FREE ZONE LEGISLATION OF TURKEY. Free Zones Law

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1 Free Zones are defined as special sites within the country but deemed to be outside of the customs territory and they are the regions where the valid regulations related to foreign trade and other financial and economic areas are not applicable, are partly applicable or new regulations are tested in. Free Zones are also the regions where more convenient business climate is offered in order to increase trade volume and export for some industrial and commercial activities as compared to the other parts of country. Even though there exists some common features such as being deemed to be outside of the customs territory and being places where some special incentives are applied, there are differences in free zone implementations according to the countries economic and trade policies, social and political situations. As a result of these differences there is diversity in the terminology of free zones. There are approximately 20 terms that are used to define free zones. Some of these terms are: Free zone, free port, customs free zone, export processing zone, foreign trade zone, free economic zone, free production zone, free trade zone, industrial free zone, maquiladora, special economic zone, tax free zone, customs free airport, foreign access zone. The efforts to establish free zones in Turkey date back to the early years of the Turkish Republic and several free zones laws were put into force that could not be applied for reasons peculiar to their time. With the adoption of the Decisions of January 24, 1980, through which the import substitution policies was abondoned and arrangements toward liberalizing the economy became effective, free zones also came on the agenda among other liberal policies. The first positive result achieved by the statement Free Zones will be established that was inserted in the 1984 Executive Plan which was put into force by the decision of Council of Ministers dated September 22, 1983 no:83/7077. The studies gained impetus and the Free Zones Law No:3218 came into effect in June 15, In the Free Zones Law, the main objectives of the establishment and operation of free zones are stated as increasing exportoriented investment and production in Turkey, accelerating the entry of foreign capital and technology, procuring the inputs of the economy in an economic and orderly fashion and increasing the utilization of external finance and trade possibilities.

2 Since then, Mersin (1987), Antalya (1987), Aegean (1990), Istanbul Atatürk Airport (1990), Trabzon (1992), Istanbul-Leather (1995), Eastern Anatolia (1995), Mardin (1995), ISE Istanbul International Stock Exchange (1997), Izmir Menemen-Leather (1998), Rize (1998), Samsun (1998), Istanbul Thrace (ÇATALCA)(1998), Kayseri (1998), Europa (1999), Gaziantep (1999), Adana Yumurtalik (1999), Bursa (2001) Denizli (2001), Kocaeli (2001) and TUBITAK-Marmara Research Center Technology (2002) free zones became operational. In general all kind of activities can be performed in Turkish Free Zones such as manufacturing, storing, packing, general trading, banking and insurance. Investors are free to construct their own premises, while zones have also available office spaces or warehouses on rental basis with attractive terms. All field of activities open to Turkish private sector are also open to joint-venture of foreign companies. FREE ZONE LEGISLATION OF TURKEY EXPLANATION The Directorate General of Free Zones was founded in 1983 within the organization of the Prime Ministry on the basis of Statutory Decree Nr Later in 1984 it was included into the organization of the State Planning Organization as the Directorate of Free Zones on the basis of Statutory Decree Nr. 223 and in 1991 it was included into the organization of the Undersecretariat of Treasury and Foreign Trade of the Prime Ministry as the Directorate General of Free Zones on the basis of Statutory Decree Nr In 1994, the Directorate General of Free Zones was included into the organization of the Undersecretariat of Foreign Trade of the Prime Ministry since the Undersecretariat of Treasury and Foreign Trade was divided into two on the basis of Statutory Decree Nr However, this Decree was canceled. Thereafter, as the result of the reorganization of two Undersecretariats as the Undersecretariat of Foreign Trade and the Undersecretariat of Treasury, with Law Nr. 4059, in 1994, the Directorate General of Free Zones began to carry out its activities within the structure of the Undersecretariat of Foreign trade. Free Zones Law Law Nr Approved: June 6, 1985 Issued: June 15, 1985 SECTION ONE GENERAL PROVISIONS Objectives and Scope ARTICLE 1 - This Law encompasses matters related to the establishment of free zones; the determination of their location and boundaries; their management; the scope of their activities; their operation; and the establishment of installations and facilities within the zone; with the objective of increasing export-oriented investment and production in Turkey; accelerating the entry of foreign capital and technology; procuring inputs of the economy in an economic and orderly fashion; and increasing the utilization of external finance and trade possibilities.

3 Authority ARTICLE 2 - The Council of Ministers has the authority to determine the location and boundaries of the free zones. The Council of Ministers grants permission for the establishment and operation of free zones to public institutions and agencies, resident or non-resident real persons or legal entities. Definitions ARTICLE 3 - In the implementation of this Law: a) Operator signifies the public institution and agency; the resident and non-resident real persons or legal entities operating the free zone. b) User signifies the real and legal person bearing an Operating License and having a specific place of business within the free zone. c) Foreign exchange refers to all currencies, or all types of accounts or bills, considered as being convertible by the Central Bank of the Republic of Turkey. Activities ARTICLE 4 - Any kind of industrial, commercial and service activities approved by the Supreme Coordination Council Of Economic Affairs may be carried out within free zones. Any authority regarding prices, quality and standards granted to public institutions and agencies by laws or by other legislation is not valid in the free zones. SECTION TWO ORGANIZATION OF FREE ZONES Principles Related to the Organization of the Zone ARTICLE 5 *- Land and facilities needed within the declared free zones may be acquired pursuant to the provisions of the Expropriation Law. Domestic or foreign real persons or legal entities may be active within free zones on the condition that the Undersecretariat of Foreign Trade grants an operating license to them. All other permits and licenses regarding the use of land as well as the design, construction and utilization of buildings and installations within the free zone are issued and supervised by the regional directorate. Security services for free zones are provided by the police. Exemptions and Incentives ARTICLE 6*** - Free zones are regarded as being outside of the customs territory. Legislative provisions pertaining to customs and foreign exchange obligations are not applicable in these zones. Regarding the account books the users must keep and documents they draw up, Ministry of Finance is authorized to make necessary arrangements independent from the provisions of the Tax Procedures Law No. 213 dated During the investment and production stages of their activities, operators and users may qualify for incentives other than tax incentives, determined by the Council of Ministers. Revenues and Expenditure of the Free Zones Article 7 ** From the revenues obtained from the free zones; a) Fees to be collected for operating licenses and permits, b) Fees to be paid in advance amounting to 0.5 percent of the CIF value of goods entering the zone from abroad and leaving the zone towards Turkey, c) Payments specified in the contracts made with real persons and legal entities operating the free zones,

4 d) Other revenues obtained from the zone activities, are deposited in the Special Account to be opened with the Central Bank of the Republic of Turkey, after deducting the income share transfers specified in the contracts made with the legal entities by the interested administration. After reducing the rejections and returns, the rest of the amount collected in this account is deposited in the account of the Main Treasurers Office which is in charge of the payments of the Undersecretariat for Foreign Trade. The amount deposited in the account of the Main Treasurers Officeis registered as revenue to the budget.(*****) Goods utilized during the investment and construction stages, goods brought into the zone for renovation and capacity building purposes, as well as goods, which are not owned by the users, brought into the zone for maintenance and repairing purposes, temporarily brought instruments, tools and equipment, and goods brought for the purpose of outsourced material processing are not subject to the payments specified in paragraph (b) of this Article. However, a fee is charged on the value added created during the maintenance, repairing, and outsourced material processing. Procedures and principles concerning the management of the Special Account opened with the Central Bank of the Republic of Turkey are determined by a regulation of the Undersecretariat for Foreign Trade upon the approval of the Ministry of Finance. Revenues not deposited in due course, are subject to the provisions of the Law Nr on the Procedures on the Collection of Public Receivables.(*****) SECTION THREE GOODS AND SERVICES Goods In Free Zones ARTICLE 8 - Trade conducted between a free zone and other regions of Turkey is subject to the foreign trade regime. Upon request, goods originating from Turkey of less than 500 US $ value may be exempted from export procedures. The foreign trade regime is not applicable for trade conducted between free zones and other countries, or other free zones. Foreign Exchange and Services ARTICLE 9 - All payments related to free zone activities are made in the form of foreign exchange. The Council of Ministers may decide that payments be also made in the form of Turkish Lira. Shipping and port services in free zones are provided either by the operator or assigned to public institutions and agencies or to real persons or legal entities. SECTION FOUR LABOR AND SOCIAL SECURITY, REPEALED AND INAPPLICABLE PROVISIONS, AND REGULATIONS Labor and Social Security Provisions ARTICLE 10 - Foreign managers and qualified personnel may be employed by firms operating in a free zone. Related principles are specified by governing statutes. Provisions of the Social Security Regulations of the Republic of Turkey are applied in free zones. Repealed Provisions ARTICLE 11 - The Free Zones Law Nr dated December 21, 1953, is hereby repealed. Inapplicable Provisions

5 ARTICLE 12 **- In free zones, all provisions of Municipality Law Nr except paragraphs 5, 22, 25, 32 and 47 of Article 15; Passport Law Nr. 5682; Law Nr for Foreigners Traveling and Residing in Turkey and Law Nr on Professions and Services Allocated for Turkish Citizens including its Annexes and Amendments; Foreign Investment and Encouragement Law No 6224; Law Nr on the Implementation of Duties and Services at the Civilian Airports, Ports and Border Gates, and provisions of other laws contrary to this Law are not applicable. Free Zone Governing Regulation ARTICLE 13 ** - Where the arrangement of matters in this Law are left to governing regulations, concerning any organization, duties, authority and/or responsibilities of operators who are active in free zones, or granting and cancellation of any Operating Licenses provided to such operators and/or users; concerning the maintenance of their industry and commercial registers; concerning any payments they make to the Special Account; concerning principles governing conduct of activities in a free zone; concerning zone entry permits and identity cards; residence permits; and concerning work principles and other matters pertaining to the operation of free zones are determined by governing regulations. INTERIM ARTICLE 1 (Abolished, Law Nr: 4771, Official Gazette dated August 9, 2002 numbered 24841) INTERIM ARTICLE 2 - This Law is effective for each free zone upon the commencement of operations in that free zone. The date of commencement of operations is the date when the construction of the perimeter fence, tower and gate are completed and the regional directorate, police and customs units assume their duties. INTERIM ARTICLE 3****- By the date this article comes into effect, the taxpayers, who obtained licence to operate in the free zones that were established according to this Law, are a) exempted from income or corporate taxes on the earnings generated through their activities in these zones, within the limits of the period specified in their operating licences as of the date this article comes into effect. This exemption does not affect the deduction carried out within the scope of sub clause (b) of sub paragraph 6 under the first paragraph of the article 94 of the Income Tax Law No. 193 dated b) exempted from the income tax on the wages they pay to their workers until However, if the validity period of their operating licence ends before , the date of completion of the operating licence period is taken into consideration regarding this exemption. c) exempted from all taxes, levies and duties on their activities related to their free zone operations until The earnings of the income or corporate taxpayers, generated through the sales of the goods they produced in these zones, are exempted from the income or corporate taxes until the end of the taxation year including the date of the realization of the full membership of Turkey to the European Union. This exemption does not affect the deduction carried out within the scope of sub clause (b) of sub paragraph 6 under the first paragraph of the article 94 of the Income Tax Law No. 193 dated Entry into Force ARTICLE 14 - This Law goes into effect on the date of its publication. Execution ARTICLE 15 - The provisions of this Law are enforced by the Council of Ministers.

6 *As amended by the Law No.4059, published in the Official Gazette dated **As amended by the Law No.4684, published in the Official Gazette dated *** As amended by the Law No on the Encouragement of Investments and Employment and Amendment of Certain Acts, published in the Official Gazette dated , No **** As annexed to the Free Zones Law No by the Law No on the Encouragement of Investments and Employment and Amendment of Certain Acts, published in the Official Gazette dated , No *****As amended by the Law No.5217, published in the Official Gazette dated Please note that the English version is an unofficial translation. Only the Turkish version of the regulation is legally binding. Objective PART ONE GENERAL PROVISIONS SECTION ONE Objectives, Scope, Legal Basis, Abbreviations and Definitions ARTICLE 1**** - The objective of the present Regulation is to set out principles pertaining to the establishment, administration and management of free zones and to the collection of revenues and making of expenditures for and from the Special Account formed in accordance with the Article 7 of Law Nr.3218, together with other matters related to said Special Account. Scope ARTICLE 2 **** - In pursuance of the objective mentioned in Article 1. the present regulation covers: a) points related to the governing and management of free zones, b) principles which activities involving the free zones are subject to, c) granting or annulment of operation licenses and keeping of industrial and commercial registers, d) questions of entry into and exit from a free zone and residence in the zone, e) working principles in a free zone, f) principles for the payments to the special account and the collection of the revenues,(******) Within this context, Undersecretariat of Foreign Trade (UFT) may issue circulars/directives with the purpose of ensuring that provisions of the present Regulation are applied in practice.

7 Legal Basis ARTICLE 3 ****- The present regulation is prepared in accordance with Law Nr on the Organization and Functions of Undersecretariat of Treasury and Undersecretariat of Foreign Trade, and with Articles 7 and 13 of Law Nr on Free Zones. Abbreviations and Definitions ARTICLE 4 ****- Following abbreviations and definitions have the meanings stated here when used in the present regulation: a) The Ministry: The Ministry to which Undersecretariat of Foreign Trade is affiliated. b) UFT: Undersecretariat of Foreign Trade. c) Directorate General: The Directorate General of Free Zones. d) Zone Directorate: The Free Zone Directorate. e) Zone Founder: The organization which provides the infrastructure in cases when the infrastructure of the Free Zone is provided by a domestic or foreign private sector company or by the public sector. f) Operator: The institution or agency which operates the zone in cases when the Free Zone is operated by a domestic or foreign private sector company or by the public sector. g) ZFO - Zone Founder and Operator: The agency which develops and operates the Free Zone, in cases when the Zone is developed and operated by the private sector. h) The Special Account: The special account opened with the Central Bank of the Republic of Turkey where revenues of Free Zones are collected i) Operating License: The License permitting one to engage in activities in a Free Zone. j) Open Space Use Permit: A permit allowing the use of open space in the Free Zone for a restricted period. k) Entry Permit: The document giving entry to the Free Zone. l) Special Entry Permit: The special document giving entry into the Free Zones temporarily for the purposes of meetings, visits and the like. m) Zone: The Free Zone the location and borders of which have been determined by a Decree of the Council of Ministers. n) User: A real or legal person in possession of an Operating License having a definite work place in the Free Zone. o) Tariff: The fees to be paid by real persons or legal entities operating in the Free Zone for the space and services provided. p) Foreign Currency: All kinds of accounts. documents and instruments securing payment in foreign currencies, including cash. dealt in by the Central Bank of Turkey. r) The Law: Law Nr on Free Zones. s) Regulation(s): The Free Zone Governing Regulation. t) (Abolished on ) (******) PART TWO ZONE DIRECTORATES AND ORGANIZATION OF THE ZONE SECTION ONE Zone Directorates, Boundaries Of The Zone, Infrastructure And Superstructure And The Protection Thereof The Duties and Powers of the Zone Directorates

8 ARTICLE 5 -(******)The free zone Directorates are directly subordinate to the Undersecretariat for Foreign Trade according to the article 6 of the Law No:4059 dated 9/12/1994 on the Organizational Structure and Duties of the Undersecretariat for Treasury and Undersecretariat for Foreign Trade The duties and powers of the free zone directorates are as follows: a) Granting all licences regarding the use of the zone area, planning, constructing and utilization of the buildings and establishments, b) Providing the free zone revenues to be deposited at the special account, to this end opening accounts with the banks and performing the related procedures, c) Assuring coordination to fulfill the duties for public interest such as customs, security, labour, social security, port operation, communication and health services to be done properly, d) Supervision and control of the procedures pursued according to the terms of contracts; enacted between the Undersecretariat for Foreign Trade and Operator or Founder-Operator companies, enacted between Operator or Founder-Operator companies and users, enacted between public and private enterprises, e) Providing the arrangement of the service fees, rental and/or sale prices prepared by the Founder-Operator companies, f) Granting entry and special entry permits, g) Approval of the rental or sale contracts of the legal or real persons that are found appropriate to obtain an Operating Licence, h) Assessment of the zone activities and submitting the results of the activities within the year in interim reports, presenting annual activity and account reports with the tables demonstrating special account revenues, with necessary attachments and explanations to the Directorate General, i) Providing deportation of the tradable goods and the fixed assets of the firms of which their operating licence is annulled or ended within the time limits specified by the Regulation. j) Carrying out other tasks determined by the Regulation. The Zone Director takes all necessary measures to ensure the fulfillment of the duties stated in the Regulation and the execution of the procedures to be carried out in compliance with the legislation. The Zone Director is responsible for all the necessary supervision, inspection and implementation of these tasks." Boundaries Of The Zone

9 ARTICLE 6 - Boundaries of a zone are those specified in the relevant decree of the Council of Ministers issued for the establishment of that zone. Maritime areas in wharves and other places allocated by the Port Authority and/or Port Management Directorate for ships and other marine vessels carrying goods into and out of a zone using the docks or by way of lash and limbo by sea. As well as the route used for the transport of goods between such places and the zone in either direction, are regarded as part of the free zone in terms of customs procedures, provided that these areas are under the supervision of the Customs Authority. Infrastructural Facilities ARTICLE 7 ****- The construction of infrastructure such as drainage, sewage and treatment systems, roads and water, power and communication facilities and the construction of zone boundaries, steel- yards, depots for smuggled goods, entrance and exit gates and other buildings and installations may be undertaken by relevant Ministries or be contracted to the Operator or ZFO. If a free zone is established within the boundaries of a public port, airport or other facility, processes and procedures for the provision of infrastructures must be performed by the Directorate General and all necessary structures and facilities made available with due regard for any necessary coordination with and for the consent of all concerned organizations and institutions. If a free zone is established and operated by a ZFO within the framework of an Establishment and Operation Contract concluded with UFT, the ZFO is obliged to complete within the specified period all construction work on functional units and on all covered areas necessary for conduct of activities inside the area allocated to the zone, and to provide all necessary infrastructure and construction necessary to link in-zone and off-zone infrastructures. The ZFO is also responsible for the promotion of the Zone within the country and abroad, for the leasing of the workplaces to entrepreneurs, for the sale of land on request, provided that the zone is established on private land, and for equipping open areas for sale with infrastructure until payment for the land is made, for supervising the construction of user buildings and for the carrying out other procedures related to the establishment and operation of the zone. Superstructural Facilities ARTICLE 8 ***- Land owned by the Treasury or a public institution allocated to a zone can be leased by means of a contract, in part or in whole, by the Directorate General either to the Operator or to the ZFO, for superstructure, or to the real or legal entities that have obtained an Operating License from the Directorate General. Buildings and other facilities in the zone can either be constructed by the Operator or the ZFO, or by the users. These buildings and facilities can be rented or transferred to other users, or can be sold if the property is owned by the ZFO or the users. All approvals and supervisory work during the construction period are performed by the Zone Directorate. Zone Directorate may delegate its responsibilities concerning approval and supervisory work to the ZFO. However, construction projects of the facilities with a particular characteristic, are approved by the Directorate General. Users who are found eligible to receive an Operating License conclude a sales or rental contract with the Operator or ZFO. After the approval of the contract by the Zone Directorate,

10 the Directorate General issues an Operating License; thereafter the users can start their investment activities in the Zone. After preparing their projects and fulfilling their superstructure commitments, users, who are going to construct a building or facility, apply to the Zone Directorate for an Occupation Permit. Granting of an Occupation Permit, marks the end of the investment phase and the beginning of the operation phase. The project preparation and construction work should be accomplished within the period specified in the Operating License Application Form. This period is included in the operational phase specified in the Operating License. However, in case where the project and the construction work cannot be completed with an acceptable compulsory condition within the stated period, an additional period of time can be granted according to Article 54. Additional time period cannot be included in the period of Operating License. Users can start their activities (without receiving an occupation permit), in their buildings or in an other rented working place by receiving a temporary occupation permit from the Zone Directorate before the construction of the building or facility is completed on the rented or purchased land. In this case, the operating period deemed to be commenced on the date they have received the temporary occupation permit or rented a covered area. Superstructure that was built upon rental of an open area, can be transferred to another user by the approval of the General Directorate with the condition of not exceeding the time limit of operating license that was granted to the first user. In free zones where the land is owned by the Treasury, the buildings and facilities that were constructed by the Operator, ZFO and users are transferred to the Treasury after the cancellation of the Operating License or by the expiration of the Operating License. In principle these buildings and facilities should be transferred in serviceable condition. In this respect, the Operator/ZFO take necessary precautions together with the Zone Directorate. In free zones where the land is private property, by the expiration of the Operating License of the users who have constructed buildings and facilities on the rented land, a new license can be issued to the name of that user not exceeding the time limit mentioned in the rental contract for the transfer of the superstructure. In case of the expiration of the time limit mentioned in the rental contract, the constructed buildings and facilities are transferred to the ZFO. In case of terminating their activities within the time limit of the Operating License or the cancellation of the Operating License, these users can transfer their right to use of the buildings and facilities to the real or legal persons that will be approved by the General Directorate till the end of the expiration date of their Operating Licenses. Otherwise, buildings and facilities are transferred to the ZFO. In free zones where the land is private property, the users that are operating in a working place where they have constructed on the land they have purchased, can receive a new Operating License upon the expiry of their Operating License. In case of termination of their activities or cancellation of their Operating Licenses, these users with the approval of the General Directorate can sell their land and the buildings and facilities on the land to another real or legal persons. The building and construction principles regarding the superstructure to be built in each Zone are determined by the General Directorate. The projects of the superstructure that are to be built are approved by the General Directorate before the Zone commences its operation

11 Protection of Buildings and Facilities ARTICLE 9 - The Zone Directorate is responsible for the protection of infrastructural and superstructural facilities and the boundaries of the zone and for ensuring the continuous observation and supervision of any changes that may take place. The operator or the ZFO and the Zone Directorate jointly take all necessary measures to ensure that rented premises and facilities are handed back by the users in a usable condition, and if necessary, to secure the payment of compensation in an amount specified by the Zone Directorate to cover the restoration of such buildings and facilities to their former condition. SECTION TWO Fields of Activity, Operating Licenses, Entry Permits And Service Cards. Fields Of Activity In The Zone ARTICLE 10 - All industrial, commercial and service operations deemed appropriate by the Supreme Planning Board (SPB) may be conducted in the Free Zone. Granting Of Operating Licenses ARTICLE 11 ****- Real persons or legal entities who intend to engage in operations in the Free Zone may submit their Operating License Application Form either directly to the Directorate General or by way of the Zone Directorate or by registered mail in order to obtain an Operating License. Where the application is made by mail, the mailing date of the application form is regarded as the date of submission to the Directorate General. After the Application Form for Operating License is completed and submitted by one of the above means and the Operating License Application Fee is deposited to the Special Account with the Central Bank of the Republic of Turkey, the application is considered as filed. After the evaluation of the application, those who are found eligible to be granted an Operating License in order to carry out activities in free zones are notified by letter. In the abovementioned official letter the applicant is granted 30 days in order to make a lease or sales contract. The applicant who makes a lease or sales contract in this given time shall have the contract approved by the Zone Directorate and send a copy to the Directorate General. After the delivery of the contract Operating License is issued by the Directorate General. Failure to make the contract within this period results in the loss of the right to an Operating License. The Directorate General may, after evaluating the Application Form for Operating License, reject the application if it is convinced that conditions are not right. Operating License application is evaluated by taking into consideration the request of the applicant, the type of activity to be conducted, the amount or the investment, and other issues relevant for each zone. The term of the Operating License, Operating License Application, the principles and fees for other permits are determined by the Directorate General. Users possessing an Operating License for warehouse activities may store the goods of other users or of real persons or legal entities who are not users once they obtain the approval of their lease contract by the Zone Directorate. Keeping Of Industrial And Commercial Registers ARTICLE 12 - Any real persons or legal entities granted an Operating License are registered in the Registration Book at the Registrar of the Zone Directorate prior to operation. The information in the license and the profession and commercial activity to be practiced by the person concerned is entered in this record with accuracy and a commercial or industrial registration number and a Registration Document that features this information are issued to him/her. After the person concerned starts to operate, his annual income and expenditures, results of his balance sheet and profit and loss accounts and the main details of his operations are entered in the records. Each person is obliged to report any changes in his professional and commercial activities to the Zone Directorate and must have these entered in his registration

12 records. Each person is obliged to report or submit to the Registrar the information and documents relating to his annual activities without any need for request, within four months of the end of each calendar year. With the exception of parts relating to matters such as patents, licenses and know-how, these records of real persons or legal entities operating in the Zone may be inspected at the discretion of the Zone Directorate. Entry Permits And Service Cards ARTICLE 13 - Real persons or legal entities holding Operating Licenses, their representatives, employees and workers and persons conducting any kind of business or activity may enter the zone provided that they obtain an Entry Permit from the Zone Directorate. Permission for short-term entry to the Zone may also be given by a Special Entry Document issued by the Zone Directorate. Entry Permits are issued by the Zone Directorate. Each permit features the title and seal of the Zone Directorate, the date of issue, a photograph of the bearer, his first name and surname, the address of his workplace and the term of the permit. Special Entry Permits do not state the name of the bearer. These documents are issued in different colors and Special Entry Permits are returned to the officials on exit. The staff of the Zone Directorate and other public agencies or the persons employed by the Operator or ZFO are presented with Service Cards issued by the Zone Directorate, encompassing the same information as contained in the Entry Permit. Such officials must display these cards in order to enter and work in a free zone. Workers hired on a casual basis by an operator, a ZFO and/or users for construction, maintenance and repair works being carried out during the establishment and operation phases are issued Special Entry Permits upon presentation of their identity cards. In this case such special entry permits issued must correspond to the number of workers. When there is a change in the number of workers employed, cards in excess of the number of workers are taken back and canceled, while new cards are issued if the number of cards falls short of the number of employees. Temporary Caesura of Operation and Cancellation of Operating Licenses ARTICLE 14(******) -The principles regarding the temporary suspension of the activities of users and the annulment of the Operating License are as follows: a) In case of below stated situations, the zone directorate shall not put in process the Free Zones Procedures Form in relation with the exit of goods from the Zone and for the sales of goods in the Zone for a period of three months. However, in case the user corrects the issues of concern within 3 months, the zone directorate shall resume the processing of the Free Zones Procedures Form. 1) Failing to submit the information and documents required by the Directorate General and Zone Directorate in time or submitting misleading information, 2) In case of determination that the user, the authorized representative or the employer of the user have damaged zone facilities, devices or equipments and continuance of this act despite the notification of the zone directorate and/or not compensating the damage,

13 3) In case of determination that the user fails to act in compliance with the terms of the rental or sales contract enacted with the Zone Operator or Founder-Operator, 4) Detection of failing to comply with the written instructions or acting in a way that detriments the order in the Zone, 5) Failing to inform the changes occurred related to the issues that have been declared and committed in the Operating License Application Form. b) In the following situations, the operating licence is annulled if necessary as a result of the examination carried out by the Directorate General upon the findings and written reports of the zone directorate 1) If it is determined by a written report of the Zone Directorate that at the end of the period specified in subparagraph (a), the actions caused the suspension of the operating license continue, 2) If it is confirmed through subsequent investigations, examinations and inspections that commitments and declarations stated in the Application Form for Operating License are not fulfilled or are proven false, 3) If it is established that there has been a failure to comply with the provisions of law, regulation, communiques and circulars, c) In the following situations, the Operating Licence is annulled without any prior warning by the Directorate General. 1) If it is detected that tax evasion has taken place with revenues and earnings accrued from the activities outside the Zone has been declared as income earned in the Zone by uniting the accounting records and/or if false or misleading documents are presented for this purpose, 2) If it is detected that the goods are brought in the zone or removed from the zone in contradiction to the legislation, and existence of a deficiency or an excess between the inventories and the current stocks records, The goods of the ones are not admitted in the zone that attempt to operate despite the termination of their Operating Licence validity period or the annulment of their Operating Licence. The goods in the zone that belong to them are discharged according to the provisions set forth in the article 52 of this Regulation. Cancellation Of Entry Permits Special Entry Permits And Service Cards ARTICLE 15 - Any person whose Operating License is canceled, or any employee of such a person as well as any person in possession of an Entry Permit or a Service Card who engages in any of the actions specified in Article 14, as confirmed by a written report of the Zone Directorate, has his/her Entry Permit or Service Card canceled and the person concerned is

14 notified of this cancellation. In cases when a Special Entry Permit is canceled, it is confiscated by the authorities and the person concerned expelled from the Zone. Users are obliged to inform the Zone Directorate on the same day when they dismiss an employee. In such cases, the Entry Permit of the person concerned is canceled by the Zone Directorate. However, if such a person finds a new job in the zone, his/her Entry Permit, provided that it has not expired, is returned after the change has been recorded. Any person whose Entry Permit or Service Card or Special Entry Permit is canceled is expelled from the zone by the police and customs officers and Customs regulations apply to any goods subject to customs duty found on his person, while his possessions in the Zone are subject to the provisions of Article 52 of the Regulation. SECTION THREE Maintaining Order And Security In The Zone And Working Conditions Security ARTICLE 16 - Zone Directors must communicate their requests concerning security in the zone to relevant offices of the Governor. Governors are responsible for taking special measures for the provision of security services in the zones by the police and for safeguarding the security of the zones by commissioning an adequate number of police and customs officers at the entrance and exit gates and borders of the zone. Users are also obliged to employ a sufficient number of security guards and to keep the Zone Directorate informed about the employment of at least one such security guard. Working Conditions ARTICLE 17 - Users with work premises in the zone and employees in these workplaces are subject to the labor legislation of the Republic of Turkey under the supervision and control of the Zone Directorates. Principles governing minimum wage and payment of overtime in workplaces within the territory of Turkey also apply to the workplaces of the ZFO or the Operator and of users in a zone. Labor Contracts concluded between employers and employees in the zone are to be made in three copies, one of which is submitted to the Zone Directorate. Principles for the manner and procedures by which this article is enforced are given in directives/circulars issued by the Directorate General. Work Permits For Foreigners ARTICLE 18 - Users must apply directly to the Zone Directorate or the Directorate General to obtain Work Permits for foreign managers and qualified personnel that they need to employ in the Zone. The application is made by completing and signing the printed forms prepared for obtaining a Work Permit and their attachments. The application is assessed by the Directorate General in coordination with relevant authorities and a Work Permit is granted if the application is found appropriate. Users are jointly responsible for the actions and behavior of their employees within the zone and for any harm that they may inflict on third parties or to the zone during the course of their work. Residence Permit/Night Work Permit ARTICLE 19 - Residence in the zone is prohibited. However, for security considerations, Residence/Night Work permits may be issued by the Zone Directorate who must keep the security and customs administration informed of this in writing, to the security and customs officers and security guards who are charged with the control and security of the zone, to those who have to reside in the zone due to the specific nature of their jobs and to those who have to work overnight following the workday in the zone. The residence/night work permit

15 granted for the zone is restricted and is valid only for the individuals described here. In no way or manner does this permit cover the relatives or families of said officials. Residence/Night Work Permits are canceled by the Zone Directorate with immediate effect in the event of the cancellation of corresponding Operating License, Entry Permit or Service Card. Arrangements concerning the issue of residence permits for reasons other than those mentioned above may only be made by the Ministry to which UFT is subordinated. Working Hours And Control Of Entries And Exits ARTICLE 20 - Business may be conducted in the zone 24 hours a day and 7 days a week However, in principle, the work carried out in the zone, loading and unloading and all kinds of customs procedures are to be performed during official working hours. Where a written request is made for work outside the official working hours or during holidays, related to customs, permission to carry out such work may be granted following the approval of the Zone Directorate, the consent of the Customs Administration and the deposit of a sum for overtime work. The ZFO, or the Operator is therefore obliged to have the necessary personnel on duty in the zone outside official hours of business upon the request of the Zone Directorate. The Zone Directorate takes all necessary measures in connection with the determination and announcement of the official hours of work. Persons seeking entry at the gates of a zone must be able to present an Entry Permit, a Service Card or a Special Entry Permit upon request by customs and security officers. Anyone unable to present one of these documents is denied entry to the Zone. In order to prevent goods from entering or leaving the zone without customs formalities, vehicles and persons may be searched at the gates of the zone by the customs officers if necessary. Workplaces and vehicles of the users may also be searched upon request by the Zone Directorate. Social Security And Social Welfare Principles ARTICLE 21 - Social security legislation of the Republic of Turkey applies both to users operating in the zone and to employees -including foreign nationals- who are in their service under a labor contract. However, in cases when there is an agreement between Turkey and any other country regarding social security, provisions of such an agreement also apply. Social insurance payments to the Social Security Organizations are payable in either foreign currency or Turkish Liras. Social security payments to beneficiaries are made by these organizations in Turkish Liras. Competent Authority For Communal Services In The Zone ARTICLE 22 - Users operating in a Zone and those supplying them with auxiliary services apply to competent officers of the ZFO, or the Operator for the provision of paid services such as electricity, gas and fuel supplies, communication services, transportation and public transport, cleaning of workplaces or their surrounds, overcoming of cleaning difficulties and solution of health problems, and for the supply of services such as first aid and ambulances in the event of industrial accidents and illness. The Zone Directorate keeps a watch on these services to ensure that they are provided in a proper and satisfactory manner and issues written cautionary instructions. Keeping Books And Records ARTICLE 23 ******- (abolished on ) SECTION FOUR The Operator Or The Zone Founder And Operator The Operating Or Establishment And Operating Contracts With The Operator Or ZFO ARTICLE 24 - A zone may either be operated within the framework of an Operation Contract by a Company established on the basis of a decision by the Council of Ministers or

16 established and operated under an Establishment and Operation Contract, again by a Company established on the basis of a decision by the Council of Ministers. In the first case described above, the contract is named the Operation Contract and the company authorized is the Zone Operator, whereas in the second case the contract is labeled the Establishment and Operation Contract and the company is the ZFO. The contracts determining the way in which the Operator or the ZFO is to operate state the financial and administrative obligations of the companies as specified in the Regulation as well as principles for their management and supervision. Financial, Administrative And Service Obligations Of The Operator Or The ZFO ARTICLE 25 - Financial, administrative and service obligations of the Operator or the ZFO are stated below: a) If the land delineated as the Free Zone is in the ownership of the Treasury or a public institution and is allocated to the Operator by UFT through by means of an Operation Contract, obligations of the Operator are specified in the contract. If the Operator of the Zone is entrusted with buildings belonging to the Treasury and with the management of buildings and facilities built by users to automatically revert to the Treasury upon the expiry of the Operating Licenses of the users, the content of the general and special conditions for leases are specified in detail in the Operation Contract signed by the Directorate General and the Operator. Where users have built buildings and facilities in the zone but have their Operating Licenses expire and thus ask to rent the same buildings and facilities, the operator accords preferential treatment to these users, provided that they renew their Operating Licenses. b) The ZFO may not seek payment of construction costs or rent for buildings which it builds for the use of the Zone Directorate, the Security and Customs Administrations and other institutions that may be necessary. However where the Zone is established on land owned by the Treasury or by a public institution, the ZFO is not obliged to pay rent for the land required for infrastructure, entry-exit gates and roads, internal roads, green areas, areas occupied by the buildings and facilities used by the Zone Directorate, Security and Customs units and other administrative bodies or for the land required for the distribution of infrastructural services such as electricity, water and natural gas. c) The Operator or the ZFO is responsible for maintenance and repair work arising from the destruction or deterioration of the infrastructural facilities in the zone the management of which is entrusted to it through an Operation or Establishment and Operation Contract. d) The Operator or the ZFO is obliged to fulfill the functions specified in the present Regulation as well as to carry out other works and services envisaged by the Operation or Establishment and Operation Contract that it has signed with UFT. Powers And Functions Of The Operator Or The ZFO ARTICLE 26 - The powers and functions of the Operator or the ZFO are stated below: a) To operate the zone in accordance with the provisions of the Operation or Establishment and Operation Contract signed with UFT. Where it is specified in the Contract that the public sector does not provide the infrastructure, to construct infrastructural facilities in the zone and to lease and/or sell construction areas in conformity with the parcellation plan to a sufficient number of users, b) Within the framework of the principles of the Operation or Establishment and Operation Contract, to receive the applications of users concerning their activities, to draw up with the users rent contracts for the operation of depots, warehouses, sheds and bonded warehouses and service contracts to provide or arrange for the provision under its supervision, of shipping port and other services that users may require in the zone, and to finalize rent contracts that have not been rejected within three working days by the Zone Directorate, to whom a copy of each draft contract is sent, to inform the applicant in the case of rejection by

17 the Zone Directorate and to collect advance fees, rents and deposits in accordance with the contracts signed. c) To include in the contracts drawn up with the users provisions to ensure that users take safety and hygienic precautions in the areas they have rented and elsewhere, to prevent any changes being made without permission, to prevent any contravention of the working practices and conditions stipulated by the Free Zone Legislation and by circulars/directives taking place in depots, warehouses, sheds and bonded warehouses and hence carefully to safeguard order in the zone. d) To obtain the information and documents that users are required to supply to the Zone Directorate, the Port, Airport, Customs and Security Authorities and other public institutions, e) To take the necessary measures for the uninterrupted supply of electricity, water, gas, fuel and communication services and to coordinate with relevant public and private organizations to making arrangements for the collection of charges and their payment to the appropriate bodies. f) To insure all buildings and facilities leased in the zone against fire, and to coordinate as necessary with the local public institutions to ensure the availability of fire prevention and water pumping equipment and an adequate number of fire fighting vehicles and tools to enforce general safety measures and to establish the first aid and life-saving services required in the case of injury in industrial and other accidents or of sudden illness. g) To identify any person responsible for damages to the infrastructure or to other property in the zone and to ensure that such damage is fully compensated for. h) To meet the demand for the transportation of goods and people in the zone, to construct the planned parks and green areas and ensure their maintenance and preservation, to organize places for public use such as restaurants, cafeterias, kiosks etc. and to operate them or arrange for their operation by third parties and to solve all cleaning and general hygiene problems of the area. Relations With Users ARTICLE 27 ****- Users that want a service to be performed for themselves in connection with their activities in the zone fill in the Free Zone Procedure Form and submit it to the Zone Directorate. They deposit the related fee to the Special Account opened with the banks for collection of revenues of the Zones, attach one of the two copies of the receipt for the payment to the other copy of the Free Zones Procedure Form and have it delivered to the Zone Directorate and submit these copies to the officials of the Operator or the ZFO. Where no fee needs to be paid to the Special Account, the application procedure is completed when remaining copies of the Free Zone Procedure Form are obtained back from the Zone Directorate and delivered to the Operator or the ZFO. The Free Zone Procedure Form is in the force of a service contract specifying the work relationship between the User and the Operator or the ZFO This contract comes into effect when the form is signed by the officials of the Operator or the ZFO and a copy is returned to the user. Subject to a charge, users may request that the Operator or the ZFO provide services such as the loading, unloading, transport and storage of goods which are in the zone or entering or leaving the zone. Where the Operator or the ZFO is unable to supply the machinery and equipment that users require for their activities, the latter may acquire them from other users operating in the zone subject to the permission of the Zone Directorate and the coordination of the Operator or the ZFO The Operator or the ZFO may not seek any charge for such services other than the fee for the coordination services that s/he provides. Where the Free Zone Procedures Form of a user involves a request for a service which must be performed by a private sector agency, the user, after acquiring preliminary permission from the Zone Directorate, pays the service charge to the Operator or the ZFO and submits

18 one of the two copies of the receipt to the officials of the Operator or the ZFO for attachment to the copy of the Free Zone Procedure Form which is available at the Zone Directorate. Tariffs and conditions pertaining to services performed by the Operator or the ZFO are determined by the Directorate General. SECTION FIVE Customs Duty And Tax Exemptions And Incentives Customs Duty Exemptions ARTICLE 28 ******- (abolished on ) Tax Exemptions And Other Incentives ARTICLE 29 ******- (abolished on ) PART THREE GOODS IN THE ZONE, RENT AND SERVICE CONTRACTS AND TARIFFS SECTION ONE Exported And Imported Goods And Transit Goods Haulage Exported Goods ARTICLE 30 - Goods that are sent to the zone from Turkey are treated according to the Foreign Trade Regime and are considered exported. The Foreign Trade Regime does not apply to transactions between a zone and other countries or the transactions among Free Zones. Goods and services may freely be sent from a zone to any destination outside Turkey. A fee is charged in accordance with article 41/b (2) on goods that are exported from Turkey to the zone and returned to Turkey within the period determined by the foreign trade regime. Goods of Turkish origin costing under $500 per shipment brought into the zone by the Zone Directorate, or by the Operator/ZFO or a user with the permission of the Zone Directorate, may be exempted from export procedures upon request. For goods exported from the zone, Certificates of Origin, A.TR. Movement Certificate and EUR.1 Certificates may be issued by local Chambers, on the basis of an official letter of the Zone Directorate without any conditions as regards membership of the Chambers of Commerce and Industry having to be met, in accordance with the provisions of Customs Laws and related Customs Regulations, the EEC Regulation on Movement Certificates published in the Official Gazette Nr dated and the EUR.1 Regulation on Movement Certificates published in the second edition of the Official Gazette Nr of , respectively. The Customs Administration in a zone endorses A.TR Movement Certificates and EUR.1. Certificates submitted to it and grants visas after checking the goods registered in these. Following points apply to matters related to the origin of goods in a zone and the issue of A.TR Movement Certificates and EUR.1 Certificates: In accordance with Article 15 of the Customs Law, although they are within the political territory of Turkey, the Free Zones are considered to be outside the customs boundaries in terms of tax obligations. Goods produced in a zone are classified as Products of Turkish origin with respect to the country of origin criteria given in the Customs Law, namely the completely produced product condition, which describes products obtained in Turkey, and the sufficient transformation condition, which refers to those products the inputs of which are of foreign or unknown origin but which merit being treated as goods of Turkish origin due to the significance of processes and modifications which they have undergone in Turkey. Under Article 2 of the Additional Protocol which lays down conditions, procedures, orders and time limits for the Transitional Stage referred to in Article 4 of the Ankara Agreement establishing an Association between Turkey and the European Economic

19 Community, goods of third country origin, for which import procedures are completed, taxes or charges with equivalent effect to customs duty are paid, such that no full or partial repayment of taxes and charges is effected, are deemed to be in free circulation. A.TR. Movement Certificates issued for such goods which are kept in a zone in raw, semi-processed and processed form or which acquire a national character through being re-processed and becoming part of a new product in a zone are granted visas by the Free Zones Customs Administrations irrespective of any changes occurring in their Customs Tariff position numbers. In conformity with Article 3 of the Additional Protocol, A.TR. Movement Certificates may be issued for goods obtained in Turkey or in the Community which incorporate items of third country origin not in free circulation, in Turkey or in the Community subject to the collection by the Free Zone Customs Administration in the exporting country, Turkey, in accordance with decisions number 2/72 and 3/72 of the Association Council, of the Compensatory Levy on such third country origin goods, envisaged in the Common Customs Tariff. A.TR, Movement Certificates for goods in question are granted visas by the Free Zone Customs Administration. Certificates of Origin and EUR.1 Certificates are issued for goods acquiring Turkish origin through the fulfillment in Free Zones in Turkey of the requirements specified by the provisions of the Additional Protocol B of the Agreement concluded between Turkey and the EFTA States. The EUR.1 certificates are granted visas by the Free Zone Customs Administration. Imported Goods And Transit/Trans-shipped Goods Haulage ARTICLE 31- Goods forwarded to Turkey from a zone are subject to the Foreign Trade Regime and are considered imported under this legislation. The Foreign Trade Regime is not applicable to transactions between a zone and other countries or to transactions among zones. The entry into and exit from a zone of transit/trans-shipped goods is subject to the permission of the Zone Directorate. An article is regarded as being in transit in the zone when it is transmitted from a foreign country to another one or from a foreign country to Turkey through the zone. The article which passes/is conveyed through the zone does not cease to be considered to be in transit if it is trans-shipped, unloaded or kept in the zone for any certain length of time. The conveyance by sea of an article which has been brought from a foreign country to the port of the Free Zone via sea, air, rail or road, to a port outside the country or in another Free Zone is considered to constitute trans-shipment. SECTION TWO Movement Of Goods In And Out Of The Zone Goods Prohibited in the Zone or Goods Requiring Special Arrangement/Construction ARTICLE 32 ***- The entry of the fire arms and their ammunition, radioactive substances, dangerous and toxic wastes to the Zones is prohibited.

20 Inflammables, explosives, combustibles, fire-inducing substances or materials which are dangerous to other substances when put all together, can only be brought into the Zones on the condition that there is a special arrangement or construction serving for that purpose in that Zone. The movement of narcotic substances, psychotrop substances and the related chemical substances, and their preparations in and out of the Zone are subject to the provisions of the national and international laws carried out by the Ministry of Health. The Movement Of Goods In And Out Of The Zone ARTICLE 33 - Methods and principles concerning the movement of goods in and out of the zone are governed by the circulars/directives issued by the Directorate General. Flow Of Goods Between The Zone And Other Destinations ARTICLE 34 - Goods that are addressed to a zone but have for one reason or another been unloaded at a place outside the zone or goods not addressed to the zone but unloaded within the boundaries of the zone are sent to their destinations in the most speedy way under the supervision and control of the Customs Administration, Goods addressed to the Free Zone are conveyed to the zone within the shortest time possible. However if goods addressed to a zone, arrive at the Zone but are then stored at the customs warehouse or at any other place due to lack space, provisions related to the Free Zones apply to such goods given that they are sold in Turkey under provisional acceptance or enter Turkey through any other means or are sent abroad. This practice is halted as soon as the Zone depots prove to be sufficient. The Customs Administration may grant permission for the temporary entry into a zone of equipment and machinery required for loading, unloading, transport etc. of goods in the zone upon a written request from the Zone Directorate provided that this operation is recorded in the "Entry-Exit Register maintained by the Customs Directorate. Where a zone does not have access to a quay or where despite the existence of a port in the zone, goods addressed to the zone or leaving the zone for other destinations, are transported by sea from or to another port in the vicinity of the Free Zone, the conveyance of the goods is by direct delivery from the ship to the zone or from the zone to the ship in the presence of an official commissioned by the Customs Administration on the basis of a Free Zone Procedure Form drawn up and registered by the Zone Directorate and also registered by the Free Zone Customs Directorate, without any need for a Transit Declaration Form. The corridor between the zone and the place where the ship is located is considered to fall within the Free Zone. The movement of goods between sections of the zone which are physically separated from one another is to take place under the supervision of the Customs Administration. Where dangerous substances are moved into out of zones located within or in the vicinity of an airport, the ZFO or the Operator must ensure that these are taken to the airport in special containers and must coordinate with the Airport and Customs authorities to ensure that they are safely transported to the Zone aircraft, without being kept waiting on the apron, by vehicles that are made available at the airport. Sale Or Transfer Of Goods ARTICLE 35 - Users in the zone may sell their goods to Turkey or abroad on a wholesale basis. Users and companies which have rented depots in the zone may sell or transfer their goods wholesale to other users in the same Zone on the condition that they notify the Zone Directorate in writing. Responsibility For Goods In The Zone ARTICLE 36 - Users engaged in operations in a zone are responsible to the Zone Directorate for losses and shortages in quantity, kind and weight and for changes in the quality of their goods They may only be relieved of this responsibility if they prove that the loss or shortage is inherent to the goods or due to force majeure circumstances.