Foreign Investment in Turkey

These are the highlights if you want to know more about  Foreign Investment in Turkey. This entry was drafted by Bag & Gunen Law Firm. Link to e-IURE Network.

This collaboration is a brief step-by-step guidance. In no case it can be considered as legal advice. If you want -or need – legal advice, ask for a lawyer or a law firm. In that case Bag & Gunen Law Firm is an excellent option in Turkey.

Turkey is an attractive location for foreign investors for various reasons such as its young and dynamic population, being a transit country to major markets, like the CIS, the Middle East, and North Africa and being a civil law country which has been aligning its legislation to the EU acquis.

Turkey took the necessary legal steps in the past 15 years to encourage and promote foreign direct investment and enacted various legislations. Within this scope, the Foreign Direct Investment Law (FDI Law) no. 4875 which was enacted in 2003 was a milestone.

As per the FDI Law, foreign investors can freely transfer abroad: net profits, dividends, proceeds from the sale or liquidation of all or any part of an investment, compensation payments, amounts arising from license, management and similar agreements, and reimbursements and interest payments arising from foreign loans through banks or special financial institutions.

As per the FDI Law, the following are accepted as a foreign direct investment:

1. Establishing a new company or branch of a foreign company by foreign investor,
2. Share acquisitions of a company established in Turkey (any percentage of shares acquired outside the stock exchange or 10 percent or more of the shares or voting power of a company acquired through the stock exchange) by means of, but not limited to the following economic assets:

1) Assets acquired from abroad by the foreign investor:

– Capital in cash in the form of convertible currency bought and sold by the Central Bank of the Republic of Turkey,

– Stocks and bonds of foreign companies (excluding government bonds),

– Machinery and equipment,

– Industrial and intellectual property rights;

2) Assets acquired from Turkey by foreign investor:

– Reinvested earnings, revenues, financial claims, or any other investment-related rights of financial value,

– Commercial rights for the exploration and extraction of natural resources.

There are also various bilateral agreements signed with different countries for promotion and protection of investments and double taxation prevention treaties.

As of June 2017, there are over 55000 companies with foreign capital and 800 liaison offices in Turkey which were established by foreign companies as per the statistics of the Ministry of Economy.[1]

Registration of investment

The FDI Law is based on the principle of equal treatment, allowing international investors to have the same rights and liabilities as local investors.

As per Article 3 of the FDI Law, unless stipulated by international agreements and other special laws, foreign investors are free to make foreign direct investments in Turkey and foreign investors shall be subject to equal treatment with domestic investors. Foreign direct investments shall not be expropriated or nationalised, except for public interest and upon compensation in accordance with due process of law.

Apart from establishing a liaison office, no permit is required from foreign investors for establishing a company.

Foreign investors may establish any form of company set out in the Turkish Commercial Code (TCC), which offers a corporate governance approach that meets international standards, fosters private equity and public offering activities, creates transparency in managing operations. In addition, they can establish unincorporated partnerships which include partnerships established through agreements under names such as ordinary partnerships, consortiums, business partnerships, joint ventures that do not conform to the explicit features of the company types designated in the Turkish Commercial Code.

Companies and branches established by foreign investors are required to provide information on their capitals and operations, on the payments made to their equity accounts, on share transfers made between current domestic or foreign shareholders or to any domestic or foreign investor outside the company for statistical purposes.

Setting up a business

It is easy to set up a business in Turkey. A standard company incorporation takes 5-7 days to complete the registration process with the relevant Trade registry and the tax authorities before it starts commercial activities.

The conditions for setting up a business and share transfer are the same as those applied to local investors. (please see the chapter regarding Corporate for further information).

Bilateral Treaties

Turkey signed various bilateral investment treaties with different countries to protect and promote foreign direct investment, establish a free trade area and there are also various treaties in place to prevent double taxation.[2]

Investment Incentives

Under Turkish law, there are several investment incentive schemes in place and the investments benefit from VAT exemption, customs duty exemption, tax reduction, income tax withholding allowance, social security premium support (employer’s share), social security premium support (employee’s share), interest rate support, land allocation, VAT refund in general.

Investments to sectors such as energy, infrastructure, tourism, technology are promoted substantially and incentives differ in accordance with the regions where the investment is made.

Foreign employees

Pursuant to the FDI Law, the procedures and principles of foreign personnel which will be employed within companies operating within the scope of the FDI Law are regulated by the Regulation on Employment of Foreign Personnel in Foreign Direct Investments.

Within the scope above, this Regulation shall be applied to the employment of foreign key personnel in special foreign direct investments and liaison offices.

The special foreign direct investment is a company or a branch within the scope of the FDI Law which fulfil at least one of the conditions below:

1. the company’s or branch’s last annual turnover amounting to at least 100,2 Million  Turkish Lira, under the condition that the total capital share of the foreign shareholders amounts to at least 1.333.150 Turkish Lira,
2. the company’s or branch’s last annual exports amounting to at least 1 million US Dollars, under the condition that the total capital share of the foreign shareholders amounts to at least 1.133.150  Turkish Lira,
3. employment of at least 250 registered personnel with the company or branch within the last year, under the condition that the total capital share of the foreign shareholders amounts to at least 1.133.150  Turkish Lira,
4. if the company or branch is making an investment, the minimum fixed investment amount foreseen shall being at least 33,3 Million Turkish Lira,
5. the principal company featuring any direct foreign investment in at least one more country apart from the country where its head offices are situated.

For liaison offices, work permits are issued to a maximum of one person limited with the period of letter of authority provided that a letter of authorization is obtained from the Ministry of Economy.

The personnel of any company being incorporated in Turkey and that is a corporate body, featuring at least one of the following conditions shall be considered as “Key Personnel”:

1. A)

• Working in the company’s senior management or executive position,
• Managing the entire or a part of the company,
• Supervising or checking the works of the company’s auditors, administrative or technical personnel,
• Taking new personnel to the company or terminating the employment of those existing or making suggestions in this subjects;

any person in charge of at least one of the above fields or authorized in these matters; acting in the position of the company’s shareholder, chairman of the board of directors, member of the board of directors, general manager, deputy general manager, company manager, deputy company manager and similar positions.

1. B) Any person featuring the knowledge considered essential for the company’s services, research devices, technics or methods,
2. C) Maximum one person in the liaison offices, who has been issued a letter of authorizaton by the principal company abroad.

Therefore work permits are issued by the Ministry of Labour and Social Security for key personnel that will be employed in foreign direct investments.

On the other hand, the Law on the International Labour Force (“LILF”) no. 6735 shall be applied to foreign personnel employment apart from the key personnel of the special foreign direct investments and foreign direct investments which do not meet the criteria defined above.

In 2016, the LILF was enacted to determine Turkey’s international labour policy and its application. The Law determines the procedures and principles that will be applied to work permits of foreigners and work permit exemptions.

Within the scope of the LILF, work permits may be issued as definite, indefinite, and independent permits. For the first applications, the work permit may be issued for a maximum period of one year. For foreigners holding long-term residency permit or at least eight years legal work permit, application can be made for an indefinite work permit.

Pursuant to the LILF, a manager of a limited company and a board member of a joint stock company which are also a shareholder may work via obtaining a work permit. On the other hand, board members of joint stock companies who do not reside in Turkey or shareholders of other types of companies who do not have management authority may qualify for work permit exemptions. Therefore these persons may work via obtaining a work permit exemption.

[1]https://www.economy.gov.tr/portal/faces/home/fdi?_afrLoop=2984061131624967&_afrWindowMode=0&_afrWindowId=c4o139m6q&_adf.ctrl-state=ocpoqr19y_208#!%40%40%3F_afrWindowId%3Dc4o139m6q%26_afrLoop%3D2984061131624967%26_afrWindowMode%3D0%26_adf.ctrl-state%3Docpoqr19y_212

[2] http://investmentpolicyhub.unctad.org/IIA/CountryOtherIias/214#iiaInnerMenu