Since Customs Union Agreement took place on January 1st, 1996 between Türkiye
and European Union via 1/95 Decree of Türkiye-EC Association Council, Türkiye has
adopted various regulations in conformity with EC's regulations. One of the
mentioned regulations is Türkiye's export incentive system which was abolished
and replaced by Inward Processing Regime (IPO) via Decree NO. 95/7615 put into
force on January 1st, 1996. For today, implemented Inward Processing Regime (IPO)
via Decree NO. 2005/8391 put into force on January 27, 2005.
IPO is a system allowing Turkish manufacturers/exporters to obtain raw
materials, intermediate unfinished goods that are used in the production of the
exported goods without paying customs duty and being subject to commercial
policy measures. Having granting IPO authorization, the owner of the IPO
authorization is obliged to import goods stated on authorization and export them
after processing the imported goods. The basic endeavor of the IPO is to
maintain materials at the world market prices and enhance the competitiveness of
Turkish exporters.
Inward processing can be classified by two main types of systems.
1. The Suspension System
The suspension system provides tax exemptions to the Turkish
manufacturer-exporters/exporters by permitting manufacturer-exporter/exporters
to import raw materials intended for use in production process and export final
goods without subject to import duties and VAT during importation. Under this
system, beneficiary of IPO has to submit letter of guarantee or pledge money
covering total amounts of all duties and VAT to the Custom authorities at the
importation. Holder of the authorization can be subject to discounted rate of guarantee
if the export performance of the holder meets the criteria getting a discounted guarantee.
At this point, one can ask that which criteria we look for.
If the manufacturer-exporter can export more than 1.000.000 or 500.000
Dollars within four years under IPO or special classified companies, they can
put up 1%, 5% or 10 % of total amounts of all duties and VAT as a guarantee
instead of all. This tax concession should be stated on the authorization
certificate.
Equivalent goods: In the suspension system, manufacturer-exporters/exporters
can use equivalent goods instead of the import goods stated on the authorization
certificate. Equivalence is a procedure which allows the substitution of the
goods in free circulation in place of the import goods stated on the
authorization certificate. It should be emphasized that equivalence needs to be
considered as in terms inputs (raw materials or unfinished intermediate goods)
not in the compensating goods (final goods). The equivalent goods must be of the
same quality and have the same features with the import goods.
2. The Drawback System
The import charges of the goods paid during importation can be subject to tax
reimbursement after the export commitments are fulfilled. Under the drawback
system import duty and VAT have to be paid when the goods enter the free
circulation into Türkiye. Reimbursement of VAT and import duty can be claimed
when the compensating products are exported.
Application and Evaluation of
Authorization Certificate
Authorization certificate can only be granted to the firms which can submit
necessary documents to Undersecreteriat for Foreign Trade (UFT) via General
Secretaries of Exporters Unions (GSEU). These documents are inward processing
project form, table of raw materials, signature circular, petition, trade
registration journal, capacity report and other technical documents in some
special cases.
The firms have to put in a request for authorization certificate to UFT via
GSEU with the necessary documents counted above.
Applications are evaluated on the basis of economic criteria stated in IPO.
What are the criteria?
Criteria to grant a certificate is first, the imported goods should have been
clearly determined that are used in the production of main compensating goods
without any doubt, secondly, benefiting of IPO does not cause a serious damage
to the domestic producers, thirdly, production process under IPO should have to
create an additional production capacity, value added and increase
competitiveness. The decision on granting the authorization certificate is made
by examining whether or not these economic criteria are fulfilled.
Usage of Authorization Certificate
The firms which have granted an authorization certificate should have to
import and export goods without paying any kind of custom duties and fees within
the period stated on the authorization certificate. These period of discharge
cannot be longer than 12 months. However, for some special production facilities
the time can be given up to 24 months. The period of discharge can be extended
maximum half of the period stated on the authorization certificate due to the
force major situations. The period of discharge starts with the date of first
party entry but this period cannot be longer than three months. And also when
one faces with economic crisis or natural disaster, like earthquakes happened in
1999, extra time can be given for discharge.
Discharge of Authorization Certificate
When the holder of the authorization certificate completes all the entry and
discharge transactions within the period stated on the authorization certificate,
the customs authorities give the letter of guarantee back to the holder or
reimburse the money which was pledged as security for all kinds of duties and
fees taken during import. For this return of letter of guarantee or
reimbursement of security, all the customs declaration and authorization
certificate has to be submitted to GSEU. GSEU compare the amount of goods
imported on the customs declaration with the amounts stated on authorization
certificate, check rate of yield and if the GSEU conclude that import goods used
in the production of export goods without any violation of IPO, then they inform
the custom authorities that all the provisions of IPO are fulfilled without any
violation of IPO, letter of guarantee or money can be reimbursed. If GSEU detect
any violations of IPO, they also inform the customs authorities that all duties
and fees should have taken from the holder including with compensatory interest
and fine. (Fine equals the two times of all duties and fees).
(Source: Undersecretariat
of the Prime Ministry for Foreign Trade Web Site)