Pharma and Life Sciences Tax News - Vol 7, No. 7
The Turkish Parliament has accepted the new R&D Law which includes provisions for granting tax and similar incentives for R&D activities.
The provisions of the new Law are valid from 01 April 2008. The main incentives introduced by the new Law are as follows:
- R&D deduction
- Income tax exemption
- Social security premium support
- Stamp tax exemption
- Funds received for support purposes
The applications principles will be determined by the bylaws to be prepared jointly by the Ministry of Finance (MoF) and the Ministry of Industry and Commerce.
R&D and modernity expenditures made by companies with a separate eligible R&D Center, within the scope of a R&D Project, can be deducted at a rate of 100% from the corporate income tax base.
In addition to the above, companies with a separate R&D Center of more than 500 R&D personnel can – in addition to the above deduction - deduct half of the increase in R&D expenditures with respect to the R&D expenditures in the previous period.
The unutilized R&D deduction may be carried forward by being indexed to the revaluation rate.
The R&D and modernity expenditures – which lead to the creation of an intangible right – must be capitalized and may be depreciated according to the tax procedural law regulations. Therefore, in effect, the R&D expenditures are deducted from the corporate income tax base and depreciated separately from the deduction mechanism described above.
80% of the salary income of the R&D or support personnel is exempt from income tax. However, this rate is increased to 90% for personnel who have a PhD. The total amount of support personnel benefiting from the income tax exemption cannot exceed 10% of the total R&D personnel.
Half of the employer portion of Social Security premiums of the R&D and support personnel will be funded by a budget of the MoF for five years.
The documents prepared for the R&D activities are exempt from stamp duty.
The funds obtained from state institutions, trusts and international funds are exempt from corporate income tax on the condition that such funds are not extracted from the Company within five years.
We believe that the regulations and provisions set forth by this new law are directly linked to the main activities of pharmaceutical industry. Many companies in the Pharmaceutical Industry, especially generic manufacturers are already in the process of analyzing ways to benefit from these incentives.
Considering the clinical research studies carried out in Turkey by original pharmaceutics manufacturers and importers, we believe that this new law could be the milestone for attracting world’s leading research centers or prospected investment capital to Turkey.
Our understanding is that the incentives brought by this regulation can also be used in the research activities in manufacturing of generic pharmaceutics, not limited with the clinical researches.
Besides, provided that the current legislation is not sufficient in attracting the research activities to Turkey, it may be possible to visit the authorities to discuss further on additional regulations to be made.
