Becoming a tech entrepreneur in Turkey can be challenging, and the lack of foreign investment is a clear sign of the difficulties. However, when it comes to the gaming industry, Turkey offers significant advantages and support. These benefits can outweigh the challenges, helping game companies achieve sustainability and potentially grow into million or even billion-dollar businesses.
In this article, we will explore these benefits and present a guide for game entrepreneurs to navigate the business environment in Turkey. This guide is built on practical knowledge and experience rather than theoretical advice. If you can’t find answers that fit your app business, feel free to reach out to us via message or email with your specific questions.
This guide will cover four main areas:
- The right time and legal structure to establish your company
- Choosing between Technoparks and Free Zones
- How to handle and minimize tax on expenses
- How to get refunds on your expenses through government incentives
- How to optimize tax on your revenue streams and take advantage of exemptions
1. Should I Start a Company Now? Legal Considerations
If you’ve started developing a product and have at least two partners, it’s advisable to form a company during the early or mid-stages of development. If you are looking to raise investment in the future, forming a joint-stock company (JSC) is almost essential due to tax regulations. If you are a solo entrepreneur, you can delay establishing the company until you are ready to launch the product.
Key Takeaways:
- Due to available government incentives, it is financially unwise to establish your company abroad. Many foreign companies are already publishing their games through their Turkish subsidiaries to take advantage of these benefits.
- If you’re concerned about legal issues or plan to seek foreign investment, consider setting up a parent company abroad and positioning your Turkish company as a wholly-owned subsidiary. It’s tax-efficient to handle this “flip-up” process early.
- If you plan to start advertising within six months, acquiring a dormant company instead of starting from scratch can give you a significant advantage. This will enable you to take advantage of cash grants covering up to 70% of your marketing expenses.
- If you have multiple partners, it is crucial to draft a Shareholders’ Agreement (SHA) to formalize your arrangements. Including employee stock options in your company constitution is also a good idea to incentivize staff.
- Register your company with the NACE code 62.01 to become eligible for various government support programs.
2. Should I Establish My Company in a Technopark or Free Zone?
In Turkey, high taxes and social security costs can be mitigated through several incentives available to tech companies. You can benefit from tax exemptions and other advantages by establishing your business in a Technopark, Free Zone, Tekmer (technology development center), or an on-site R&D or design center.
If your company won’t be highly profitable in the first year and you expect to have fewer than five employees, these options might not be worth the hassle. The obligations of such centers—such as reporting requirements, both technical and tax-related, continuous operation, and project management—can be burdensome. While incubators may seem cost-effective, they often require equity options, which could become a long-term liability. If you don’t plan to grow beyond five employees quickly, it’s best to avoid these options. If you expect rapid growth, consider setting up a base in a Technopark or Free Zone. If space is unavailable, you can open a branch later.
Comparison of Technoparks and Free Zones:
Here’s a link to a detailed comparison.
Currently, establishing an R&D or design center may not be the best fit for game startups due to bureaucracy and other limitations.
3. What Are the Tax Implications for My Expenses?
The gaming and mobile app business in Turkey are highly dependent on imported services. You’ll need to pay for advertising networks, servers, and various software tools (e.g., Unity, Atlassian, Figma). Unfortunately, the government tends to pass the tax burden of these services onto startups.
The most significant expense will be advertising. When you advertise internationally (assuming your games are sold via platforms like App Store, Play Store, Steam, etc.), no VAT or withholding tax (WHT) is applied since the service is provided outside of Turkey. While paying extra taxes might make you feel patriotic, it will drastically slow down your growth. Unfortunately, we often see accountants misguiding companies in this regard.
Read more about mobile app tax obligations here:
https://www.finahukuk.com/mobil-uygulama-vergisi/
When purchasing certain software tools for development, VAT may apply (known as VAT2). Whether you need to pay VAT2 depends on your accountant’s knowledge of these tools. It’s worth hiring an experienced accountant to handle this.
4. How Can We Finance Our Expenses with Government Support?
Since TUBITAK and KOSGEB don’t recognize games as innovations, obtaining direct project funding for a game is nearly impossible. However, if you’re developing a technology used in your game (e.g., infrastructure), you could consider TUBITAK’s 1507 or 1501 programs, depending on your company’s size. Otherwise, pursuing support just for the sake of it might stretch your resources too thin, so stay focused on growth.
If you’re self-publishing, Turkey’s Ministry of Trade offers significant support. They cover 60-70% of your marketing expenses, 50% of your App Store/Play Store/Steam commissions, and 60% of tools like Adjust, Appsflyer, SensorTower, and more. You can receive up to 12.5 million TL per game and per year in advertising and commission support, and a significant portion of engineer salaries and software tools are also refunded. Also, the ownership of the company does not matter.
5. Not in a Technopark? How to Benefit from the 4% Corporate Tax for App Business in Turkey?
If you’re interested in this, it likely means you’ll be making money soon. Turkish software exporters, even if they’re not located in a tax-exempt zone like a Technopark, enjoy an 80% corporate tax exemption. Additionally, because they export services, their corporate tax rate is 20% rather than 25%, meaning a 16% effective tax discount.
This exemption applies to in-app purchases and subscription revenue, but unfortunately not to advertising income. Moreover, since your sales are international, VAT is not applicable.
Thus, even a one-person company generating revenue from in-app purchases can benefit from significant tax advantages without being based in a Technopark.
Conclusion
While corporate tax and social security costs can range from 10-30% in many parts of the world, Turkey is currently the #1 hotspot for app business, offering generous cash incentives and lower tax rates.
For those who believe the information shared above is inaccurate or impossible to access due to bureaucracy, we’d love to connect with you. As they say, “People fear what they don’t know.” Let Finahukuk help you navigate legal, financial, and tax matters, so you can focus on growing your game startup.