Legal Obligations in Technology Development Zones Under Law No. 4691 and Key Points for Tax Audits
UNDER TECHNOLOGY DEVELOPMENT ZONES LAW NO. 4691
LEGAL OBLIGATIONS IN TECHNOLOGY DEVELOPMENT ZONES AND
KEY POINTS TO OBSERVE IN A TAX AUDIT
THE LEGAL FRAMEWORK
Purpose of Law No. 4691:
Technology Development Zones Law No. 4691 was enacted to strengthen Türkiye's competitiveness and export potential by fostering cooperation between universities, research institutions and the manufacturing sectors. The Law grants comprehensive tax incentives on income derived from software development, R&D and design activities carried out within technoparks.
To fall within the scope of the Law, a company must actually operate inside a Technology Development Zone (technopark). Activities carried out outside the technopark cannot benefit from the exemption, even if they qualify as R&D.
What Support and Exemptions Does Law No. 4691 Provide?
Type of Incentive | Description |
Personal/Corporate Income Tax Exemption | Income derived from software, R&D and design activities within the technopark is exempt from personal or corporate income tax. The exemption applies until 31.12.2028. |
Wage Income Tax Withholding Exemption | Income tax calculated on the wages of R&D and design personnel working within the technopark is written off for the relevant period and is not paid. |
Wage Stamp Duty Exemption | The wages of R&D and design personnel working within the technopark are exempt from stamp duty. |
VAT Exemption | Software produced and delivered exclusively within the technopark is exempt from VAT. |
Employer's Social Security Contribution Support | Half of the employer's share of social security contributions for R&D and design personnel is met by the Treasury. |
Notification Requirement in Applying the Personal/Corporate Income Tax and VAT Exemptions
Under the Technology Development Zones Implementation Regulation, personal and corporate income taxpayers operating in the zone must notify their affiliated tax office — by means of a letter obtained from the managing company (a letter evidencing that they operate in the zone and setting out their fields of activity) — in order for the VAT exemption to apply to their supplies and services and the corporate income tax exemption to their profits.
What Are the Conditions for Benefiting from the Incentives?
The company must hold a valid lease agreement with the technopark managing company.
Activities must be carried out actually and continuously within the technopark area.
Income and expenses within the scope of the exemption must be segregated in the accounting records; where income is mixed, a pro-rata calculation must be performed.
A minimum level of technical documentation (project definition, technical objectives, work plan) must be prepared for each project.
Personnel lists must be reported to the technopark managing company and kept up to date.
Progress reports must be submitted on time.
THE GENERAL FRAMEWORK OF A TAX AUDIT
When auditing technopark companies, tax inspectors assess them along the following lines.
II.1. PROJECT INFORMATION AND DOCUMENTATION
The project information form is the cornerstone of the audit. The inspector first tests whether the project is defined, measurable and involves technical uncertainty, and then whether the financial records reflect that technical reality.
Project type (Umbrella Project / Serial Project / Order-Based R&D Project):
In serial projects, revenue may be recognised on a percentage-of-completion basis (closing phase by phase), whereas in order-based R&D projects the delivery/acceptance document is decisive. Misclassification leads to periodicity errors.
Project Completion Certificate:
Where the certificate is missing, the completion date, the exemption period and whether revenue was recognised in the correct year will be questioned. It must be obtained for every project. Although it is often described as a secondary condition, documentation is critical to the use of the exemption.
Project-Based Cost Centre:
Without a cost centre, the allocation of common expenses and the exemption calculation become open to challenge; this is the leading cause of audits that drag on and end in penalties.
Project Profitability Analysis:
Low-margin projects can trigger transfer-pricing-style enquiries. Where cost inflation is suspected, related-party transactions also fall within the scope of the audit.
In companies without a project-based cost centre, the audit process is significantly prolonged and the risk of penalties increases. Defining the project code as a mandatory field in the ERP/accounting system is critically important.
II.2. REVENUE MANAGEMENT ON A PROJECT BASIS
Audit Focus Areas:
Revenue is expected to be segregated by project, with a clear classification between income inside and outside the scope of the exemption.
Invoicing dates, delivery/acceptance/completion criteria and compliance with the periodicity principle are checked closely.
Software licence, maintenance and support, and consultancy income must be invoiced as separate line items or on separate invoices.
In software sales to overseas customers, exchange rate differences and the place of supply matter; whether the service was partly performed outside the technopark will be investigated.
Frequently Encountered Problems:
Mixed invoicing of activities inside and outside the technopark.
Invoicing maintenance and support contracts and consultancy activities as though they were software licences in order to obtain the benefit of the exemption
II.3. EXPENSE AND COST MANAGEMENT
Allocation of Common Overheads:
In companies with more than one field of activity (inside plus outside the technopark), common expenses (rent, electricity, IT infrastructure, administrative expenses) must be allocated on an objective and consistent key.
Allocation Key | Appropriate Area of Use |
Turnover Ratio | Selling, marketing and general administrative expenses |
Labour Hours | Production, R&D and project costs |
Floor Area Used (m²) | Rent, heating and cleaning expenses |
Headcount | HR, payroll and employee benefit expenses |
Server/Processing Capacity | IT infrastructure and cloud services |
Audit Focus Areas:
Only expenses directly related to the technopark activity may be included in the costs of the exempt activity.
Non-exempt expenses leaking into the exempt scope, and expenses belonging to exempt income being carried outside the exemption, are the most frequently identified findings.
The allocation key may only be changed during the year by a reasoned management decision; inconsistent application creates a risk of penalties.
The allocation key should be set at the start of the year and formalised by a board resolution. If it is changed during the year, a reasoned minute of the decision must be prepared.
Capitalisation (Account 263 – R&D Expenditure)
Under the Uniform Chart of Accounts (TDHP) and the Tax Procedure Law (VUK), R&D expenditure must be capitalised.
Capitalisation is looked for in a tax audit.
Audit Focus Areas:
Expenditure that cannot be linked to a project or has no technical output.
Amounts expensed directly when they should have been capitalised (for the sake of a tax advantage).
Expenditure relating to more than one project combined under a single asset item.
Depreciation Policy
Audit Focus Areas:
Depreciation of prior years is checked for consistency of useful life and method (straight-line / reducing balance).
Charging the year's depreciation to the correct project and maintaining the exempt / non-exempt split is critically important.
Amounts still sitting in the capitalisation account after a project has been completed mean that depreciation started late and may become an audit issue.
Segregation in the Income Statement
In the accounting records, income and expenses relating to activities within the scope of Law No. 4691 must be clearly segregated from non-exempt activities. Mixed presentation both prolongs the audit and increases the risk of an ex officio assessment.
Within Law No. 4691 — Revenue | Exempt income must be shown clearly by project/activity; mixed presentation is not accepted. |
Within Law No. 4691 — Expenses | Only directly related expenses may be included; common expenses must be allocated on the key |
Outside the Exemption — Revenue | Income from activities outside the technopark must be tracked in separate accounts. |
Outside the Exemption — Expenses | Expenses falling outside the scope of the exemption must not reduce the exempt tax base |
Consolidated | Inconsistencies in total profitability and in the tax base underlying the corporate income tax return may be questioned. |
The Concept of Qualifying and Non-Qualifying Expenditure
The distinction between qualifying and non-qualifying expenditure plays a decisive role in determining the corporate income tax base. Misclassification can lead both to a tax base difference and to a tax loss penalty.
Type of Expenditure | Scope | Risk |
Qualifying Expenditure | Expenses directly related to the R&D activity, compliant with the legislation and capable of being documented. | Low — where the conditions are met |
Non-Qualifying Expenditure | General administration, marketing and weakly connected expenses; recording them as qualifying creates a risk of penalties. | High — risk of tax loss |
IMPORTANT NOTE: Presenting non-qualifying expenditure as qualifying can result in a tax loss penalty and late payment interest. Set the technical committee approval process out in a written procedure.
Risk Assessment Matrix
The table below classifies commonly encountered risk areas by significance and likelihood. Focusing first on the critical and high-priority areas is recommended.
Risk Area | Significance | Likelihood | Priority |
Mixing of exempt and non-exempt expenses | High | High | CRITICAL! |
Absence of a project-based cost centre | High | Medium | CRITICAL! |
Recording non-qualifying expenditure as qualifying | High | Medium | HIGH |
Bringing activity outside the technopark within the exemption | High | Medium | HIGH |
Periodicity errors (revenue recognition) | Medium | Low | MEDIUM |
Mixed invoicing (software + services) | Medium | Medium | MEDIUM |
Inconsistency in depreciation method | Low | Low | LOW |
Currency of the personnel list | Low | Low | LOW |
Recommendations for Preparing Ahead of an Audit
To be ready for a possible tax audit, systematic preparation in the following areas is recommended. Concrete actions are listed for each area.
Documentation and Record Keeping
Create a separate project file for each project: keep the technical specification, work plan, progress reports, test results and completion certificates in that file.
Collect personnel timesheets monthly on a project basis, have them signed and store them in a digital archive
Tag invoices and expense documents by project code; make the project code field mandatory in the ERP system. (Where an ERP system exists.)
Set the common expense allocation key by board resolution at the start of the year and monitor the consistency of its application through quarterly reports.
Keep all correspondence with the technopark managing company, personnel notifications and lease agreements in a single file.
Accounting and Financial Controls
Track exempt and non-exempt income in separate account codes (e.g. 600.01 — Technopark Income / 600.02 — Non-Technopark Income).
At each period end, verify the exempt tax base calculation with an independent control schedule; where there is a deviation, post the correcting entry in the current period.
Check whether all R&D expenditure has been capitalised on a project basis.
Include the depreciation policy in the written accounting policy document; document any change of method by board resolution.
Before the annual corporate income tax return, carry out a joint review with your YMM (internal-audit style).
Technical Preparation
Update the technical progress report for each project every six months; take care that the reports are consistent with the TÜBİTAK (Scientific and Technological Research Council of Türkiye)/TEYDEB format.
Review the list of qualifying expenditure with your technical staff and your SMMM or YMM at least twice a year.
Define a separate cost centre for the activities of personnel working outside the technopark; their wages may under no circumstances be brought within the exemption.
WHAT TO DO DURING THE AUDIT PROCESS
Inform your tax adviser or your YMM as soon as you receive the audit notice; give statements to the inspector only in the presence of your adviser.
The documents requested must be submitted in full and on time; incomplete submission can create an unfavourable impression.
Record the answers given to the inspector's oral questions; contradictory statements can become grounds for an assessment.
Reserve your right to settlement; if an assessment is made, monitor the deadline and conditions for applying to the settlement commission.
AUDIT PREPARATION CHECKLIST
The checklist below sets out, by category, the items to be completed in preparing for a tax audit. Tick the box as you complete each item.
|
This list should be reviewed and updated annually or before a tax audit begins. Columns for the responsible person and completion date may be added to suit the company's internal format.
IMPORTANT REMINDERS AND CONCLUSION
This briefing note is intended as general guidance and each company's circumstances differ. Expert advice is recommended for an assessment specific to your own situation.
Updates to Law No. 4691 and the related communiqués must be monitored regularly in the Official Gazette.
Relations with the technopark managing company and notification obligations must not be neglected; late notifications can put the exemption at risk.
Transition planning is recommended in view of the expiry of the exemption period (31.12.2028).
The YMM certification report is one of the strongest lines of defence in a tax audit and is a legal requirement; it must be prepared regularly every year.
IMPORTANT: Before putting forward any defence in a tax audit, always contact your tax adviser or your sworn-in certified public accountant. Information to be declared to the inspector must be prepared carefully and with your adviser present.
For detailed information, questions and suggestions on this subject, you may contact our tax team.
Yours faithfully.
Summarise this article with AI
AI summaries can be inaccurate or incomplete and are no substitute for professional advice. Contact us for an assessment specific to your business.
