Doing business in Turkey

A Q&A guide to doing business in Turkey.

This Q&A gives an overview of key recent developments affecting doing business in Turkey as well as an introduction to the legal system; foreign investment, including restrictions, currency regulations and incentives; and business vehicles and their relevant restrictions and liabilities. The article also summarises the laws regulating employment relationships, including redundancies and mass layoffs, and provides short overviews on competition law; data protection; and product liability and safety. In addition, there are comprehensive summaries on taxation and tax residency; and intellectual property rights over patents, trade marks, registered and unregistered designs.

To compare answers across multiple jurisdictions, visit the Doing business in... Country Q&A Tool.

This article is part of the multi-jurisdictional guide to doing business worldwide. For a full list of contents, please visit www.practicallaw.com/dbi-mjg.

Firat Yalcin, Sinan Sunay and Irmak Dirik, Pekin & Pekin (Lex Mundi Member Firm)
Contents

Overview

1. What are the key recent developments affecting doing business in your jurisdiction?

If an early election is not called, the upcoming General Elections will be in 2015 and the Presidential Election will be in 2014. The new Commercial Code and new Code of Obligations entered into force on 1 July 2012. A new investment incentive system was also put in place in 2012.

 

Legal system

2. What is the legal system based on (for example, civil law, common law or a mixture of both)?

The Republic of Turkey (Turkey) has a civil law system based on continental European law.

 

Foreign investment

3. Are there any restrictions on foreign investment (including authorisations required by central or local government)?

Portfolio investment

Legal persons resident outside Turkey can freely purchase and sell Turkish securities and other capital market instruments, provided that banks and brokerage firms in Turkey act as intermediaries (Article 15(d)( i), Decree No. 32 Regarding Protection of the Value of Turkish Currency (as amended) issued under the Law Regarding Protection of the Value of Turkish Currency (Law No. 1567) (as amended) (Decree No. 32)). However, there are special prior approval requirements for owning shares and/or voting rights reaching certain thresholds in certain types of regulated companies. The companies subject to these requirements are generally:

  • Banks.

  • Brokerage companies.

  • Insurance companies.

  • Television and/or radio companies.

  • Energy companies.

  • Asset management companies.

  • Financial leasing companies.

  • Factoring companies.

  • Finance companies.

  • Financial holding companies.

  • Air transportation companies.

  • Any other company regulated by government authority.

Regulatory permission must be obtained from the relevant authority, irrespective of whether the relevant company is listed.

Direct investment

Foreign investors are free to make direct foreign investments in Turkey (Direct Foreign Investments Law No. 4875, 2003 (FDIL)). Direct foreign investment includes:

  • Foundation of a new company or opening a branch.

  • Direct acquisition of capital shares, not through the Securities Exchange.

  • Acquisition of capital shares equal to at least 10% of a company.

  • Acquisition of at least 10% of the voting securities in a company quoted and traded in the Securities Exchange by a foreign investor using economic assets supplied from overseas or from the domestic market.

Ownership of real property by foreign nationals is restricted to up to 10% of the real property in certain designated zones in each district. Companies incorporated in Turkey by foreign investors (or companies with foreign shareholders) can only acquire and use real properties to conduct the activities stated in their articles of association (articles). These real properties cannot be in military or private security zones. Foreign companies can only acquire real property in limited circumstances, under certain laws such as the:

  • Petroleum Law (Law No. 6326, 1954).

  • Encouragement of Tourism Law (Law No. 2634, 1982).

  • Banking Law (Law No. 5411, 2005).

  • Industrial Zones Law (Law No. 4737, 2002).

 
4. Are there any restrictions on doing business with certain countries or jurisdictions?

There are no blanket restrictions on doing business with certain countries or jurisdictions. However, trade protocols with individual countries or regional/multinational organisations may apply. 

 
5. Are there any exchange control or currency regulations?

Foreign investors can freely transfer the following through Turkish banks (Decree No. 32):

  • Net profits.

  • Dividends.

  • Sale, liquidation and indemnity proceeds.

  • Consideration for licences, and management and similar agreements.

However, these banks must inform the relevant authority of Turkish lira transfers executed abroad, excluding payments for exports, imports and invisible transactions that are above the equivalent of US$50,000, within a 30-day period starting from the date of transfer.

Currency transactions are also subject to notification requirements under the Law Regarding the Prevention of Laundering of Crime Revenues (Law No. 5549, 2006).

 
6. What grants or incentives are available to investors?

Grants and incentives are available to both Turkish and foreign investors.

Investment incentives

Available incentives include:

  • An investment allowance.

  • Tax exemptions (for example, customs duties) (see Question 24).

  • Subsidised credits.

  • Export credits.

  • Insurance of export receivables.

  • Energy subsidies.

  • State aid for certain expenses.

Free trade zones

Extensive incentives are available to investors in designated free trade zones and include (Law No. 5084, 2004):

  • A licence to set up and operate.

  • A location (office).

  • Tax advantages such as:

  • corporate tax exemption;

  • income tax exemption related to salaries.

Other incentives

Technology and development zones (known as techno parks) grant significant advantages to investors (Law No. 4691, 2001). Research and development incentives are available and include:

  • State aid for research and development activities.

  • Corporate tax exemption.

  • Income tax exemption.

A special regulation promoting investment and employment in less developed regions of the country provides for direct state aid in these regions.

Foreign investors that are required to give up their investment for public purposes must be compensated fairly.

 

Business vehicles

7. What are the most common forms of business vehicle used in your jurisdiction?

The most common forms of corporate vehicles established in Turkey are joint stock companies (JSCs) and limited liability companies (LLCs).

Foreign companies most commonly use the JSC and the LLC, as defined and regulated by the Commercial Code. These are the most common vehicles in Turkish commercial life and most other relevant laws take this into account. These company types also largely overlap with their counterparts in other jurisdictions. Therefore, these vehicles are more convenient.

 
8. In relation to the most common form of corporate business vehicle used by foreign companies in your jurisdiction, what are the main registration and reporting requirements?

Registration and formation

According to the new Commercial Code (Law No. 6102), published in the Official Gazette on 14 February 2011 and which entered into force on 1 July 2012, a JSC and an LLC must be incorporated with at least one shareholder. Both types of company must comply with the following procedures:

  • The articles of association must be executed by the shareholders and notarised by a Turkish notary public.

  • For certain JSCs such as banks and intermediary institutions, the Ministry of Customs and Trade must authorise the adoption of, and modifications to, the articles.

  • The articles of association must be registered with, and published in, the Trade Registry Gazette.

  • At least 25% of the company's share capital must be paid before the registration of the company, and the remaining share capital within 24 months of registration.

  • The registration may take about one week, subject to the workload of the Trade Registry. The Trade Registry can require additional documents during evaluation of the incorporation documents, which may extend the registration process.

  • Each city's Trade Registry requires different documents, but they do not differ much in content. The required documents for registration are indicated at www.ito.org.tr for Istanbul, and at www.atonet.org.tr for Ankara.

Reporting requirements

JSC and LLC board of directors must prepare the following documents for the fiscal year, and present them to the general meeting of shareholders (general meeting) within three months of the balance sheet date (Article 514, Commercial Code):

  • Financial statements and annexes, prepared according to Turkish Accounting Standards. These must faithfully, truthfully and transparently present the company assets, debts and liabilities, equity capital and activity results, in a complete, understandable, comparable manner, according to the nature and needs of the company (Article 515, Commercial Code).

  • Annual activity report of the board of directors. This must reflect the flow of activities for that year and the financial situation of the company, based on the company financial statements, in a correct, complete, direct and truthful manner, and discuss the development of the company and the potential risks it faces (Article 516, Commercial Code). The annual report of the board of directors must also include:

    • significant events at the company that occurred following the end of the activity year;

    • research and development works of the company; and

    • financial benefits paid to directors and senior managers, such as salaries, expenses, allowances, guarantees, premiums and bonuses.

      Details relating to these minimum content requirements are regulated by the Ministry of Customs and Trade.

Group companies must prepare consolidated financial statements as per the above requirements. The parent company board of directors must prepare an annual activity report for the group according to the above requirements.

Turkish accounting standards are published by the Turkish Accounting Standards Board, and are in-line with International Financial Reporting Standards (Article 88(2), Commercial Code).

Share capital

There is no maximum share capital. The minimum share capital of an LLC is TRY10,000, and for a JSC is TRY50,000.

Non-cash consideration

Companies can issue shares for non-cash consideration, provided that the consideration is valued by experts appointed by Turkish courts.

Rights attaching to shares

Restrictions on rights attaching to shares. There are no restrictions on rights attached to shares other than those in the company's articles.

Automatic rights attaching to shares. Some rights attached to shares are the right to (Commercial Code):

  • Vote.

  • Appoint a representative.

  • Request a special audit.

  • Obtain and review information.

 
9. In relation to the most common form of corporate business vehicle used by foreign companies in your jurisdiction, outline the management structure and key liability issues.

Management structure

A JSC is managed by a board of directors comprising at least one member. An LLC is managed by its managers and shareholders. However at least one of the shareholders in an LLC must be appointed as a manager.

Management restrictions

There are no restrictions on foreign directors.

Directors' and officers' liability

Directors who can represent and bind the company with their signatures are jointly and severally liable for the acts set out in the Commercial Code.

Parent company liability

A parent company is generally only liable if it guarantees the subsidiary's debts.

 

Employment

Laws, contracts and permits

10. What are the main laws regulating employment relationships?

Employment relationships are regulated by the Labour Code (Law No. 4857, 2003) (Labour Code) and its relevant regulations.

The Labour Code applies to all of the following in Turkey:

  • Workplace establishments

  • Employee Representatives.

  • Employees (foreign national or Turkish).

  • Employers (foreign national or Turkish).

Employment contracts are governed by the law chosen by the parties, however, the mandatory provisions of the law of the employee's habitual workplace will override any choice of law clause (Article 27, Act on International Private Law and Procedural Law (Law No. 5718) (published in the Official Gazette dated 12 December 2007, No. 26728)).

If the parties have not chosen any law, the employment contract is governed by the law of the employee's habitual workplace. If an employee is temporarily assigned to another country, that workplace is not treated as his habitual workplace.

If an employee conducts his duties in more than one country, his employment contract is subject to the law of the country where his principal workplace is located.

The Code of Obligations (Law No. 6098) (published in the Official Gazette dated 4 February 2011, No. 27836) became effective on 1 July 2012. The Code of Obligations sets out detailed provisions on the employment relationship that are in parallel with the Labour Code, and further stipulates the conditions of the release letter/agreement. Accordingly, a release letter must be drawn up in written form, signed and submitted to the employer one month after termination of the employment agreement. The nature and amount of receivables subject to release must be expressly stated in it, and relevant payments must be made by bank transfer.

 
11. Is a written contract of employment required? If so, what main terms must be included in it? Do any implied terms and/or collective agreements apply to the employment relationship?

Employment contracts for a duration of one year or more must be executed in writing.

Employment contracts must be in Turkish where they are between employees who are Turkish citizens and legal entities incorporated under the laws of Turkey. Failure to do so invalidates the contract.

If there is no written contract, the employer must, within two months of the start of employment, give the employee a document outlining:

  • General and specific working conditions.

  • Daily or weekly work periods.

  • The length of term of the employment contract, if specified.

  • Salary and the intervals at which it is paid.

  • Additional payments, if any, such as allowances, bonuses, premiums and so on.

  • Conditions of termination.

Collective bargaining agreements also govern employment relationships.

 
12. Do foreign employees require work permits and/or residency permits?

Foreign nationals must obtain a permit before starting work either independently or for an organisation, unless provided for in any bilateral or multi-lateral agreements to which Turkey is a party (Article 4 of the Law Regarding Work Permits for Foreigners (Law No. 4817) (published in the Official Gazette 6 March, 2003 and No. 25040)).

Work permit applications can be made in Turkey or abroad (Regulation Regarding the Implementation of the Law Regarding Work Permits for Foreigners).

To apply for a work permit abroad, applications can be made to the diplomatic representatives of Turkey in the foreign national's country of origin or permanent residence. The applications will be forwarded directly to the Ministry in Turkey, along with any related evaluation. The Ministry has published an announcement regarding evaluation criteria for work permit applications. This has been determined in accordance with Article 13 of the Regulation Regarding Work Permits for Foreigners and became applicable on 2 August, 2010. One criterion is that there must be five Turkish employees registered in the workplace to obtain a work permit for one foreign employee.

All necessary documents must then be forwarded to the Ministry within ten business days of the foreign national's application to the relevant Turkish diplomatic representatives. This includes:

  • All documents requested at the time of the application.

  • The Foreign Personnel Application Form.

In addition, only foreign nationals holding a valid residence permit for at least six months at the time of application, or their employers can make a direct work permit application to the Ministry in Turkey. Hard copies of the relevant documents will need to be submitted to the Ministry within six business days of the electronic application date.

The Ministry will process the work permit application within 30 days of the date of the application, providing that all the application documents are complete. Within a further 30 days following the date the work permit is issued by the Ministry, the work permit will be recorded on the applicant's residence permit. Otherwise the work permit will be considered void.

In addition, there are notification requirements for the employer relating to the employee's work permit (Law Regarding Work Permits for Foreigners).

Work permits

The Law Regarding Work Permits for Foreigners provides for several types of work permit available to foreign nationals. These are listed below, with the associated fees for 2013:

  • Work permits for a definite period of time:

    • up to one year (including one year): TL158,25;

    • up to three years: TL476,30.

  • Work permits for an indefinite period of time: TL794,50.

  • Independent work permits: TL1.590,15.

Residence permits

A residence permit costs TL198 in 2013. However, additional application fees vary depending on the originating country of the applicant and the period applied for. These costs can change each year.

A new Law on Foreigners and International Protection (Law No. 6458) (published in the Official Gazette on 4 April, 2013) will become effective one year after its publication date. Under this law, foreign nationals who intend to stay in Turkey longer than the visa, visa exemption period or in excess of 90 days will need to obtain a residence permit. A residence permit application can be made to the consulates of Turkey in the foreign national's country of nationality or legal residence. However, for long term residence permits or where the departure of the foreign national from Turkey is unreasonable or unfeasible, a residence permit application must be filed in Turkey.

Termination and redundancy

13. Are employees entitled to management representation and/or to be consulted in relation to corporate transactions (such as redundancies and disposals)?

Employees are not entitled to direct management representation or consultation. Collective bargaining agreements provide for employee representation and consultation through trade unions. Collective dismissal provisions apply in certain circumstances (see Question 15).

 
14. How is the termination of individual employment contracts regulated?

A termination notice will result in termination of the employment contract.

The termination notice must be made and expressed in a clear manner. It must be served to the relevant party in writing and with a signature (Labour Code).

There are two different types of notice to terminate employment contracts:

  • Termination with a notice period. The termination occurs after expiration of the notice period following the serving of the termination notice.

  • Immediate termination with payment in lieu of notice. The employment is immediately terminated on the party's receipt of the termination notice.

Notice periods

The minimum notice periods with regard to the length of employment, are as follows (Labour Code):

  • Less than six months employment: two weeks.

  • Between six and 18 months employment: four weeks.

  • Between 18 and 36 months: six weeks.

  • More than three years: eight weeks.

Minimum notice periods defined by the Labour Code can be increased but only in favour of the employee. If the notice period is increased by a collective agreement or as defined in the employment contract, the employer can only terminate employment by complying with the increased notice period. However, the employee is not legally bound to accept the increased notice period. The employee can terminate the employment as per the minimum notice periods set out in the Labour Code (as above).

The Labour Code provides for the termination of the employment contract before the expiration of the notice period. This is the case where continuing the employment relationship would be difficult in specific defined circumstances and is referred to as "immediate termination on just grounds" (Labour Code).

Termination

The Labour Code stipulates the categories of employees entitled to job security and sets the grounds on which an employment contract can be terminated. For example, the employer, who decides to terminate the indefinite term employment contract of an employee with at least six months experience can only terminate an employee's employment contract if the (Article 18, Labour Code):

  • Employee's attitude or incapacity affects his ability to perform his job.

  • Requirements of the business or workplace demand it.

An employer can terminate the employment contract without waiting for the notice period or paying any notice pay for the following reasons (Article 25, Labour Code):

  • Health grounds, if:

    • absence due to sickness or disability resulting from the employee's own intent, his disordered life or addiction to alcohol exceeds three consecutive days or five days in a month;

    • it is determined by a medical board that the employer has a health condition which is incurable and creates an unhealthy work environment.

  • For other health-related reasons such as sickness, accident, birth and pregnancy, the employer can dismiss the employee six weeks after the expiration of the notice period in the employee's severance (Article 17, Labour Code).

  • A compelling event preventing the employee from working in the workplace for more than one week.

  • The employee is absent for longer than his applicable notice period, due to his detention and arrest.

In addition, the employer is able to terminate the employment contract without paying the employer any severance pay, for the following:

  • Events contrary to ethical rules and goodwill to others, for example the employee:

    • misleading the employer by giving false information;

    • acting contrary to Article 84 of the Labour Code (ban on the use of alcoholic drinks and drugs);

    • the employee not acting with good faith and honesty;

    • the employee committing a criminal offence in the workplace.

In addition, an employee can terminate employment immediately under certain grounds as stipulated by Article 24 of the Labour Code. These grounds essentially cover:

  • Health reasons.

  • Unethical behaviour of the employer.

  • Immoral situations in the workplace.

  • Force majeure events that causes the employee to be unable to work for more than a week.

If the employee terminates employment under Article 24, the employer must pay severance payment to the employee (if the employment period is a minimum of one year). In some circumstances, the employer must pay severance pay at the rate of 30 days salary for each full year of employment. For incomplete years' of service, payments will be made on a pro rata basis. Calculation of severance pay must be based on the most recent gross salary payment prior to termination, and any other contractual or compensatory payments owed to the employee.

A maximum threshold has been set for severance payments. Severance payments can not exceed TFL3,254.44 for each full year of service reached between 1 July 2013 and 31 December 2013.

On termination of employment by the employer, in addition to severance payment (if applicable) the employer must pay the employee:

  • Notice pay (in lieu of notice)(as above).

  • An amount equivalent to the accrued but unused paid annual leave days.

  • Contractual compensation (if any).

  • Any payment arising from work place practice.

 
15. Are redundancies and mass layoffs regulated?

Collective dismissal provisions apply to all workplaces employing more than 20 employees. A collective dismissal occurs where, on the same date or within one month:

  • At least ten employees are dismissed in a workplace employing between 20 and 100 employees.

  • At least 10% of the employees are dismissed in a workplace employing between 101 and 300 employees.

  • At least 30 employees are dismissed in a workplace employing 301 or more employees.

If the employer is contemplating collective dismissals for economic, technological, structural or similar reasons or other reasons of necessity, it must supply written information at least 30 days before the intended dismissal to the following:

  • The workplace trade union representatives (if any).

  • The relevant regional directorate of the Social Security Authority.

  • The relevant Labour District Office.

This notice must contain the following information:

  • Grounds for dismissal.

  • The number and categories of employees affected.

  • The time period within which the dismissal is anticipated to take place.

After the notice has been served, the employer must consult with the union representatives about measures that can be taken to avert or reduce the number of terminations, as well as to mitigate or minimise their adverse effects on the employees affected. A document recording the consultation must be drawn up at the end of the meeting.

Termination notices take effect 30 days after notification to the relevant regional directorate.

In the event of a total closure of a workplace and the permanent discontinuance of operations, at least 30 days before the intended closure the employer must:

  • Notify the relevant regional directorate of the Social Security Authority.

  • Notify the relevant Labour District Office.

  • Post the relevant announcement in the workplace.

An employer cannot use the collective dismissal process to circumvent the Labour Code's job security provisions. Failure to follow the collective dismissal process can result in the employer or the employer's representative being fined TL485 for each employee dismissed, according to 2013 figures (Article 100, Labour Code).

 

Tax

Taxes on employment

16. In what circumstances is an employee taxed in your jurisdiction and what criteria are used?

Under local regulations, individuals resident in Turkey are subject to income tax on their worldwide income. Residence in Turkey is where an individual has a permanent home or who stay in Turkey for more than six months during a calendar year.

Individuals with residence outside of Turkey, who stay for less than six months in any calendar year have limited Turkish tax liability. They will only be subject to income tax for income derived in Turkey.

However, double tax treaties will also be considered for the taxation of foreign nationals. Most of the double tax treaties that Turkey has signed restrict the country's taxation rights. The following income is not subject to tax in Turkey if:

  • A foreign national resides in Turkey for less than 183 days in any calendar year; and

  • Their salaries are paid by a foreign company, based outside of Turkey.

There is also an exemption for individuals working in liaison offices, provided that certain conditions are met.

 
17. What income tax and social security contributions must be paid by the employee and the employer during the employment relationship?

Tax resident employees

Turkey resident employees are subject to tax on their worldwide wage and non-wage income in 2013 at the following rates:

  • Up to TRY10,700: 15%.

  • Up to TRY26,000: TRY1,605 for the first TRY10,700, plus 20% on the excess.

  • Up to TRY60,000: TRY4,665 for the first TRY26,000, plus 27% on the excess. (For wage income up to TRY94,000: TRY4,665 for the first TRY26,000, plus 27% on the excess.)

  • More than TRY60,000: TRY13,845 for the first TRY60,000, plus 35% on the excess. (For wage income exceeding TRY94,000, TRY23,025 for the first TRY94,000, plus 35% for the excess.)

Employees must also pay social security contributions (see below, Employers).

Non-tax resident employees

Non-tax resident employees are taxed solely on income derived from activities performed in Turkey at the same income tax rates applicable to tax resident employees. However, double tax treaties may provide reduced rates or exemptions (see Question 25).

Employers

Employers must pay the following social security contributions as a portion of an employee's gross salary (Law on Social Insurances and General Health Insurance Law No. 5510, Official Gazette 16 June 2006 No: 26200):

  • Short term insurance premiums: employer 1% to 6.5%.

  • Disability, old age and death premiums: employee 9%, employer 11% (12% to 14%, for workplaces where a wage increase for the actual service period is applied).

  • General health insurance premiums: employee 5%, employer 7.5%.]

Business vehicles

18. When is a business vehicle subject to tax in your jurisdiction?

Tax resident business

Companies incorporated in Turkey or branch offices of non-resident companies (parents) established in Turkey are fully tax liable business entities (Corporation Tax Law). Turkey resident companies with a registered address or principal centre of business in Turkey are subject to tax on the income derived from their worldwide activities.

Companies that do not have their registered address or principal centre of business in Turkey are subject to tax only on income derived from activities performed in Turkey.

Non-tax resident business

Non-tax resident business vehicles are taxed, principally, on the income derived from their commercial activities in Turkey only, at the same rate as Turkey-resident business vehicles (see Question 17). However, the royalty income and professional service income derived by non-tax resident business vehicles are subject to 20% withholding tax. Reduced rates may be provided through double tax treaties.

 
19. What are the main taxes that potentially apply to a business vehicle subject to tax in your jurisdiction (including tax rates)?

Corporate tax

A corporation's net income is subject to corporate income tax at a rate of 20%. Corporate tax is a declaration based tax. The declaration must include details of the results of the financial year for which it is submitted.

Resident corporations are subject to corporate income tax on a worldwide basis and non-resident corporations are only taxed on income derived in Turkey.

A corporate income tax return must be submitted to the relevant tax office, between the first and twenty fifth day of the fourth month following the end of the accounting period. Corporate income tax must be paid by the end of the month in which the tax return is submitted.

Value added tax (VAT)

The delivery of goods and the provision of services, including imports into Turkey, are generally subject to VAT at 18%

There are some exceptions, such as a 1% or 8% rate on certain goods and services.

The taxation period is determined as quarterly under Turkish law. However, the Ministry of Finance has the authority to determine monthly taxation periods. It uses this authority to determine monthly tax periods for nearly all taxpayers.

VAT returns must be submitted to the relevant tax office between the first and the twenty fourth day of the month following the end of the accounting period. The VAT must be paid by the twenty sixth day of the month in which the VAT return is submitted.

Banking and insurance transaction tax (BITT)

All revenues of resident banks, finance and insurance companies, such as interest, commission, premiums and other fees and charges, are subject to BITT at 5%. Reduced rates of 1% are available for certain transactions.

BITT returns must be submitted to the relevant tax office, between the first and the fifteenth day of the month following the end of the accounting period. It must also be paid during this period.

Stamp tax

The Stamp Tax Code lists the documents that are subject to stamp tax and the applicable fixed rate of tax. Certain documents that contain monetary consideration are subject to stamp tax at 0.948%. However, exemptions are available in relation to certain transactions, such as cross-border financing (excluding transactions regarding the usage of the loans), derivatives and factoring agreements, and so on.

The taxation period for stamp tax is determined on a monthly basis.

Certain taxpayers are defined as constant taxpayers by the Ministry of Finance and are obliged to submit monthly stamp tax returns to the relevant tax office. Depending on whether the taxpayer is a constant taxpayer or not, the declaration and payment terms of the stamp tax return will differ:

  • Constant taxpayer. The stamp tax return must be submitted to the relevant tax office, between the first and twenty fourth day of the month following the taxation period. The stamp tax must be paid by the twenty sixth day of the month in which the stamp tax return is submitted.

  • Not a constant taxpayer. The declaration and payment of stamp tax must be made within fifteen days following the execution of the document.

Resource utilisation support fund (RUSF)

The Resource Utilisation Support Fund was established within the Central Bank of Turkey to direct investments and to lower costs incurred in special loans, according to development plans and yearly programmes. Banks, special financial institutions and financing companies are liable for the payment of RUSF.

The RUSF applies to the following transactions:

  • Loans supplied by Turkish banks and financial institutions: 15% RUSF for consumer loans and 0% for other loans.

  • Loans obtained by Turkish banks and financial institutions from abroad: 0% RUSF.

  • TL denominated loans obtained by Turkish residents, other than banks and financial institutions, from abroad: 3%.

  • Foreign currency loans and gold loans (without fiduciary transactions) obtained abroad by individuals apart from banks and financial institutions are subject to RUSF at the following rates:

    • Loans with average maturity up to one year: 3%;

    • Loans with average maturity from and including one year to two years: 1%;

    • Loans with average maturity from and including two years to three years: 0,5%;

    • Loans with maturity of 3 years and over: 0%.

  • Imports realised under acceptance credits, deferred payment letter of credit (L/C) and on a cash-against-goods basis: 6% RUSF.

The RUSF must be declared and paid by the fifteenth of the month following the month:

  • The interest of the TL currency loan is accrued; or

  • The foreign currency loan is utilised.

Other taxes

Other taxes relating to the environment, property, motor vehicles and inheritance can also apply.

There are no local/state taxes applicable as Turkey is a unitary state.

Dividends, interest and IP royalties

20. How are the following taxed:
  • Dividends paid to foreign corporate shareholders?

  • Dividends received from foreign companies?

  • Interest paid to foreign corporate shareholders?

  • Intellectual property (IP) royalties paid to foreign corporate shareholders?

Dividends paid

A withholding tax of 15% applies, unless reduced by a double tax treaty.

Dividends received

Dividends received from foreign subsidiaries is considered a taxable income and is added to the tax base of the taxpayer. However, an exemption is available for dividends distributed by foreign subsidiaries subject to meeting the following conditions:

  • The dividend receiving corporation must have a minimum 10% interest in the foreign subsidiary.

  • At the date of the dividend distribution, a minimum 10% interest must be held for at least a year.

  • The dividend distribution must be subject to a minimum 15% tax that corresponds to the income tax and corporate income tax burden. This includes the tax paid for the source income of the dividend distribution.

  • The dividend must be transferred to Turkey by the end of the declaration date of the corporate income tax return of the relevant year.

Interest paid

Interest paid by a Turkish corporation to a foreign corporate shareholder is subject to withholding tax at 10%. The withholding tax rate is applied at 0% for the loan interest if the lender is a foreign state, international institution, foreign bank or duly qualified non-resident financial institution (that provides loans to its group companies and also other companies).

Interest paid to foreign shareholders on foreign exchange deposit accounts and on deposit accounts is subject to withholding tax, at rates varying from 10% to 18%.

IP royalties paid

Withholding tax of 20% applies to the payment of IP royalties to a foreign corporate shareholder, including in relation to copyright, patents and trade marks.

Double tax treaties generally reduce the rate to 10%.

Groups, affiliates and related parties

21. Are there any thin capitalisation rules (restrictions on loans from foreign affiliates)?

Thin capitalisation rules apply when total loans received from shareholders or other related parties exceed either:

  • Three times the Turkish company's total equity.

  • Six times the Turkish company's total equity (where the shareholder or related party is a bank or financing company).

Related parties are either:

  • A corporation where the shareholder holds, directly or indirectly, at least 10% of its shares, voting or profits sharing rights.

  • A real person or corporation that holds, directly or indirectly, at least 10% of the capital, voting or profit sharing rights of the shareholder or the corporation that is related with the shareholder.

Interest and foreign exchange losses on any borrowing that is deemed thin capitalisation are non-deductible. In addition, such parts of any borrowing are considered profit and are subject to dividend taxation.

 
22. Must the profits of a foreign subsidiary be imputed to a parent company that is tax resident in your jurisdiction (controlled foreign company rules)?

The corporate earnings of foreign subsidiaries under the direct or indirect control of real persons and corporations, that have a minimum of 50% of the capital, dividend or voting rights are subject to taxation in Turkey if:

  • 25% or more of the gross revenue of the foreign subsidiary consists of passive income (such as interest, profit share, rent, license fees and securities’ revenues); and

  • The foreign subsidiary has a tax burden that is similar to income and corporation tax, at a rate of 10% or less over the balance sheet profit; and

  • The total gross revenue of the foreign subsidiary for that year exceeds TL100,000.

 
23. Are there any transfer pricing rules?

A Turkish company must apply arm's-length transfer prices for related parties.

Transfer prices are determined in accordance with Organisation for Economic Co-operation and Development (OECD) transfer pricing guidelines, which recognise three acceptable transfer pricing methods:

  • Comparable price method.

  • Cost plus method.

  • Resale minus method.

Other methods are subject to approval by the Ministry of Finance.

The Turkish Internal Revenue Service has introduced a very broad definition of related entities and individuals that may fall in the scope of non-compliance with transfer pricing regulations. All taxpayers involved in inter-company transfer pricing should make use of the advance clearing option.

Customs duties

24. How are imports and exports taxed?

Imports of goods and services are subject to VAT and customs tax, unless the resident importer qualifies for tax incentives available to producers that meet certain investment criteria.

Exports of goods and services are generally exempt from VAT and customs tax.

Double tax treaties

25. Is there a wide network of double tax treaties?

Turkey has signed OECD model double tax treaties with 82 countries, 78 of which are in force, including most EU countries and the US.

 

Competition

26. Are restrictive agreements and practices regulated by competition law? Is unilateral (or single-firm) conduct regulated by competition law?

Competition authority

The Competition Authority (www.rekabet.gov.tr) regulates and supervises competition rules and practices. Its website provides guidance on competition law rules. The Law on the Protection of Competition (Law No. 4054, 1994) (Competition Law) regulates competition matters.

Restrictive agreements and practices

The list of prohibited anti-competitive practices includes (Competition Law):

  • Price-fixing.

  • Partitioning markets or controlling resources.

  • Controlling supply or demand.

  • Complicating and restricting the supply of goods or services.

  • Excluding firms operating in the market by boycotts or other behaviour, or preventing potential new competitors entering the market.

  • Applying different conditions to equivalent transactions (with the exception of exclusive dealing agreements).

  • Abuse of a dominant position through agreements or concerted actions with others.

Unilateral conduct

The abuse of a dominant position is regulated and prohibited under the Competition Law. However, the actions of a company leading to a dominant position are not regulated.

 
27. Are mergers and acquisitions subject to merger control?

A transaction is subject to the prior approval of the Competition Board within the Competition Authority if either:

  • Worldwide turnover of one of the parties exceeds TRY500 million and the Turkey turnover of at least one of the other parties exceeds TRY30 million.

  • Aggregate Turkey turnover of the parties exceeds TRY100 million and Turkey turnover of at least two of the parties individually exceed TRY30 million.

The filing requirement can be avoided (except for joint ventures) if the undertakings concerned do not have any overlapping activities.

 

Intellectual property

28. Outline the main IP rights in your jurisdiction.

Patents

Definition and legal requirements. An invention is patentable if it:

  • Is new.

  • Improves on the current state of the art.

  • Is capable of industrial application.

There are two types of patents:

  • A patent with examination, which is granted after any objections from third parties and submissions from the applicant in response to those objections.

  • A patent without examination, which is granted without considering the views of third parties.

Registration. Protection is granted by registration with the Turkish Patent Institute (TPI)(www.tpe.gov.tr/portal/default_en.jsp). Its website provides guidance on the application procedure.

Protection is available to (Patent Decree Law (published in the Official Gazette, No. 22326, 27 June, 1995):

  • Natural and legal persons who are domiciled or have industrial or commercial establishments in Turkey.

  • Natural and legal persons who according to the reciprocity principle are afforded patent and/or utility model protection in Turkey.

  • Individuals entitled to file applications under the provisions of the Paris Convention.

Enforcement and remedies. The patent holder can prevent the production, sale, use and importation of the patented product or process. A patent right is protected through civil and criminal actions before the specialist IP courts. The patent holder can seek:

  • Termination of the infringement and its ongoing acts.

  • Material and moral damages.

  • An order to confiscate from the infringers the products and the equipment used to make them.

  • An order for possession of the products confiscated (their value is deducted from the compensation awarded or, if they are more valuable than the compensation, the patent holders repays the difference to the infringer).

  • Enforcement measures to prevent continued infringement, deletion of the patented invention from the infringer's products or, if it is essential to prevent infringement, the destruction of the products and equipment used to make them.

  • An order to disclose to the public and to those persons related to the infringer of the court's judgment, at the offending party's expense.

Patent infringement can be punishable by imprisonment for between two and four years and/or a fine. In addition, it will be ruled that the perpetrator's business premises is closed down for at least a year to prevent any commercial activity during this period.

Length of protection. A patent with examination is protected for 20 years, from the date of filing. A patent without examination is protected for seven years, and can be upgraded to a patent with examination on application at any time during this seven-year period. Where the examination request is made within seven years and the patent is granted after conducting the examination, the patent will be protected for 20 years from the date of filing the application.

Trade marks

Definition and legal requirements. To be registered, a trade mark must be capable of:

  • Distinguishing the goods or services of one undertaking from those of other undertakings.

  • Being represented in graphic form, and published and reproduced in print.

Goods are divided into 34 classes. Services are divided into 11 classes. A trade mark can include:

  • Personal names.

  • Words.

  • Figures.

  • Letters.

  • Numbers.

Protection. Protection is granted by registration with the TPI under various legislation (www.tpe.gov.tr/portal/default_en.jsp). Guidance on the application procedure can be found on its website.

A trade mark application will not be registered following opposition if the trade mark applied for is:

  • Identical with a registered trade mark, or a trade mark with an earlier application date, in relation to identical goods and services.

  • Identical with or similar to a trade mark with an earlier application date, or to a registered trade mark, in relation to identical or similar goods and services, and there is a likelihood of confusion by the public.

Unregistered trade marks are further protected under unfair competition provisions in the Commercial Code.

Protection is available to (Trademark Decree Law (published in the Official Gazette, No. 22326, 27 June, 1995):

  • Natural and legal persons who are domiciled or have industrial or commercial establishments in Turkey.

  • Individuals entitled to file applications under the provisions of the Paris or Bern Conventions or the Agreement Establishing World Trade Organization.

Enforcement and remedies. The right holder can prevent the:

  • Use of any sign relating to the trade mark.

  • Use of the sign of the trade mark on any package.

  • Importation of the signed product.

  • Use of the sign in adverts and business.

Imprisonment of between one and three years and a judicial fine apply to those:

  • Making false declaration regarding true identity of the trademark right holder.

  • Removing the sign that indicates a valid trademark on a product or its packaging, without permission.

  • Falsely presenting themselves as the proprietor of a trademark application right or a trademark right.

Length of protection and renewability. Protection lasts for ten years from the date of application for registration. This can be renewed indefinitely for additional ten-year periods, on the payment of the renewal fee.

Registered designs

Definition. To be registered, a design must:

  • Relate to the features of the whole or part of a product, or its ornamentation.

  • Be new.

  • Have an individual character.

Registration. Protection is granted by registration with the TPI under various legislation (www.tpe.gov.tr/portal/default_en.jsp). whereby guidance on application procedure can be found online.

Protection is available to (Industrial Design Decree Law (published in the Official Gazette, No. 22326, 27 June, 1995)):

  • Natural and legal persons who are domiciled or have industrial or commercial establishments in Turkey.

  • Individuals entitled to file applications under the provisions of the Paris or Bern Conventions or the Agreement Establishing World Trade Organization.

Enforcement and remedies. The right holder can (if there is more than one right holder, subject to the approval of the others):

  • Use the design.

  • Take necessary precautions to protect the design.

  • License the use of the design to third parties.

Third parties cannot dispose of the design licence without the approval of the right holder. Enforcement is the same as for patents (see above, Patents: Enforcement and remedies).

Length of protection and renewability. Protection lasts for five years from the date of application for registration. This can be renewed for additional five-year periods up to a maximum of 25 years.

Unregistered designs

Definition and legal requirements. There is no specific protection for unregistered designs. They are protected through general civil and criminal actions in the courts. They can also be protected by copyright, subject to meeting the legal requirements for copyright (see below, Copyright).

Unregistered designs are further protected under unfair competition provisions in the Commercial Code.

Enforcement and remedies. Unregistered designs are protected through general civil and criminal actions in the courts. The action must be filed within one year starting from the date when the relevant party became aware of the infringement, and in any case within three years of the date of the infringement.

Main remedies are:

  • Damages.

  • An action for annulment of an infringement of the design

  • Action to prevent a potential infringement.

  • Penal sanctions.

An action for annulment of a continuing infringement is not subject to the limitation period for bringing an action.

To claim compensation for a tangible three-dimensional design, the design owner must prove the design is not commonplace and has been infringed by copying.

Length of protection. Protection lasts as long as the design continues to be distinctive in the minds of consumers and is used in commerce.

Copyright

Definition and legal requirements. For copyright protection to arise, the work must be both:

  • An intellectual or artistic creation bearing the characteristics of its author.

  • A scientific (including computer programs), literary (which can also include computer programs), musical, artistic or cinematographic work.

Protection. Protection subsists automatically on the creation of eligible works (see above, Definition and legal requirements) (Law No. 5846 dated 1951 on Intellectual and Artistic Works, as amended by Law No. 5728 dated 2008).

Registration of copyright is:

  • Mandatory for cinematographic and musical works (including computer games).

  • Optional for other eligible works protected under the Law on Intellectual and Artistic Works.

The Ministry of Culture and Tourism is the registration authority.

Enforcement and remedies. The right holder has the following economic rights:

  • Process (for example, translating, editing, compiling or preparing for publication).

  • Duplication.

  • Publication.

  • Presentation (for example, reading, playing or displaying a work in public).

  • Transmission.

The owner of the work or the holder of moral or economic rights can seek to:

  • Stop the infringement.

  • Prevent future infringement.

  • Receive damages.

The infringer can be sentenced to imprisonment for between one and seven years, or be liable to an administrative fine.

Length of protection and renewability. Protection lasts for the life of the author plus 70 years. If the work has more than one author, this period ends 70 years after the last surviving author's death.

Other

Other main intellectual property rights in Turkey include:

  • Utility models.

  • Geographical signs.

  • Trade secrets.

 

Marketing agreements

29. Are marketing agreements regulated?

Agency

The main activities of an agency must be (Commercial Code):

  • Relevant to a business enterprise.

  • Carried out in a defined area or region.

  • Carried out on a permanent basis.

  • Carried out based on a contract.

The Commercial Code also imposes obligations on an agent, such as to:

  • Give notice.

  • Take measures to prevent damage or loss to the value of products while handled by an agent.

An agent also has rights, such as to:

  • Remuneration.

  • Liens that an agent can hold over products.

In addition, the Commercial Code regulates the termination of agency agreements and the obligations to compensate agents.

Distribution

There is no specific law regulating distribution agreements. However, there are circumstances, listed in the Communiqué on Block Exemptions for Vertical Agreements 2002/2 (Communiqué on Vertical Agreements), in which a distribution agreement is exempted from the prohibitions in the Competition Law (see Question 26).

Franchising

Franchise agreements are regulated by, among other things the:

  • Code of Obligations

  • Competition Law.

  • Communiqué on Vertical Agreements, which regulates:

    • circumstances in which a vertical agreement is exempt from the prohibitions in the Competition Law;

    • assignment, sale and use of intellectual property rights; and

    • validity of non-competition clauses.

 

E-commerce

30. Are there any laws regulating e-commerce (such as electronic signatures and distance selling)?

There are pieces of legislation regulating e-commerce in Turkey in areas such as e-government, e-banking and e-business.

Electronic signatures are regulated by the Electronic Signature Law (Law No. 5070, 2004). An electronic signature has the same legal consequences as a physical signature, except in certain specific transactions and agreements (Article 5, Electronic Signature Law).

 

Advertising

31. Outline the regulation of advertising in your jurisdiction.

The main regulation of commercial advertising is the Regulation Regarding Principles and Implementation of Commercial Adverts and Announcements (Official Gazette, 14 June 2003, number 25138).

 

Data protection

32. Are there specific statutory data protection laws? If not, are there laws providing equivalent protection?

There are no specific laws and regulations dealing with data protection. However, privacy and data security are regulated by general laws and regulations, such as the:

  • Constitution.

  • Banks Law.

  • Criminal Procedure Code.

  • Civil Procedure Code.

  • Enforcement and Bankruptcy Law.

  • Tax Procedural Law.

  • Law Regarding the Protection of the Value of Turkish Currency.

  • Telegraph and Telephone Law.

  • Radio Law.

These regulations cover:

  • Intellectual property and pharmaceutical data.

  • The collection of customer data.

  • The protection of customer privacy.

  • Banking secrecy.

  • Public authorities and privacy.

  • Other secrecy related laws and regulations.

 

Product liability

33. How is product liability and product safety regulated?

Legislation

Product liability and product safety are regulated by the:

  • Code of Obligations.

  • Commercial Code.

  • Consumer Protection Law (Law No. 4077, 1995).

  • Law on the Preparation and Implementation of Technical Legislation of Products (Law No. 4703, 2001) which, to a large extent, implements Directive 2001/95/EC on general product safety.

  • Regulation on Market Surveillance and the Auditing of Products.

Product liability is also regulated under other pieces of legislation specific to certain goods or services, such as textiles, food and cosmetics.

Defective products and liability

These are goods which either (Article 4, Consumer Protection Law):

  • Have defects which are in conflict with the indicated qualities or the quantities.

  • Are not fit for purpose.

To claim product liability, the product must either (Code of Obligations):

  • Be defective in the named and promised qualities.

  • Have physical, legal, or economic deficiencies that contradict the quality or quantity expected by the buyer, in relation to the purpose they were intended to be used for.

The seller is liable for defective products Under the Code of Obligations. The Consumer Protection Law extends joint and several liability to any dealer, agent, manufacturer or producer, importer and creditor who provided a means of payment to the consumer.

Remedies

The buyer can claim the following, provided he notifies the defect to the seller within 30 days of delivery (Consumer Protection Law):

  • Rescission of the contract, and a refund of the purchase price.

  • Replacement of the goods by non-defective generic goods.

  • Reduction of price in proportion to the defects.

  • Request for free repair.

  • Damages for any loss incurred.

Shorter time limits to notify defects apply to commercial sales, in certain circumstances.

The buyer can also bring a general claim for damages for losses he has incurred under the Code of Obligations.

The limitation periods for claims are:

  • Two years from the delivery of the defective product to the consumer, even if the defect appears after this date, unless those liable have assumed liability for a longer period (Consumer Protection Law).

  • Three years for general claims for damages.

All these claims are extinguished ten years from the introduction of the defective product into the market. The relevant prescription period does not apply if the defect is hidden by gross fault or deceit by the seller.

Law No. 4703 regulates products which are new to the market and provides heavy sanctions for unsafe products introduced to the market.

 

Main business organisations

Chamber of Commerce (Ticaret Odası)

W www.tobb.org.tr/Sayfalar/TicaretOdalari.aspx

Main activities. This institution organises and records the commercial transactions of individuals and commercial entities. It also keeps records for companies.

General Directorate of Land Registry and Cadastre (Tapu ve Kadastro Genel Müdürlüğü)

W http://web.tkgm.gov.tr/tkgm/index.php

Main activities. This maintains the land registers, according to the relevant legislation, to protect records and documents and make register changes.

Ministry Of Customs and Trade

W www.gumrukticaret.gov.tr

Main activities. This is responsible for:

  • Collecting and safeguarding customs duties.

  • Controlling the flow of goods in and out of Turkey, including animals, transport, personal items and hazardous items.

  • Combating and investigating smuggling.

Ministry of Labour (Çalışma Bakanlığı)

W www.csgb.gov.tr/csgbPortal/cgm.portal

Main activities. This is responsible for setting national labour standards and dispute mechanisms.

Competition Authority (Rekabet Kurulu)

W www.rekabet.gov.tr

Main activities. This monitors, regulates and supervises markets, to prevent anti-competitive agreements, abuses of dominant position and mergers and acquisitions that would significantly decrease competition.



Online resources

gib.gov.tr

W www.gib.gov.tr

Description. The official website of the internal revenue administration where current legislation can be obtained in Turkish.

mevzuat.gov.tr

W www.mevzuat.gov.tr

Description. The official government website where up-to-date legislation, case law and rules can be obtained. Anyone can access the relevant webpage. However, the webpage is in Turkish, and there are no official websites for English translations of legislation, case law and rules.



Contributor profiles

Firat Yalcin

Pekin & Pekin

T +90 212 313 35 00
F +90 212 313 35 35
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Professional qualifications. Lawyer, Istanbul Bar, 2005; CPA, Istanbul Chamber of Certified Public Accountants, 2007

Areas of practice. Tax and legal advisory; tax litigation; corporate law; mergers and spin-offs.

Sinan Sunay

Pekin & Pekin

T +90 212 313 35 00
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E ssuany@pekin-pekin.com
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Professional qualifications. Turkey

Areas of practice. Corporate law; M&A

Irmak Dirik

Pekin & Pekin

T +90 212 313 35 00
F +90 212 313 35 35
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W www.pekin-pekin.com

Professional qualifications. Turkey, 2008

Areas of practice. Corporate law; M&A; employment law; IP law.


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