place of management will have full tax liability. This means the company is obliged to keep accounting books, and file periodical tax returns. If there’s no presence in Turkey, in most of the cases, instead of annual declaration, withholding method is used for charging Turkish tax. Therefore, the capital companies, such as “A.S.” and “Ltd”, established in Turkey have full tax liability. If a non-resident company carries out business through a branch or a joint venture, then it will have a limited tax liability; i.e. fully subject to corporate tax on profits earned in Turkey. It should be noted that corporate tax of the foreign entities that have limited tax liability is imposed on the name of their managers or representatives in Turkey. In case such a person does not exist, the tax is imposed on the persons who provide such income to the foreigners.

5.4.2 Tax Rate 5.4.2.1 Corporate Tax Rate The rate of corporation tax is 20%. Furthermore, there is a corporate withholding tax at the rate of 15%, if the company distributes dividends. Please refer to Appendix 1 for favorable dividend withholding tax rates of the countries that have double tax agreements with Turkey. Also taxpayers have to prepare balance sheets and income statements for 3-month periods and pay 20% as an advance tax. Quarterly advance corporation tax returns must be submitted to the tax office by 14th day of the second month following the end of the quarter. Due date for the payment is the 17th day of the month in which the tax return submitted. Year-end definitive results (profit/loss) will be compared with advance tax returns filed within the same year. Prepaid taxes are deducted from the amount of taxes assessed as indicated in the year-end tax return.

5.4.2.2 Withholding Tax Rates For Limited Liability Tax deduction rates applicable to the tax deductible income and revenues of foreign taxpayer corporations pursuant to Article 30 of Corporate Tax Law No. 5520 have been set in accordance with Cabinet Decision No. 2009/14593 published in the Official Gazette dated 03/02/2009 and numbered 27130 (see Appendix 5/a) Before the stated tax deduction, it should be made sure that if there is a tax treaty between foreign-based taxpayer’s domiciled country and Turkey. Also if there is a tax treaty, it should controlled related articles about withholding tax rates such as for dividends, interests and royalties etc. Some articles in tax treaties might abrogate the withholding tax liability (see Appendix 1)

5.4.3 Exemptions The following earnings of corporations are exempted from corporate tax: ☼☼ Dividend income from other Turkish companies, ☼☼ Dividend income received from foreign subsidiaries or branches, when certain conditions fulfilled, ☼☼ Capital gains of holding companies from foreign subsidiaries with certain conditions,

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☼☼ Earnings of the following funds and companies that are established in Turkey: »» Portfolio management earnings of investment funds/companies, »» Real estate investment funds/companies, »» Venture capital funds/companies, »» Pension funds, »» Housing financing funds and assets financing funds, ☼☼ With certain conditions, 75% of the capital gains from disposal of subscription shares and immovable properties that are held for over two years. Ministry of Finance is authorized to determine the basis of principles for the exemptions above.

5.4.4 Deductions In principle, an expense is deductible if it is related to the generation of income or the operation of a business. The following items are allowed as deductions for both the corporate and income tax purposes: ☼☼ ☼☼ ☼☼ ☼☼ ☼☼ ☼☼ ☼☼ ☼☼ ☼☼ ☼☼ ☼☼ ☼☼

Travel and lodging expenses adequate to the size of business, Meals provided to the employees on site, Social security contributions, Compensation and losses incurred according to a contract or a court decision, Expenses of leased or owned vehicles that are used for business purposes, Real estate and transfer fees, stamp duties and municipal taxes, which are related to the business, Depreciation expenses calculated by the methods of the Tax Procedural Law, Employer’s contributions to the labor unions and to the private pension plan of the employees (there are upper limits), Cost value of the foodstuff donations to the food banks, Donations to certain institutions and associations for charitable works (up to a limit), Bad debt provisions, if legal act towards enforcing the payment has been taken, Interest paid for business purposes in an operational period may be deducted; however the interest must be capitalized if it relates to the acquisition of a fixed asset.

In addition to the above, corporate taxpayers are allowed to deduct the following: ☼☼ ☼☼ ☼☼ ☼☼ ☼☼ ☼☼ ☼☼

Costs of the issuance of corporate securities, Start-up costs, Expenses incurred for general assembly meetings, Cost of merger, demerger, and liquidation transactions, Technical reserves for insurance and reinsurance companies, Business losses inherited from a merger/demerger transaction (subject to a limit), Losses incurred in foreign jurisdictions (subject to certain conditions).

5.4.5 Disallowable Expenses ☼☼ ☼☼ ☼☼ ☼☼ ☼☼

Interest paid or calculated on the basis of equity capital, Interests and foreign exchange losses on disguised capital, Disguised profit distribution through transfer pricing, Legal reserves and other profit reserves, Penalties and indemnities resulting from delinquencies of the taxpayers and/or his employees, Doing Business In Turkey by Mazars / Denge

☼☼ Corporate tax, income tax, and delay charges calculated in accordance with the Public Receivables Collection Law, ☼☼ Motor vehicle tax

5.4.6 Depreciation Methods For depreciation of fixed assets, taxpayers may choose either the “Straight-Line” or “DecliningBalance” methods. Taxpayers are allowed to switch the method only one-way from decliningbalance to the straight-line. In the declining method, the applicable rate is twice the rate of straight-line method. The ceiling is 50%. Parallel to introducing inflationary adjustment in 2004, depreciation rates are determined by the Ministry of Finance, based on useful life of the fixed assets. Through a communiqué, the Ministry has announced these rates, in accordance with the business sectors and the function of the fixed assets. The table below is a summary to provide an idea with the depreciation periods announced by the Ministry. Please refer to the communiqué or consult to your advisor for an actual application.

Useful Life

Straight-Line Rate

2 years 3 years 4 years

50% 33.33% 25%

5 years

20%

10 years

10%

15 years

6.66%

20 years 30 years 50 years

5% 3.33% 2%

Type of Assets Films, tapes, CD, DVD, tire wheel Mobile phones, IT software IT hardware, motorcycles, light trucks Cars, heavy trucks, buses, TV, copiers, camera, start-up costs Railways, chemical facilities, poultry facilities, Intangible fixed assets, non-woven facilities, tobacco facilities Cement facilities, wooden buildings Energy transmission lines, half-timbered buildings Stone buildings, steel constructions

It should be noted that the fixed assets acquired before January 1, 2004 shall continue to be depreciated based on the prior application, in which the taxpayer was free to choose a depreciation rate up to 20% per year.

5.4.7 Carry-forward Losses The tax-loss is carried forward and set off against the income of subsequent years for five years. For carrying forward, the loss corresponding to each year must be specified in the corporate tax return. There are no loss carry-backs.

5.4.8 Taxation of Non Resident Entities In taxation of non-resident corporations, which obtain income in Turkey through permanent establishments or through permanent representatives, the same rules are valid that are applicable for unlimited taxpayers. A foreign corporation is considered as a limited taxpayer in Turkey and is taxable with reference Doing Business In Turkey by Mazars / Denge

to its Turkish source of income solely. If this income is passive (e.g. income from dividends, royalties, interest), the tax liability will be fully and finally settled by withholding taxes for which the domestic paying entity is responsible to the Turkish Tax authorities. Appendix 5-a exhibits the withholding tax rates on such corporate income. However, the non-resident company may choose to be taxed as a resident company at 20%, by submitting a tax return and offsetting the withheld tax on the return. This may be advantageous if deductible expenses produce a tax saving. In case a limited taxpayer company files a corporate tax return, the after-tax amount would be subject to the withholding tax at distribution (transferring abroad) phase.

5.4.9 Significant Corporate Taxation Issues 5.4.9.1 Controlled Foreign Company (CFC) Regulations With this regulation recently introduced into Turkish legislation, the corporate earnings of the foreign partnerships that the permanent establishment controls in condition to hold directly or indirectly, separately or all together, at least 50 % of their capital, dividend or right to vote will be subject to corporate income tax in Turkey, whether or not they are distributed, in case the following conditions are met together: ☼☼ If 25% or more of the total gross revenue of the partnership consists of the passive incomes such as interest, dividend, rent, license fee and income from securities sale, all of which are out of the commercial, agricultural or self-employment activity carried out by the capital proportional to the activity, organization and personnel employment, ☼☼ If the foreign partnership has a total tax burden such as income or corporate income tax less than 10 % over the commercial balance profit, ☼☼ If total gross revenue of the partnership founded abroad in the relevant year exceeds 100.000 TL of foreign currency. The highest rate reached at any date within the relevant accounting period will be considered as the control rate. In case the conditions indicated in the first paragraph of this article occur, it is supposed that the profit which is obtained by the partnership established abroad will be included in the ratio of their shares in the corporate income tax assessment of the permanent establishment as of the accounting period covering the month in which the accounting period of the foreign partnership is closed.

5.4.9.2 Special Taxation Method for Foreign Transportation Companies Business profits of foreign transportation companies are calculated by multiplying the sales revenue by the average precedent ratios which are set by law. The precedent ratios are as follows: ☼☼ Road and railway transportation 12% ☼☼ Marine transportation 15% ☼☼ Air transportation 5% For marine and air transportation, the sales revenue of non-resident carriers consists of all the

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amounts (including ticket fares, passenger, freight, baggage carrying and expense allowances) collected by the carrier for the route from departure ports in Turkey to arrival ports in foreign countries. It is important to note that only the transportations originate from Turkish ports are recognized in revenue calculation regarding marine and air carriage.

5.4.9.3 Thin Capitalization Although the term “disguised capital” has been used in our legislation for years, the definition was ambiguous. The new law adopts a more definitive approach by taking international practices into consideration. Where the borrowings from related parties exceed three times the equity of the company, the exceeding portion of the debt shall be deemed as disguised capital. The thin capital ratio shall be considered as six times the shareholders’ equity if the loans are received from related banks and/or similar financial institutions. The term “related parties” refers to the shareholders, to companies in which the shareholders directly or indirectly have 10% shares right to vote or to dividend and to real or legal persons that own 10% or more of the shares, voting rights or right to receive dividends of these companies. In case of a thin capitalization, the interest, exchange rate differences and other expenses paid over this amount will be deemed as disallowable expenses. Besides, those payments or accruals on thin capital shall be subject to withholding tax as they are regarded as distributed dividend. Non-cash guarantees provided by related parties, and the loans, which are obtained from banks/ financial institutions by related parties, and that are given to the company with the same credit terms are out of the scope of thin capital definition.

5.4.9.4 Transfer Pricing In accordance with the regulation, in case the goods or services traded with the related persons over the prices or values they determined contrary to the arms length principle, the earning will be deemed as disguised totally or partially through transfer pricing. Buying, selling, production and construction works, renting and renting out processes, borrowing and lending money, the transactions including payments such as perquisite, wage, etc. are considered as goods and service trade under any circumstances. The related person refers to the partners of the corporations, the real person or corporation and its administration to which the corporations or the partners are related, the real persons or institutions to which s/he is related or that s/he influences directly or indirectly its capital or control. The spouses of the partners, ascending and descending lines of the partners and their spouses and the cognates including the third generation and their matrimonial allies are also considered as the related persons. All the businesses carried out with the persons located in the countries or regions announced by the Council of Ministers are deemed to have been carried out with the related persons, on condition that the tax system in the country where the income is obtained provides a taxation opportunity that is at the same level with the taxation capacity created by the Turkish tax system. Corporations will determine the prices and the values to be applied in the operations they carry Doing Business In Turkey by Mazars / Denge

out with the related parties by using one of the following methods described in OECD transfer pricing guideline, which suits the most to the nature of the business. ☼☼ ☼☼ ☼☼ ☼☼

Comparable price method Cost-plus method Resale price method In case the price compatible with arm’s length principle is not possible to be reached through any of the foregoing methods, the taxpayer can use other methods s/he will prefer considering the nature of the processes.

It is compulsory to keep as proofs the records, lists and documents pertaining to the calculations concerning the prices and values determined within the framework of the principle of compliance with arm’s length principle. Upon the demand of taxpayer, it is possible to make an APA (advance pricing agreement) with the Ministry of Finance regarding the methods concerning the determination of the price or value to be applied in the goods and service trade carried out with the related parties. The method designated in such a way becomes definite for no longer than 3 years, within the period and under the conditions determined in the contract. In implementation of the tax laws, the profit distributed as disguised totally or partially through transfer pricing is considered as the distributed dividend as of the last day of the accounting period. The amount is also considered as a disallowable expense for corporate tax purposes. Furthermore, in accordance with the latest regulation, acceptance of disguised distribution of profit due to domestic transactions between the business places in Turkey and permanent representatives of foreign corporations and full-fledged taxpayers as related persons shall be bound by the requirement for treasury loss to arise. Treasury loss shall mean short or delayed accrual of the total of all taxes that should be accrued for corporations and related persons due to prices and costs that are determined in accordance with the arm’s length principle.

5.4.9.5 Precautionary Tax-Heaven Measure All sorts of payments made to the legal or real persons that carry out businesses in the countries or regions announced by the Council of Ministers are subject to a withholding tax at the rate of 30%. This levy is not applicable to insurance/reinsurance payments, and principal/interest payments of loans obtained from financial institutions. The Council shall announce the list considering that the tax system in the country where the income is obtained provides a taxation opportunity that is at the same level with the taxation capacity created by the Turkish tax system. The list has not been announced as of the date of this booklet released.

5.4.9.6 Merger, Demerger, Spin-Off, Share Swap 5.4.9.6.1 Merger Turkish Commercial Code allows companies to merge with other similar-type companies at their market/fair values. In this case, if the merger value exceeded the book value, in other words the hidden reserves are realized, corporate tax would be payable. However, Turkish Corporate Tax Law (CTL) defined a special tax-free merger case so-called “take-over”.

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When two companies of which the legal heads or business centers are located in Turkey and the legal types are the same, merge at their book values, a take-over occurs. The capital gain shall not be recognized as of the merger date. The absorbing company may hold the rights of loss carryovers under certain conditions. In the event of a take-over, both of the companies must sign the tax return of the dissolving company for the period before the take-over, and the absorbing company must undertake all the liabilities of the dissolving one.

5.4.9.6.2 Demerger As a method of dissolution without taxation the CTL included the concept of demerger. A demerger enables full taxpayer companies to transfer the assets, receivables, liabilities and the equities on their balance sheets, partly or entirely, to other capital companies at their book values. If the stipulated conditions in the CTL are fulfilled; ☼☼ Profits arising from division transactions shall not be calculated, ☼☼ Since the capital gains shall not be recognized, there will be no withholding income tax, ☼☼ Demerger transactions are not subject to VAT, and fully exempt from stamp duties, banking and insurance transaction taxes, and other fiscal charges. Corporate tax law describes two types of the transaction as “total demerger”, and “partial demerger”. Under a total demerger; a full taxpayer capital company (i.e. “A.S.,”/ “LTD”) transfers all of its assets, receivables, and liabilities to two or more (new or existing) companies at their book value. In consideration therefore, the shareholders of the acquired company receive the shares of the taking over companies. After a total division, the company being divided dissolves without liquidation. In the event of a total division, only the income up to the dissolution date of the dissolved company will be subject to taxation. The acquiring company provides an undertaking to tax office so as to be jointly and severally liable for tax obligations of the dissolved company. A partial demerger (spin-off) is a special type of capital-in-kind contribution. It is defined as the transfer of: • Immovable assets and subscription shares indicated in the balance sheet of a company, • Production plants and service facilities, • Intangible rights, raw materials, processed and semi-processed materials which are related to those plants and facilities. The valuation of the assets shall be done at their book value. Against transferring of the assets, the contributing company owns the shares of receiving company. The shareholders of the contributing company may own the shares, as well. In case the shares are provided to the shareholders, the liabilities, which are related to the assets and subscription shares, if any, must be transferred to the receiving company. The transferring and receiving companies will be jointly and severally liable for the tax obligations of the transferring company as of the date of division.

5.4.9.6.3 Share Swap When a full taxpayer company acquires the shares of another company in such a way that it obtains the shares of representing majority of voting rights in exchange for the shares of its Doing Business In Turkey by Mazars / Denge

own, the transaction shall not be subject to corporate tax. The amount of the shares to the shareholders of the transferring company shall be calculated according to the current value of both the receiving and transferring companies. It is allowed the shareholders of transferring company to receive extra cash up to 10% of the nominal value of the shares they are provided. 5.5 Individual Income Tax

5.5.1 Tax Liability Individuals residing in Turkey are liable for income tax on their worldwide income, but nonresident individuals are liable for income tax only on income earned in Turkey. Residents may deduct from their income tax liability foreign taxes assessed on foreign income. However, such deductions may not exceed the rate of tax assessed for similar income earned in Turkey. Tax is charged on the net income derived from the following seven sources. ☼☼ ☼☼ ☼☼ ☼☼ ☼☼ ☼☼ ☼☼

Income from commercial and business activities, Income from agriculture, Income from independent professional services, Wages and salaries, Income from immovable assets and rights (including rents), Income from capital investments (including dividends and interest), Other income (including capital gains and occasional earnings).

Individuals, who deal regularly with trade or business, or agriculture, or independent professional services, have to fulfill all tax responsibilities stated in the procedural law. They are held responsible for keeping books, filing annual and monthly tax returns, consolidating the profits and earnings from various sources of income, etc. On the other hand, an individual whose income consists only of a wage is not obliged to file a tax return. This is also applicable to the some extent for an individual that earns only one type of income. Although withholding is the major taxation method for the most of passive incomes such as dividends, interests, rents, individuals whose income exceeds certain threshold must file annual income tax declarations. Therefore, one should seek advice from a tax adviser whether s/he has to file annual return or not.

5.5.2 Tax Rate The rate of individual tax is between 15% and 35% depending on the amount earned during the fiscal year. The tax tariff for 2010 earnings is shown below.

Lower Bracket (TL) Upper Bracket (TL) -

8,800

8,800 22,000

22,000 50,000

50,000

The Tax on Lower (TL) 1,320 3,960

11,520

Tax Rate (%) 15 20 27* 35*

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* For income from wages, the last two step has changed as shown below, after Law No: 6009.

Lower Bracket (TL)

Upper Bracket (TL)

The tax on Lower (TL)

Tax rate (%)

22,000

76,200 -

3,960

18,594

76,200

Also fully liable taxpayers (i.e. commercial, agricultural and independent professional service income earners) have to prepare balance sheets and income statements for 3-month periods and pay an advance tax at the rate of first tax bracket (15%). Quarterly advance individual tax returns must be submitted to the tax office by 14th day of the second month following the end of the quarter. Due date for the payment is the 17th day of the month in which the tax return submitted. Withholding tax rates for individuals’ earnings are shown in Appendix 5-b.

5.5.3 Deductions Individual income taxpayers whose income arises from commercial and agricultural activities may deduct the expense items on their accounting books as corporate taxpayers do (see above paragraph 5.4.4.). Providers of independent professional services may deduct their professional expenses on their books. Additionally, all individual taxpayers are allowed the following deductions to exclude from the tax base. •

Pension Plan Contributions and Personal Insurance Premiums

Payments made to a pension plan on condition that not exceeding 10% of the taxable income, and also not exceeding the amount of officially announced minimum wage. Personal insurance premiums (including life and health) on condition that not exceeding 5% of the taxable income, and also not exceeding the amount of officially announced minimum wage. In the event that a pension plan and insurance premiums combined, the final ceiling is 10% of the taxable income or the minimum wage, whichever is lower. The pension fund or insurance company must be established in Turkey and its legal head should be located in Turkey. •

Education and Health Expenditures

Education and health expenditures of the individual, his/her spouse and the children are deductible on condition that not exceeding 10% of the taxable income. The amount must be spent in Turkey, and should be evidenced with an invoice or a similar document.

•

Donations

Donations to certain institutions and associations for charitable works are exempted, up to a limit 5% of taxable income.

5.5.4 Exemptions A wide range of income tax exemptions are stated in the law depending on the source of income and the status of the individual. Several exemptions that may be notable for a foreign investor’s point of view are explained in the below paragraphs. Doing Business In Turkey by Mazars / Denge

5.5.4.1 On Dividends Half of dividends received from Turkish resident companies are tax exempted and the full amount of dividend’s withholding is deductible from income tax calculated.

5.5.4.2 On Wages Salary of an employee, who is working for an employer having limited tax liability, is exempted if the following conditions altogether are met: ☼☼ It must be paid by a limited taxpayer employer whose statutory head office and actual business center outside Turkey, ☼☼ It must be paid from the employer’s earnings from outside Turkey, be paid in foreign currencies, ☼☼ It must not be accounted for as cost or expense item in Turkey. The salaries, within the scope of this exemption, are not subject to tax declaration.

5.5.4.3 On Rents A 2,600 TL (for 2010 earnings) exemption is applicable to the rental income obtained from the real estate rented out as domicile.

5.5.5 New Tax Regulation on Securities Income New tax legislation that came in force since 01.01.2006 introduces significant changes to the taxation on the income derived from securities and other capital market instruments. Banks and bankers are held responsible to tax withholding for the (legal and real) persons’ securities income on quarterly basis. The new regulation amended to Income Tax Law as a temporary article, which is valid for next ten years. Under the new taxation procedure, the following earnings securities are subject to withholding income tax. The withholding rates are shown on the tables in Appendix 5-a (for corporate earnings) and Appendix 5-b (for individual’s earnings). ☼☼ ☼☼ ☼☼ ☼☼ ☼☼ ☼☼

Trading gains from stock shares, Trading gains from Bonds/ Bills issued after 01.01.2006, Interest income from Bonds/ Bills issued after 01.01.2006, Earnings futures and option contracts, Earnings from trading of Stock Exchange Investment Fund Participation Certificate, Repo interest income.

Notwithstanding the above: ☼☼ Income derived from Treasury Bills and Governmental Bonds issued prior to 01.01.2006, ☼☼ Income derived from securities and other capital market instruments purchased prior to 01.01.2006, shall be taxed in accordance with the provisions of the legislation applicable on 31.12.2005. ☼☼ Earnings derived in 2006 from trading in Futures and Options Exchange shall not be subject to tax. Withholding taxation for those will start from 01.01.2007.

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Income not subject to withholding tax and not declarable: ☼☼ Trading earnings derived from the investment fund certificates held for more than one year, in case the fund portfolio mostly consists of the stocks listed in Istanbul Stock Exchange (ISE), ☼☼ Trading earnings derived from (ISE) stock shares held for more than one year, ☼☼ Notwithstanding this fact, no withholding tax shall be applicable to earnings raised generated Turkish Treasury Eurobonds. Turkey resident taxpayers will include such income in their annual income/corporate tax returns, according to the legislation in force on the date on which the earning is raised shall be applicable. However, nonresident individuals and corporations shall not file tax returns for Eurobond earnings. Returns: No further return must be filed by taxpayers for those income taxed at source; however, taxpayers may file an optional tax return if they are willing to set off their losses arising from a trading with another bank/banker. 5.6 Value Added Tax (VAT)

5.6.1 Tax Liability Value added tax is levied on all goods and services supplied within the scope of commercial, industrial, agricultural and independent professional activities and on the import of goods and services. Persons who deliver the goods or perform the services are liable for VAT. Imported goods are taxed at the point of entry and the tax is collected by the Customs authorities from the importer. Foreign-owned businesses (both subsidiaries and branches) operating in Turkey are treated as regular taxpayers.

5.6.1.1 VAT Credit Mechanism Taxable persons are allowed to deduct the input VAT, which they have paid to other suppliers on their purchases, from the output VAT that they have collected from their own sales. Hence, the ultimate tax burden of the VAT bears to the end users of goods and services. The taxpayers declare the VAT on their sales and purchases on monthly basis; and pay the difference between input VAT and output VAT. In the event that the input VAT exceeds the output VAT, the residual amount is carried forward to be offset with the following months output VAT.

5.6.1.2 VAT Responsibility In case services performed in Turkey by a foreign business other than through a Turkish permanent establishment, the Turkish resident customer is responsible for payment of VAT to the Turkish Tax authorities. This result is achieved by a reverse charge VAT mechanism. Under this mechanism, the Turkish company calculates and pays the VAT to the tax office on behalf of the non-resident company. On the other side, the resident company can consider this amount as input VAT on its tax declarations. Doing Business In Turkey by Mazars / Denge

5.6.1.3 VAT Refund In principle, VAT recovery is achieved by VAT credit mechanism. In some certain cases, such as: ☼☼ ☼☼ ☼☼ ☼☼ ☼☼ ☼☼ ☼☼

export exemption, sea, air and railway vehicles exemption, petroleum exploration exemption, Investment Incentive Certificate exemption, transit transportation exemption, deliveries of the goods subject to reduced VAT rates, diplomatic immunity,

the residual amount may be refunded to the taxpayer after an examination by the tax office. The Ministry of Finance is authorized to determine the principles of VAT refund. According to the communiqués issued by the Ministry, the Sworn Financial Advisers are permitted to perform VAT refund examinations, within certain limits and principles. Beginning from tax period of January 2010, VAT refund lists, customs declaration lists and export invoices lists will be sent to Revenue Administration Department by internet in VAT refund process. Significant time keeping and cost savings has been forecasted together with this implementation.

5.6.2 Tax Rates The standard VAT rate is 18%. Presently, reduced rates -1% and 8%- are applicable for two different groups of goods and services. The Council of Ministers is authorized to determine the goods and services that are subject to reduced rates. List I contains the goods that are subject to VAT at 1%, such as: dried foods, cotton, wheat, olive, newspapers, magazines, used cars, leased assets from leasing companies, houses under a size of 150 square meters. List II consists of the goods and services that are taxed at 8%, such as: basic food items (milk, macaroni, oils, poultry and fishery products), medicines, medical equipment, books, textile and leather products, shoes, bags, carpets, meals and beverages in restaurants, cafes (excluding alcoholic beverages), and services in hotels.

5.6.3 Exemptions VAT exemptions are as follows: ☼☼ Export deliveries and services relating to such deliveries, and services rendered for overseas customers, ☼☼ Certain types of transit transport and transportation between Turkey and foreign countries, determined by the Council of Ministers, in line with the reciprocity principle, ☼☼ Certain types of imports specified in the Customs Law including the goods subject to transit and customs warehouse regimes, and to the temporary storage and free-zone articles of the Customs Law, ☼☼ Deliveries of sea, air and railway transportation vehicles, including the delivery and services connected with the manufacturing, construction, modification, repair and

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maintenance of the those vehicles, ☼☼ Services rendered for sea and air transport vehicles in seaports and airports, ☼☼ Deliveries and services to those who perform gold, silver and platinum prospecting, processing, enrichment, and refining activities, ☼☼ Petroleum exploration activities in line with the Petroleum Law, ☼☼ Deliveries of relevant machinery and equipment to the taxpayers who possess an Investment Incentive Certificate, ☼☼ Deliveries of various defense vehicles and equipment, weapons, materials, etc. to the public entities connected with national defense and internal security, ☼☼ Certain supplies and services for cultural, educational, social, and military purposes, ☼☼ Delivery of gold ingots, silver ingots, precious stones, foreign currency, money, valuable papers, stocks and bonds; and delivery of metals, plastic, rubber, paper, glass, scrap and waste, ☼☼ Services rendered in Free Zones, ☼☼ Services for the pipeline transport of foreign crude oil and gas, and crude oil and gas products, ☼☼ Transactions of banks and insurance companies within the scope of Banking and Insurance Transaction Tax, ☼☼ Deliveries related to merger and demerger transactions within the context of corporate tax law, ☼☼ Sales of subscription shares and immovable properties which are held for over two years by corporations, ☼☼ Diplomatic immunity. 5.7 Other Taxes

5.7.1 Stamp Tax A wide range of documents in the List I attached to the Stamp Tax Law are the subject of the tax. These documents are related to contracts, commitments, assignments, receipts, official reports, and other specified papers related to commercial transactions. Stamp tax becomes payable when these documents are signed. Tax is levied as a percentage of monetary value on the document. The stamp tax per document shall not exceed TL 1,161,915.90 for the year 2010. The ceiling is subject to annual adjustment. Taxpayers are persons who have signed these documents. Each and every copy of a document is separately subject to tax. Parties of an agreement –except for the official entities/parties- are jointly responsible for the payment of the tax. The List II attached to the Law determines the papers that are exempted from the tax. For example, documents issued for the obtaining and repayment of loans from banks, overseas credit institutions and international organizations, and annotations on such documents (excluding the utilization of loans) are exempt from Stamp Tax.

5.7.2 Banking and Insurance Transaction Tax In accordance with the VAT Law, the activities of banks, insurance and reinsurance companies are exempted from VAT. However, all transactions of banks, bankers and insurance/reinsurance companies are the subject to the BITT. For recovery purposes, those companies consider the VAT they paid on their purchases as an expense item. The BITT arises when those entities collect money under the name of interest, commission, service charge and so. Standard rate of the tax is 5%. Banks, bankers, insurance and reinsurance companies, financing companies, factoring companies are the taxpayers. They declare their monthly taxable transactions to the tax office until 15th day of the following month. Doing Business In Turkey by Mazars / Denge

5.7.3 Special Consumption Tax The goods which are organized in four groups in the lists attached to the Special Consumption Tax Law are the subject of the tax. Each good on the lists is subject to the tax at different rates. ☼☼ List I covers petroleum products, natural gas, lubricating oil, solvents and derivatives of solvents. ☼☼ List II consists of automobiles and other vehicles, motorcycles, planes, helicopters, yachts. ☼☼ List III covers tobacco and tobacco products, alcoholic beverages and sodas. ☼☼ List IV is related to luxury goods. The tax is charged only once at importation and/or production stages of the products. The taxpayers reflect the tax burden to the end users.

5.7.4 Property Tax Building and land owners shall pay a Property Tax on annual basis. The value essential for tax base is set by local municipal authorities. The rates are as follows (These ratios are applied as double in the greater metro areas such as Ankara, Istanbul, Izmir, Antalya, Bursa.) ☼☼ ☼☼ ☼☼ ☼☼

For the residences used as domiciles 0.1 For the other buildings 0.2 Lands allocated for construction 0.3 Other lands 0.1

% % % %

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5.7.5 Inheritance and Gift Tax Inheritance and gift taxes are charged on the worldwide property of Turkish nationals, but assets outside Turkey are exempted when acquired by a foreign individual by gift or on death. In case the assets are transferred to the receiver due to inheritance, the tax rates change progressively between 1% and 10%. There is an exemption of TL 109,971 for each of the lineal heirs and the spouse. The amount is subject to annual adjustment. If the assets are gifted by a donor, the receiver shall pay the tax according to the progressive tariff between 10% and 30%. There is an exemption of TL 2,535 on gifts. The amount is subject to annual adjustment.

5.7.6 Resource Utilization Support Fund (KKDF) In order to overcome the economical crisis of 1998, some arrangements have been made in the ratios of Resource Utilization Support Fund (KKDF) as Per notification No.6 published in the Official Gazette dated 26.08.1989. With the amendments following that the fund levy has been perceived as a transaction tax, especially on foreign loans obtained by Turkish residents from the entities other than banks or financial institutions. The current rate for foreign hard currency loans is 3% out of the principal amount; however the KKDF levy is avoidable by setting the maturity of the loan as extending over more than one year. The current rates of the KKDF are shown below ☼☼ Credits financed by banks and other financial institutions »» Over the consumer credits 10% »» Over other credits 0% ☼☼ Loans secured from abroad by banks and financing companies 0% ☼☼ Loans secured from abroad by Turkish residents, other than banks and financing companies »» If the maturity is less than 1 year + 1week 3% »» If the maturity is more than 1 year + 1 week 0% ☼☼ In imports made on basis of payment terms such as acceptance credit, forward letter of credit and against goods 3%

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6. SAMPLE CORPORATE TAX CALCULATION DATA - Corporate Profit - Disallowable Expenses

1,000 20

CORPORATE TAX - Corporate Profit 1,000 - Disallowable Expenses 20 - Corporate Tax Base 1,020 - Corporate Tax (20%) 204 WITHHOLDING TAX (In case dividend is distributed to individuals or to foreign shareholder) - Corporate Profit 1.000 - Corporate Tax (204) - Withholding Base 796 - Withholding (15%)* 119.4 TOTAL TAX BURDEN - Corporate Tax - Withholding

204 119.4

It has been assumed that no reserve was allocated and that the whole profit was distributed to the shareholders during the calculation of withholding. The allocation of a reserve is compulsory and it is not necessary to pay the withholding amount for the funds which are allocated as reserve and which remain in the structure of the company. Please refer to Appendix 1 for preferential withholding tax rates in line with the tax treaties. *For limited liability, withholding tax rate varies depending on the tax treaties.

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Appendix 1: Tax Treaties As part of the development of Turkeyâ&#x20AC;&#x2122;s international business relations, a number of new tax treaties have been concluded and negotiations are in progress for several more. In principle, Turkey seeks to follow the OECD model as far as possible. The following table shows the contracting states in an alphabetical order. The table also exhibits preferential withholding tax rates on the income from dividends, interests, and royalties. Contracting States And Withholding Tax Rates (%) At The Source Country For Selected Cases

Contracting State

Effective Date

Dividends

Interests

Royalties

Explanations

Albania

01.01.1997

5-15

D-1

Algeria

01.01.1997

Austria

01.01.1974

25-35

Azerbaijan

01.01.1998

Bahrain

01.01.2008

10-15

Bangladesh

01.01.2004

Belarus

01.01.1999

10-15

D-1

Belgium

01.01.1992

5/10

D-4

Bosnia Herzegovina 01.01.2009

5-15

D-1 D-1

Bulgaria

01.01.1998

10-15

China

01.01.1998

Croatia

01.01.2001

Czech Republic

01.01.2004

Denmark

01.01.1991

15-20

D-1

Egypt

01.01.1997

5-15

D-1

Estonia

01.01.2006

5-10

Ethiopia

01.01.2008

Finland

01.01.1989

15-20

D-1

France

01.01.1990

15-20

D-2

Germany*

01.01.1990

15-20

D-2

Greece

01.01.2005

Hungary

01.01.1993

10-15

India

01.01.1994

10-15

Indonesia

01.01.2001

10-15

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R-1

D-1 I-1 D-1

Iran

01.01.2006

15-20

Israel

01.01.1999

Italy

01.01.1994

Japan

01.01.1995

10-15

D-1

Jordan

01.01.1987

10-15

D-1

Kazakhstan

01.01.1997

Korea (South)

01.01.1987

15-20

10-15

Kuwait

01.01.1997

Kyrgyzstan

01.01.2002

Latvia

01.01.2004

5-10

Lebanon

01.01.2007

10-15

Lithuania

01.01.2001

5-10

Luxembourg

01.01.2006

5/10-20

10-15

D1, D5 I-2

Macedonia

01.01.1997

5-10

D-1

Malaysia

01.01.1997

10-15

D-1

Moldova

01.01.2001

10-15

D-1

Mongolia

01.01.1997

Morocco

01.01.2007

7-10

D-1

Netherlands

01.01.1989

5/10

10-15

D-6

Northern Cyprus

01.01.1989

15-20

D-1

Norway

01.01.1977

20/25-25/30

D1, D7

Oman**

15.03.2010

10-15

D-3

Pakistan

01.01.1989

10-15

D-1

Poland

01.01.1998

10-15

D-1

Portugal

01.01.2007

5-15

10-15

D-1

Romania

01.01.1989

Russia

01.01.2000

Qatar

01.01.2009

10-15

Saudi Arabia***

01.01.1987

N/A

Serbia-Montenegro

01.01.2008

5-15

D-1

Singapore

01.01.2002

10-15

7,5-10

D-1

Slovakia

01.01.2000

5-10

D-1

Slovenia

01.01.2004

South Africa

01.01.2007

10-15

D-1

Spain

01.01.2004

5-15

10-15

D1, D8 I2, I3

Sudan

01.01.2006

D-1

I-1

I-2

R-1 D-3 R-1

I-2

D-1

I-1

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Sweden

01.01.1991

15-20

Syria

01.01.2005

10-15

Tajikistan

01.01.2002

Thailand

01.01.2006

10-15

D-1

Tunisia

01.01.1988

12-15

D-1

Turkmenistan

01.01.1998

U.A.E.

01.01.1995

10-12

U.S.A.

01.01.1998

15-20

10-15

5-10

D-2

Ukraine

01.01.1999

10-15

D-1

United Kingdom

01.01.1989

15-20

D-1

Uzbekistan

01.01.1997

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D-1 R-2

I-1

D1, D9 I-1

R-1

EXPLANATIONS FOR THE TAX TREATIES

On Dividends

On Interests

D-1

The lower rate is valid if participation level exceeds 25%; otherwise, the higher rate is applied.

D-2

The lower rate is valid if participation level exceeds 10%; otherwise, the higher rate is applied.

D-3

The lower rate is valid if participation level exceeds 15%; otherwise, the higher rate is applied.

D-4

With the amended protocol, the rates are 5% in Belgium and 10% in Turkey.

D-5

Lower rates are: in Luxembourg 5%, in Turkey 10%. Higher rate is 20% in both countries.

D-6

With the amended protocol, the rates are 5% in the Netherlands, 10% in Turkey.

D-7

Lower rates: in Norway 20%, in Turkey 25%. Higher rates: in Norway 25%, in Turkey 30%.

D-8

In Turkey, only full rate corporate taxed dividends are eligible for lower rate withholding.

D-9

If the profit distributing company is owned by a public body, the applicable rate is 5%.

I-1

The lower rate is applied in case the loan is provided by banks and financial institutions.

I-2

The lower rate is applied in case the loanâ&#x20AC;&#x2122;s maturity exceeds two years.

I-3

The lower rate is applied if the loan takes root from sale of commercial goods

R-1

The lower rate is applied for the use of industrial, commercial and scientific equipment

R-2

The lower rate is applied for the use of copyright of literary, artistic or scientific works.

On Royalties

(*) The agreement is withdrawn effective from 01.01.2011. This agreement will be applied for 2009 and 2010 taxation terms, negotiations with German government is still holding so as to conclude and constitute a new avoidance of double taxation treaty. (**) This agreement will be applied for 2011 and following taxation terms. (***) The Agreement covers only reciprocal exemption of taxes on the activities of air transportation enterprises.

Doing Business In Turkey by Mazars / Denge

Appendix 2: Bilateral Social Security Agreements

BILATERAL SOCIAL SECURITY AGREEMENTS OF TURKEY Contracting State

Date of Signature

Date of Enforcement

Albania

July 15, 1998

February 01, 2005

Austria

October 12, 1966

October 01, 1969

Azerbaijan

July 17, 1998

August 09, 2001

Belgium

July 04, 1966

May 01, 1968

Bosnia-Herzegovina

May 27, 2003

September 01, 2004

Canada

June 19, 1998

January 01, 2005

Czech Republic

June 28, 2001

January 01, 2005

Denmark

January 22, 1976

February 01, 1978

France

January 20, 1972

August 01, 1973

Georgia

December 11, 1998

November 20, 2003

Germany

April 30, 1964

November 01, 1965

Libya

September 13, 1984

September 01, 1985

Luxemburg

December 08, 2004

June 01, 2006

Macedonia

July 06, 1998

July 01, 2000

Netherlands

April 05, 1966

February 01,1968

Northern Cyprus

March 09, 1987

December 01, 1988

Norway

July 20, 1978

June 01, 1981

Quebec

October 15, 1998

January 01, 2005

Romania

July 06, 1999

March 01, 2003

Sweden

June 30, 1978

May 01, 1981

Switzerland

May 01, 1969

January 01, 1972

United Kingdom

September 09, 1959

June 01,1961

Doing Business In Turkey by Mazars / Denge

Appendix 3: Free Trade Zones and Techno parks Province Adana

Free Trade Zone Yumurtalik (1992)

Technology Development Zone Cukurova TDZ Bilkent Cyberpark Hacettepe TDZ METU Tech Ankara University TDZ Gazi Technopark TDZ

Ankara

Antalya

Antalya (1985)

Antalya Technopark

Bursa

Gemlik (2000)

Uludag University TDZ (Ulutek)

Denizli

Denizli (2000)

Pamukkale University TDZ

Diyarbak覺r

Dicle University TDZ

Edirne

Trakya University TDZ

Elazig

Firat TDZ

Erzurum

Erzurum University TDZ

Eskisehir

Eskisehir TDZ (ATAP)

Gaziantep

Gaziantep (1998)

Isparta

Gaziantep TDZ Goller Bolgesi TDZ

Istanbul

Ataturk Airport (1990) Catalca Thrace Zone (1990) Istanbul Stock Exchange (1997) Tuzla Leather Zone (1992)

ITU Ari Teknokent Istanbul University TDZ Yildiz Technical Univ. TDZ

Izmir

Aegean (1987) Menemen (1997)

Izmir TDZ

Kayseri

Kayseri (1998)

Erciyes University TDZ

Kocaeli

Kocaeli (2000) Tubitak-MAM (1999)

Kocaeli University TDZ Tubitak-MAM Gebze OIZ Teknopark

Konya

Konya Technopark

Mardin

Mardin (1994)

Mersin

Mersin (1985)

Rize

Rize (1997)

Samsun

Samsun (1995)

Sivas

Mersin Technoscope

Cumhuriyet TDZ

Tekirdag

Corlu European Free Zone (1996)

Trabzon

Trabzon (1990)

Trabzon TDZ

For Techno Parks http://www.technoscope.com.tr/tr/tur_tp.html For Free Trade Zones http://www.dtm.gov.tr

Doing Business In Turkey by Mazars / Denge

Appendix 4-a: Regions of Investment Incentive Executions Region I TR10 Istanbul

Region II TR22 Balıkesir Çanakkale (excluding Bozcaada and Gökçeada)

TR21 Tekirdag Edirne Kirklareli

TR32 Aydin Denizli Muğla

TR31 Izmir

TR61 Antalya Isparta Burdur

TR41 Bursa Eskisehir Bilecik

TR62 Adana Mersin

Region III

Region IV

TR52 Konya Karaman

TR82 Kastamonu Çankırı Sinop

TR63 Hatay Kahramanmaraş Osmaniye

TR90 Trabzon Ordu Giresun Rize Artvin Gümüşhane

TR71 Kırıkkale Aksaray Niğde Nevşehir Kirşehir TR33 Manisa Afyonkarahisar Kutahya Uşak

TRA1 Erzurum Erzincan Bayburt TRA2 Ağrı Kars Ardahan Iğdır

TR42 Kocaeli Sakarya Duzce Bolu Yalova

TR72 Kayseri Sivas Yozgat

TRB2 Van Muş Bitlis Hakkari

TR51 Ankara

TR81 Zonguldak Karabuk Bartin

TRB1 Malatya Elazig Bingol Tunceli

TR83 Samsun Tokat Corum Amasya

TRC2 Şanlıurfa Diyarbakir

TRC1 Gaziantep Adiyaman Kilis

Doing Business In Turkey by Mazars / Denge

TRC3 Mardin Batman Sirnak Siirt TR22 Bozcaada and Gökçeada Counties of Canakkale

Appendix 4-b: Large Scale Investments

Sequence Number

Minimum Fixed Investment Amounts That Exceeding 50 Million TL (Million TL)

Sectors

Production Of Chemical And Chemical Materials Â

1-A

Production Of Basic Chemicals

1000

1-B

Production Of Other Chemicals

300

Production Of Refined Oil Products

1000

Transportation Pipelines

Production Of Motor Land Vehicles

Production Of Railway And Tramway Engine And/Or Wagons

Seaport Investments

Electronic Industrial Investments

7-A

Lcd / Plasma Production Intended Investments

1000

7-B

Module Panel Production Investments

150

7-C

Laser Tv, 3d Tv, Oled Tv And Similar Tv Production Intended Investments

7-D

Other Electronic Investments

Production Of Medical Tools, Sensitive And Optical Tools

Pharmaceutical Production

Air And Space Vehicle Production

Machinery Production Investments

Mining Investments Investments That Are Intended For Smelting (Ore-Dressing) Facilities For Final Metal Production For IV/C Metallic Mine Group Set Out In Mining Law And For Integrated Mine Production Facilities (Extraction+Processing) (Exclusive Of Ecsc Products Such As Iron And Manganese)

Services

Sector

Through

Transit 250

250

Investments

100

Doing Business In Turkey by Mazars / Denge

Appendix 5-a: Withholding Tax Rates (Corporations) Withholding Tax Rates Applicable To The Earnings Of Corporations (Corporate Tax Law, Art. No.15 and 30; Income Tax Law, Provisional Art. No. 67) Payment Type

WT Rate For Resident Corporations

WT Rate For Nonresident Corporations

Independent Professional Services

20%

Construction and repair works extending to more than one calendar year Rents Royalties - on payments for the use of rights - on payments for the transfer and assignment of rights Dividends - to the non-residents who is paid through their permanent establishments or representatives in Turkey - to other non-resident corporations Interests - on the loans from foreign banks and financial institutions - on the loans from other foreign institutions - on private bonds, G-Bonds and T-Bills (excl. TREurobonds) - on TR-Eurobonds - on deposit accounts - on repo (repurchasing agreement) transactions Capital Gains on securities - on trading the stocks in Istanbul Stock Exchange within 1-year holding period - on trading investment fund certificates - on private bonds, G-Bonds and T-Bills (excl. TREurobonds) - on TR-Eurobonds - on futures and options contracts All sorts of payments to entities in tax-heavens (except for payments to financial institutions, and to insurance and reinsurance companies)

20%

0% 15%

0% 10%

0% 0% 15% 15%

0%* 0%* 15% 15%

0% 0%

0% 0%*

0% 0% 0%

0%* 0%* 0%*

30%

* These rates will not current after 10/08/2010 by coming into effect of Constitutional Courtâ&#x20AC;&#x2122;s decree of annulment which dated 01/08/2010 and numbered 2009/145.

Doing Business In Turkey by Mazars / Denge

Appendix 5-b: Withholding Tax Rates (Individuals) Withholding Tax Rates Applicable To The Earnings Of Individuals (Individual Income Tax Law, Article No. 94, Provisional Article No. 67)

Payment Type

Salaries, wages and suchlike payments Independent Professional Services - General - Specified copyright payments to authors, artists, etc.

WT Rate For Resident Individuals

WT Rate For Nonresident Individuals

According to the individual income tax tariff

20%

17%

Rents

20%

Royalties - on payments for the use of rights - on payments for the transfer and assignment of rights

20% 20%

Dividends

15%

Construction and repair works extending to more than one calendar year

Interests - on private bonds, G-Bonds and T-Bills (excl. TR10%* Eurobonds) - on TR-Eurobonds 0% - on deposit accounts 15% - on repo (repurchasing agreement) transactions 15% Capital Gains on securities - on trading the stocks in Istanbul Stock Exchange within 1-year holding period 0% - on trading investment fund certificates 10%* - on private bonds, G-Bonds and T-Bills (excl. TREurobonds) 10%* - on TR-Eurobonds 0% - on futures and options contracts 0%

0% 0% 15% 15%

0% 0% 0% 0% 0%

* Revenue Administrationâ&#x20AC;&#x2122;s legal arrangement is waited for these rates.

Doing Business In Turkey by Mazars / Denge

7. ABOUT MAZARS 7.1 MAZARS TURKEY Mazars Turkey was founded by two partners as a simple accounting firm in 1977. Today, Mazars Turkey operates in four offices Istanbul (2 offices), Ankara and Bursa with more than 250 persons workforce. As we realized the importance of an international presence we became a member of the French originated company, Mazars in 1998. As Mazars Turkey, we are among the top 5 Audit & Accounting firms in Turkey. We serve a portfolio of more than 500 clients in various sectors from which 50% are foreign companies with our 21 partners (including 13 Sworn Financial Advisors).

OVERVIEW OF 33 YEARS ☼☼ ☼☼ ☼☼ ☼☼ ☼☼ ☼☼ ☼☼ ☼☼ ☼☼ ☼☼ ☼☼ ☼☼

Founded in 1977 by two partners as a simple accounting firm Auditing department was established in 1988 Tax Services started to be provided as a separate department in 1989 Started to operate in Ankara Office, 1994 Management Consulting Services started to be provided as a separate department in 1995 Became a member of Mazars in 1998 Outsourcing Accounting Department was organized in 1999 and became highly demanded service especially by newly established foreign companies PROKON was founded in 2001 as a sister company in order to provide Corporate Governance Services Transfer Pricing department and Transaction Services Department started to operate in 2008 New Office Started to operate in Bursa, 2009 Mazars Turkey won the “National Tax Award” as the best tax firm of the year 2008 for Turkey by “International Tax Review” magazine. Mazars Turkey won the “National Tax Award” as the best “Transfer Pricing Firm” of the year 2009 for Turkey by “International Tax Review” magazine

7.2 MAZARS WORLDWIDE Mazars is an international, integrated and independent organisation, specialising in audit, accounting, tax and advisory services. Mazars can rely on the skills of 12,500 professionals in the 56 countries which make up its integrated partnership in Europe, Africa, the Middle East, Asia Pacific, North America, Latin America and the Caribbean. Mazars also has correspondents and joint ventures in 10 additional countries.. Mazars is also one of the founding members of the Praxity alliance, which gathers 109 independent organisations and 25,000 professionals in 76 countries.

Doing Business In Turkey by Mazars / Denge

7.3 RANGE OF SERVICES AUDIT SERVICES Our audits are conducted in accordance with International Standards on Auditing and include such tests of the accounting records and other auditing procedures, as we considered necessary in the circumstances. ☼☼ Auditing of financial statements in accordance with International Financial Reporting Standards (IFRS), Capital Markets Board of Turkey (SPK) regulations, Banking Regulatory and Supervision Agency (BDDK) regulations, Energy Markets’ legislation, regulations of Insurance Supervisory Board of the Undersecretariat of Treasury, Turkish Procedural Tax Laws, US GAAP and other country specific accounting principles like German GAAP, Italian GAAP, French GAAP, etc. ☼☼ Restatement of financial statements in line with various accounting principles like IFRS, US GAAP, German GAAP, French GAAP and establishment of financial reporting structures accordingly. ☼☼ Conversion of TL financial statements into other foreign currency financial statements (functional or reporting currency) in conformity with the international Financial Reporting Standards. ☼☼ Preparation of vendor and buyer due diligence reports for company mergers and acquisitions ☼☼ Assisting firms with valuing and accounting for their assets in the context of transactions and complex operations ☼☼ Preparation of compliance reports for meeting contract conditions and financial covenants during loan utilization process. ☼☼ Performance of fraud audits ☼☼ Corporate finance supporting services ☼☼ Performing other special purpose audits and consultancy services

Authorizations ☼☼ ☼☼ ☼☼ ☼☼ ☼☼ ☼☼

SPK (Capital Markets Board of Turkey) EPDK (Energy Market Regulatory Authority) Insurance Supervisory Board of the Undersecretariat of Treasury BDDK (Banking Regulation and Supervision Agency) Within the short list of World Bank and IFC Projects Mazars Turkey is one of the limited number of audit firms in Turkey authorized by PCAOB (Public Company Accounting Oversight Board), regulatory body authorizes firms for audit of listed companies in USA in line with Sarbanes-Oxley Act.

DUE DILLIGENCE SERVICES Acquirer Due Diligence Services

☼☼ Robust analysis of the target’s underlying historical performance ☼☼ Identification and analysis of the key elements which drive the purchase price calculation ☼☼ Critical analysis of the target’s financial projections and their principal underlying assumptions ☼☼ Identification of key risks relating to the target business and the transaction ☼☼ Advice on the optimal tax or funding structure of the deal ☼☼ Assistance in drafting the price adjustment and warranty clauses for the share

Doing Business In Turkey by Mazars / Denge

purchase agreement and advice on their implementation ☼☼ Post acquisition audit and preparation of the opening balance sheet

Vendor Due Diligence Services ☼☼ Identification and ranking of your business’ key value drivers ☼☼ Preparation of pro-forma or ‘carve-out’ financial information ☼☼ Robust, independent analysis of historical performance and critical analysis of, or assistance with the construction of the financial model ☼☼ Preparation and management of the data room ☼☼ Guidance throughout the negotiation process ☼☼ Advice on the optimal tax or funding structure of the deal ☼☼ Assistance in drafting the key price adjustment and warranty clauses for the share purchase agreement ☼☼ Management of potential disputes and claims arising from the process

Valuation and financial models ☼☼ Understand the value of your business in the context of your sector, your markets and your competitive landscape ☼☼ Identify the key factors which drive the value of your business ☼☼ Analyze historical results and model projected performance ☼☼ Apply appropriate discount rates and multiples ☼☼ Select an appropriate basis of valuation (P/E ratio, net assets, future cash flows, etc.) ☼☼ Use a systematic and multi criteria approach ☼☼ Test the accuracy and sensitivity of business model

TAX SERVICES Tax Certification Services ☼☼ ☼☼ ☼☼ ☼☼ ☼☼ ☼☼ ☼☼ ☼☼ ☼☼

Revaluation transactions Capital increases through revaluation funds Revenue exemptions from corporation tax Investment allowances Transactions of VAT returns and tax rebates Financial statements given to banks demanding credits and guarantee letters Transactions exempt from taxation Annual tax returns Other transactions foreseen by procedural tax law and law No. 3568

Other Certification Services ☼☼ ☼☼ ☼☼ ☼☼ ☼☼ ☼☼ ☼☼

Determining that the capital is paid in Capital increases through internal resources Revenue exemptions from corporation tax Transactions of Private Consumption tax returns and tax rebates Financial statements given to banks demanding credits and guarantee letters Transactions of R&D allowances Other transactions foreseen by procedural tax law and law No. 3568

Doing Business In Turkey by Mazars / Denge

Tax Consulting Services ☼☼ ☼☼ ☼☼ ☼☼ ☼☼

Providing financial consulting service Designing cost accounting systems and providing assistance for the implementation Reviewing year end financial statements and consulting for their presentation Preparing and/or controlling annual declarations Consultation regarding foreign capital, European Community Foreign Exchange and Free Zone Practices

Review Services (CAP software) ☼☼ Control of the books that are legally obligatory, from the perspectives of entry procedures and affirmation, within the framework of the Tax Procedure Law and Turkish Commercial Code ☼☼ Control of Accuracy of the accruals, Consistency with the accounting records, Arithmetic and proportional accuracy, Timely and complete payment, of the Value Added Tax, Withholding Tax, Stamp Duty Returns and Social Security Premium declarations of the company ☼☼ Examination of the personnel payrolls ☼☼ Control of the outgoing invoices, which are prepared by the company, through sampling in terms of adequacy, arithmetical accuracy, proper recording

VAT RETURN SERVICES ☼☼ Regulating the relationship between the tax-payer and the tax office during Value Added Tax return process within the scope of regulations set out by the tax administration and in the legislation ☼☼ Timely preparation of the Chartered Accountant’s report that are necessary for return and deduction transactions ☼☼ Providing consultancy services for the solution of problems encountered by companies regarding VAT return and deduction transactions

TRANSFER PRICING SERVICES ☼☼ Establishment of company’s transfer pricing strategy by using methods such as company process and functional analysis, comparability studies; and preparation of “Strategy Establishment Report for Transfer Pricing”. ☼☼ Revision and update of “Strategy Establishment Report for Transfer Pricing” in line with fundamental changes in the market and changes in the company’s functional and organizational structure. ☼☼ In case of the presence of a transfer pricing strategy established by the head office abroad, performing the work or providing support for adaptation of this strategy and related methods to Turkey. ☼☼ Service to review, analyze and to determine the risks at the companies’ existing transfer pricing applications, group transfer pricing documentation process ☼☼ For taxpayers who are uncertain which method to apply, managing the “Advance Pricing Agreement” process to apply the Tax Office, with necessary information and documents and to request the determination of the appropriate method for a certain period. ☼☼ In case of all kinds of transfer pricing disputes, provide necessary support at tax office and judicial stages. ☼☼ Upon request, preparation of “Annual Transfer Pricing Report” for submission to tax office and tax authorities. 52

Doing Business In Turkey by Mazars / Denge

The international press group, International Tax Review, located at London, has awarded Mazars / Denge as “The Best Transfer Pricing Firm Of Turkey” at the “2009 European Tax Awards Contest”.

OUTSOURCING ACCOUNTING SERVICES Accounting Services ☼☼ Establishing accounting and costing systems and organizing the accounting departments ☼☼ Providing book-keeping services under the supervision of our foreign language speaking experts ☼☼ Year-end closing of the statutory books ☼☼ Preparation and declaring of the VAT, Withholding Tax, Stamp Duty, Quarterly/Yearly Corporate Tax Declarations etc.

Payroll Services ☼☼ Preparation of Payroll ☼☼ Preparation of the payroll slips and setting up payment orders via internet banking ☼☼ Preparation and declaration of the Social Security and Withholding Tax Declarations

Reporting Services ☼☼ All kinds of financial reporting; preparation of the management reports, budgets, cash flows etc. ( USGAAP, IFRS, Consolidation Reports etc.) ☼☼ Accomplishing other miscellaneous tasks and preparation of special reports upon your request.

Accounting Review Services ☼☼ Checking the conformity of accounting records with GAAP and Turkish Tax Legislation ☼☼ Verifying the adequacy of the statutory books according to Tax Procedures Law and the Turkish Commercial Code ☼☼ Preparation of the tax declarations

INTERNAL CONTROL SERVICES ☼☼ Providing entirely internal auditing services ☼☼ Preparation of internal control procedures ☼☼ Examination of existing internal control procedures and systems, detection of incorrect applications and making recommendations ☼☼ Application of internal control procedures ☼☼ Making controls pertinent to internal control procedures and preparation of reports for the management ☼☼ Providing training sessions related to internal control

Doing Business In Turkey by Mazars / Denge

MAZARS

pe nd

Qualit y

ic h t E

Our Success Depends Upon Your Success Mazars can rely on the skills of 12,500 professionals operating in 56 countries. Mazars / Turkey founded by two partners as a simple accounting firm in 1977. Today Mazars / Turkey operates in four offices Istanbul (2 offices), Ankara and Bursa with more than 250 persons workforce and among the top 5 Audit & Accounting firms in Turkey.

Tax Consultancy & Certification & Review Audit Transaction Services (Due Diligence) Outsourcing Accounting Internal Control

Transfer Pricing VAT Return Corporate Governance Advisory Services for Capital Market Legislation Trainings

w w w. m a z a r s d e n g e . c o m . t r

MAZARS İSTANBUL

PROKON

Address: Hürriyet Mh. Dr. Cemil Bengü Cad. Hak İş Merkezi No: 2 Kat 1-2 34403 Çağlayan-Kağıthane / İstanbul

Address: Fulya Mh. Mevlüt Pehlivan Sk. Gül Apt. No:21 D:2 Gayrettepe / İstanbul

Tel: (90) 212-296 51 00 Fax: (90) 212-296 51 44 E-mail: denge@mazarsdenge.com.tr Contact: Leon Aslan Coşkun (CEO)

Tel: (90) 212-347 06 47 Fax: (90) 212-275 94 28 E-mail: prokon@prokon-tr.com Contact: Virna Ender Levi Website: www.prokon-tr.com

MAZARS ANKARA

MAZARS BURSA

Address: Kızılırmak Mh. Muhsin Yazıcıoğlu Cad. 1451. Sk. Hayal Apt. No:4 D: 1-4 Çukurambar-Çankaya / Ankara

Address: Kükürtlü Mh. Manolya Sk. Aka Plaza No:1/1 D:7 Osmangazi / Bursa

Tel: (90) 312-284 01 02 Fax: (90) 312-284 67 00 E-mail:dengeankara@mazarsdenge.com.tr Contact: R. Uğur Kaylan

Tel: (90) 224-233 69 61 Fax: (90) 224-233 78 71 E-mail: dengebursa@mazarsdenge.com.tr Contact: Şevki Boran