Definition and Purpose of the Inward Processing Regime
The Inward Processing Regime (IPR) is a customs regime that allows companies producing for export to import raw materials, semi-finished products, and packaging materials exempt from customs duties and other financial obligations. This regime is implemented to increase Turkey s export capacity and strengthen its international competitiveness.
The basic logic of IPR is straightforward: companies import inputs for production duty-free, process these inputs to produce value-added products, and export these products. This enables exporters to manufacture at costs competitive with world market prices.
How the Regime Works
Conditional Exemption System
This is the most commonly used method. During importation, customs duties, VAT, special consumption tax, and other financial obligations are not collected; however, a guarantee is obtained. The guarantee is returned when processed products are exported within the specified period. If export does not occur within the deadline, the guarantee is converted to cash and taxes are collected.
Drawback System
Under this method, all taxes are collected during importation. After the processed products are exported, the paid taxes are refunded to the company. Less preferred than the conditional exemption system, this method is disadvantageous in terms of cash flow but is applied in certain situations.
Application Process
Steps to follow for obtaining an IPR certificate:
1. Preliminary Preparation
The company must determine its production capacity, raw material requirements, waste rates, and export plan in detail. A capacity report and production flow chart should be prepared.
2. Application
Applications are made through the Ministry of Trade s electronic application system. Required documents include:
- Inward Processing Authorization Certificate application form
- Export commitment letter
- Capacity report (from the relevant chamber of industry or commerce)
- Production flow chart showing raw material-product relationship
- Signature circular and trade registry gazette
- Export performance information for the last 3 years
3. Evaluation and Approval
The Ministry of Trade evaluates the application. The company s production capacity, past export performance, and committed quantities are examined. An Inward Processing Authorization Certificate is issued for approved applications.
4. Import and Production
Raw materials specified under the certificate are imported duty-free. Imported inputs are used in production and finished products are exported.
5. Closure
At the end of the certificate period, the import-export account is closed. Documentation that the committed export quantity has been fulfilled is provided.
Eligible Products
Products that can be imported under IPR generally include:
- Raw Materials: Basic production inputs such as fabric, yarn, leather, metal, plastic granules, and chemical substances
- Semi-Finished Products: Intermediate products, parts, and components to be processed
- Packaging Materials: Materials to be used in packaging products for export
- Auxiliary Materials: Materials consumed in the production process but not present in the final product (with certain restrictions)
Separate regulations exist for agricultural products. Agricultural product inward processing is applied within the framework of special conditions and quotas.
Conditions and Deadlines
Export Commitment
The certificate holder must fulfill the export commitment within the period specified in the certificate. If the export commitment is not met, deferred taxes are collected with interest and sanctions are applied against the company.
Duration
The certificate period is generally 12 months. The certificate duration can be determined between 6 and 24 months depending on the production cycle. Extension of the period can be requested if justified reasons exist. The closure process should be initiated at least 1 month before the certificate expires.
Waste and Yield Rates
Accepted waste rates are established for each sector. Waste occurring during the production process must be within acceptable limits. If waste rates are exceeded, tax assessment is made for the excess portion.
Economic Benefits
The main economic advantages that IPR provides to businesses:
- Cost Advantage: Exemption from customs duties, VAT, and other financial obligations significantly reduces production costs. This advantage is particularly critical for raw materials with high customs duties.
- Competitiveness: The ability to procure raw materials at world prices increases the price competitiveness of exported products.
- Cash Flow: Under the conditional exemption system, since no tax payment is made, company capital can be used in production.
- Quality Inputs: Ensures the procurement of the most suitable and highest-quality raw materials from the world market for production.
- Capacity Utilization: Creates the capacity to receive more export orders and increases the capacity utilization rate.
Comparison with Other Customs Regimes
Outward Processing Regime
Unlike IPR, under the outward processing regime, products exported from Turkey are processed abroad and re-imported. Customs duty is collected on the labor or processing cost incurred abroad. This regime is preferred for specialized processes that cannot be performed domestically.
Temporary Importation Regime
Under the temporary importation regime, products are brought into Turkey for a specified period and re-exported in the same condition. No processing is performed on the products. Fair materials, test equipment, and rented machinery can be imported under this regime.
Free Zone Regime
Free zones are special areas considered outside customs boundaries. Unlike IPR, companies manufacturing in free zones are not required to obtain a certificate. However, sales from the free zone to Turkey are considered imports.
Customs Warehouse Regime
Under the warehouse regime, products are stored in customs warehouses without tax payment. Unlike IPR, products are not processed, only stored. It is used for transit trade and as a distribution center.
The Inward Processing Regime is one of the most important incentive mechanisms for Turkish exporters. When properly implemented, it provides significant cost advantages and increases export competitiveness. Close cooperation with your customs broker during the application and implementation process is of great importance in preventing potential problems.