AUTOMOTIVE AND MACHINERY

Setting Up a Production Facility in Türkiye: Land, Organised Industrial Zones, Investment Incentives and Permits

European companies in the automotive and machinery sectors are increasingly considering setting up their own production facilities in Türkiye in order to diversify their supply chains. Türkiye's developed supplier industry and its proximity to the European market are the main factors supporting this decision. Setting up a production facility, however, requires not only incorporating a company but also acquiring land, going through incentive procedures and obtaining numerous permits in a specific order.

A significant share of delays in production investments stems from failing to see at the outset how these procedures depend on one another. The following sections address the main legal questions faced by companies planning to set up a production facility in Türkiye.

Investment company

Production activities are, as a rule, carried out through a company incorporated in Türkiye. Companies with foreign shareholders have the same rights as domestic companies with regard to incorporation and operations; depending on their shareholding and control structure, however, they may be subject to additional procedures when acquiring real estate. When determining the type, capital and management structure of the company, the investment incentive certificate to be applied for later and financing needs should also be taken into account.

Organised industrial zone or a plot outside?

The most common choice for production facilities is a plot in an organised industrial zone. The available infrastructure and the handling of permit procedures through the zone directorate offer considerable advantages there. However, the allocation of the plot and the transfer of ownership in organised industrial zones are subject to certain conditions; the investor is expected to start construction and commence production within a certain period, failing which the zone management may be entitled to take back the plot. In addition, the transfer of the plot to third parties before production starts is, as a rule, restricted.

Where a plot outside an organised industrial zone is purchased, additional procedures for real estate acquisition may apply to a company with foreign capital depending on its shareholding and control structure. For companies falling within this scope, the location of the property and the compliance of the acquisition with the legislation are assessed in a procedure conducted through the relevant governor's office. The zoning status of the plot permitting industrial use is, in turn, a precondition for obtaining a building permit.

Investment incentive certificate

Certain investments in Türkiye can benefit from tax, customs and social security support under an investment incentive certificate. The application for the incentive certificate must be made before the relevant investment expenditure; machinery imported or expenditure incurred before the application is, as a rule, not covered by the certificate. Experience shows that bringing machinery and equipment into Türkiye before the incentive application has been filed is one of the most frequent problems investors face and one that is difficult to remedy afterwards.

An investor benefiting from an incentive certificate must fulfil the obligations set out in the certificate and complete the investment within its scope. The sale or relocation of machinery imported under the incentive within a certain period is subject to restrictions. The tax aspects of incentives should be handled in coordination with tax advisers.

Permits

In addition to the building permit, occupancy permit and business and operating licence, the construction and operation of a production facility require, depending on the nature of the activity, an environmental impact assessment decision, an environmental permit and fire safety permits. Since some of these permits are prerequisites for others, the construction schedule must be planned according to the sequence of permits.

Occupational health and safety obligations do not begin only when production starts; the measures required by the relevant activities must also be taken during construction and installation of the facility. In workplaces in high hazard classes, the appointment of an occupational safety specialist and a workplace physician and a risk assessment are mandatory; breaches of these obligations can lead not only to administrative sanctions but also to serious liability in the event of a workplace accident.

Staff and foreign specialists

During the set-up phase, the work permit status of technical staff sent from abroad must be planned separately. Whether a work permit is also required for short-term installation and commissioning work must be assessed on a case-by-case basis. When employing local staff, employment contracts, working hours and shift systems must be structured in accordance with Turkish employment law.

Conclusion

Setting up a production facility in Türkiye is a project in which incorporation, land acquisition, incentives and permits depend on one another. Assessing the plot in light of the organised industrial zone conditions or the real estate acquisition procedure, filing the incentive application before investment expenditure and sequencing the construction schedule according to permits make it easier for the investment to start production on schedule. General questions on company formation and real estate acquisition are addressed on the pages of the relevant practice areas.