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 global guide to doing business worldwide. For a full list of contents, please visit www.practicallaw.com/dbi-mjg.

Itır Sevim-Çiftçi and Kemal Aksel, Yegin Ciftci Attorney Partnership
Contents

Overview

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

The Republic of Turkey (Turkey) adopted the new Turkish Commercial Code No. 6102 (Commercial Code) and Code of Obligations No. 6098 (Code of Obligations) in July 2012.

The general elections took in June 2015. The election results show that there needs to be a coalition in order to form the government.

 

Legal system

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

The legal system is based on a civil law system, the structure and principles of which are parallel with continental European Law.

 

Foreign investment

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

Direct investments

In principle, foreign investors can freely make direct investments in Turkey (Direct Foreign Investments Law No. 4875) by:

  • Incorporating companies.

  • Opening branches.

  • Acquiring shares of Turkish companies without obtaining prior authorisations or approvals.

  • By making certain post-closing filings.

On the other hand, for certain types of companies in regulated sectors (such as banks, insurance and brokerage companies, energy companies acting based on licences, factoring and financial leasing companies) obtaining prior authorisations or approvals from competent governmental authorities may be required to acquire shares or voting rights that reach or exceed certain thresholds.

Portfolio investments

Foreign investors residing outside Turkey (including foreign investment companies and investment funds) can freely purchase or sell Turkish securities or other capital market instruments provided that authorised banks or brokerage companies act as intermediaries in such transactions (Decree on the Protection of the Value of Turkish Currency No. 32).

Ownership of real estate

There is a separate regime governing the acquisition of real estate by foreign individuals, the below summarises the law in relation to companies.

Foreign companies. Foreign companies (that is, companies incorporated in foreign jurisdiction) can only acquire title to real estate subject to the provisions of special laws, such as:

  • Petroleum Law No. 6491.

  • Industrial Zones Law No. 4562.

  • Tourism Incentive Law No. 2634.

An acquisition vehicle of a foreign investor, which is incorporated outside Turkey, cannot directly acquire title of real estate in Turkey, unless the acquisition is carried out subject to foregoing regimes.

Foreign shareholding companies. The Regulation on the Real Estate Ownership of Companies with Foreign Shareholding No. 28386 (published in the Official Gazette dated 16 August 2012) (Regulation) provides a separate legal regime for Foreign Shareholding Companies (that is, companies incorporated in Turkey with foreign shareholding).

In principle, a foreign shareholding company is recognised as a Turkish entity and enjoys the same benefits granted to a company incorporated with 100% Turkish shareholding. The Regulation imposes a separate legal regime on foreign shareholding companies acquiring title of real estate in Turkey if foreigners (for example, foreign individuals, foreign companies or foreign institutions):

  • Own 50% or more shares in the foreign shareholding company.

  • Have the right to appoint or dismiss the majority of the persons having the management rights in the foreign shareholding company (for example, the right to appoint the majority of the directors on the board).

The foreign shareholding company matching the foregoing criteria must apply to the governorship where the target real estate is located (governorship approval) before acquiring the title before the land registry. The respective governorship communicates with the general staff and the City Police Department to check if the target real estate is located within the military security, prohibited zone or special security zone. After making the evaluation, if the general staff and the City Police Department provide clearance, the governorship provides an approval (valid for six months) to the foreign shareholding company to acquire the title of the target real estate.

A company is transformed into a foreign shareholding company, subject to the Regulation, if foreigners (for example, foreign individuals, foreign companies or foreign institutions) either:

  • Acquire more than 50% or more shares of a company incorporated in Turkey.

  • Obtain the right to appoint or dismiss the majority of the persons having management rights in a company incorporated in Turkey.

Governorship approval is not a precondition to complete an acquisition of shares (or gain control in the management). In these cases, similar checks with the general staff and the City Police Department are carried out by the governorship on the "background" without any application by the company.

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

There are no general rules that impose blanket restrictions on doing business with other countries. The bilateral trade agreements or protocols executed with certain countries should be taken into consideration.

 
5. Are there any exchange control or currency regulations?

Exchange control and currency requirements are regulated under the Decree on the Protection of the Value of Turkish Currency No. 32. Foreign investors are allowed to repatriate:

  • Net profits.

  • Dividends.

  • Proceeds generated from sales, liquidation and indemnity.

  • Consideration incurring from licence, management or similar agreements that arise from their transactions and operations in Turkey.

Foreign investors can transfer these amounts abroad through Turkish banks in foreign currency or Turkish Lira. However, if the amount is above or equal to US$50,000, the Turkish bank conducting the transfer must notify the relevant Turkish authorities within 30 days following the transaction (excluding payments for exports, imports and invisible transactions).

There are also further notification requirements under special laws (for example, anti-money laundering legislation).

 
6. What grants or incentives are available to investors?

Turkey has adopted a new incentive programmes in 2012 that allows foreign investors to benefit from new incentive schemes under equal conditions with Turkish companies having domestic investors (Council of Ministers Decree No. 2012/3305 on Government Subsidies for Investment). The new incentive program recognises the following four different incentive schemes and nine different incentive instruments.

The regional investment incentive scheme. This divides Turkey into six investment regions based on socio-economic characteristics, competitive potentials and economic scales of certain industries, and includes:

  • VAT exemption.

  • Customs duty exemption.

  • Tax deduction.

  • Social security premium (SSP) Support (both for the employee's and employer’s share).

  • Income tax withholding support.

  • Interest rate support.

  • Land allocation

The large scale investment incentive scheme. This supports 12 different investment categories (for example, petroleum, chemical, automotive, railway, pipeline, and medical sector), which will potentially foster Turkey's competitiveness, technology and research and development (R&D) capacity, and includes:

  • VAT exemption.

  • Customs duty exemption.

  • Tax deduction.

  • SSP support (employee’s and employer’s share).

  • Income tax withholding support.

  • Land allocation.

The strategic investment incentive scheme. This aims to promote the production of intermediate goods with low production capacity and high import dependence regardless of the region, and includes:

  • VAT exemption.

  • Customs duty exemption.

  • Tax deduction.

  • SSP support (employee's and employer's share).

  • Income tax withholding support.

  • Interest rate support.

  • Land allocation.

  • VAT refund.

The general investment incentive scheme. This consists of incentives not falling into the scope of other schemes, and includes:

  • VAT exemption.

  • Customs duty exemption.

  • Income tax withholding support.

Other significant incentives in Turkey generally concern R&D activities, technology and development zones and free trade zones (that is, exemption from most taxes subject to certain conditions, including VAT, custom duty, special consumption tax, income tax and corporate tax).

 

Business vehicles

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

The most common forms of business vehicles used by foreign investors are joint stock corporations (JSCs) and limited liability companies (LLCs). Generally, foreign investors form partnerships and joint ventures through establishing new JSCs or LLCs. Trust concept is not recognised under Turkish law.

Foreign companies commonly use JSCs and LLCs since the main rules regulating such companies are similar to other jurisdictions and Turkish legislation mainly recognises such companies as business vehicles to operate in certain sectors.

However, the company type requirements set out for certain companies (public companies, insurance and reinsurance brokerage companies) must be observed depending on the sector or area of business of the foreign investor.

 
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

Joint stock corporations (JSCs) and limited liability companies (LLCs) are established on the registration with the competent trade registry by submitting the required establishment documents (that may vary depending on the competent trade registry). The Istanbul Trade Registry (www.ito.org.tr) and the Ankara Trade Registry (www.ato.org.tr) identify the required documentation.

Certain regulated companies (for example, banks, financial leasing companies, factoring companies, holding companies and insurance companies) must obtain prior approval of the Ministry of Customs and Trade or other regulatory bodies (for example, the Banking Regulation and Supervision Agency (BRSA) or the Treasury) before their registration and any amendments to their articles of association after their establishment.

JSCs and LLCs can be incorporated with one shareholder and this shareholder can either be a foreign or Turkish individual or legal entity. The following main principles apply to the establishment of both JSCs and LLCs.

Notarisation of articles of association. Articles of association must to be notarised following execution by the shareholders and must be uploaded to the Ministry of Customs and Trade's online registration system (MERSIS).

Trade names. Trade names must:

  • Contain sector description and company type.

  • Specifically vary from the trade names of existing companies.

Payment of share capital. At least one quarter of the share capital must be fully paid before incorporation. Outstanding share capital must be paid within 24 months following establishment.

Completion of the necessary documentation usually takes two to three weeks and registration with the competent trade registry takes up to one week, depending on the work load of the trade registries.

Further applications should also be pursued following the incorporation, such as:

  • Registration with the municipality.

  • Applying to the Social Security Institution.

  • Obtaining workplace opening and operation certificate.

  • Making notification for foreign direct investment (FDI).

Reporting requirements

The boards of JSCs and LLCs must prepare the following documents in accordance with the below standards for each fiscal year, within three months following the end of each accounting period:

  • Annual financial statements must be prepared in accordance with Turkish Accounting Standards, where assets and liabilities, equity and activity outcomes are reflected in a transparent and credible manner.

  • Annual activity reports must be prepared based on the financial statements and include information of potential risks, substantial events, research and development works and payments to board of directors members and executives.

Group companies must prepare consolidated financial statements. Activity reports of group companies must be prepared by the parent company's board. Listed companies are subject to further reporting requirements in accordance with Capital Markets Legislation. Companies operating in a regulated sector are also subject to additional reporting requirements, depending on the business sector or area that they are operating in (for example, insurance, banking and energy).

Share capital

There are no restrictions as to the maximum share capital amount. JSCs can be incorporated with a minimum share capital of TRY50,000 and LLCs with a minimum share capital of TRY10,000. However, minimum share capital requirements set out for certain companies (such as, public companies, energy companies, banks, insurance and reinsurance brokerage companies) must be observed, depending on the sector or area of business of the foreign investor.

Non-cash consideration

Non-cash consideration can be invested as share capital (provided that the asset is free of any encumbrances), following a valuation process to be conducted by experts appointed by the commercial courts. There are certain expections to this rule applicable depending on the circumstances.

Intellectual property rights can also be invested as non-cash consideration. However, personal endeavours, goodwill and undue receivables are prohibited from being invested as capital in kind.

Rights attaching to shares

Statutory rights attached to shares include the rights:

  • To be represented in and vote at general assembly meetings.

  • To request information and review.

  • To request special audit.

  • To receive dividends and liquidation share.

Some of these rights are exercised subject to certain conditions. The Commercial Code also provides certain other statutory rights to minority shareholders.

 
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

The main management body of joint stock coporations (JSCs) and limited liability companies (LLCs) are boards that can consist of at least one member (that can be Turkish or foreign individuals or legal entities). In LLCs, at least one shareholder must be a board member.

Management restrictions

All board members can be foreign individuals or legal entities.

Directors' and officers' liability

Unless released by the shareholders in the general assembly meetings, directors that are authorised to represent and bind the company are jointly and severally liable for the damages caused, as set out in the Commercial Code.

Parent company liability

There are no blanket liability provisions set out for the parent companies under the Commercial Code. The corporate veil principle applies. On the other hand, the Commercial Code provides certain "group company rules" that protect the stakeholders of the company (minority shareholders or creditors) from the parent company's abuse of its subsidiary company.

 

Employment

Laws, contracts and permits

10. What are the main laws regulating employment relationships?

The employment relationships are mainly regulated under the Labour Law No. 4857 (Labour Law) and its secondary legislation. Both Turkish and foreign employees that want to work in Turkey are subject to this applicable legislation. However, Turkish employees working abroad are not covered by the Labour Law.

With employment relationships that have a foreign element, the parties can determine the governing law (Law on International Private Law and Procedural Law No. 5718) except for the mandatory rules concerning the rights granted to the employees under the laws of ordinary workplace.

If the parties do not determine the governing law under the employment contract, the employment contract is subject to the laws of the workplace in which the employee ordinarily performs his duties. However, in the case of temporary assignment of the employee to a workplace in another country, the workplace is not deemed as his ordinary workplace.

If an employee works in several different jurisdictions without having an ordinary workplace, the employment relationship is governed by the laws of the jurisdiction in which the principal workplace of the employer is established.

The Code of Obligations No. 6098 (Code of Obligations) also provides certain rules on the employment relationships in Turkey. Among other things, the Code of Obligations governs the rules for non-compete obligations in the employment contracts.

 
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 with a term of one year or more must be executed in writing. For employment contracts with shorter terms, the employer must provide the employee within two months of employment with a written document indicating:

  • The general and special working conditions.

  • The daily or weekly working periods.

  • The salary.

  • The terms of termination.

If one of the parties (either the employer or the employee) is a Turkish citizen, the employment contract must be executed in Turkish.

Collective bargaining agreements can also apply to the employment relationship if the contract is executed by and between the labour union and employer's union or the employer himself.

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

Work permits

Foreigners that would like to work in Turkey (freelance or otherwise), must obtain a work permit from the Ministry of Labour and Social Security of Republic of Turkey (Ministry of Labour) prior to the commencement of their work or employment.

Certain foreign applicants that have been granted an exemption from bilateral or multilateral treaties to which Turkey is a party, are especially exempt from obtaining a work permit in Turkey.

Work permit applications can be filed from Turkey or abroad. If the applications are from abroad, they should be filed via electronic application to the Turkish consulates located in the country of the foreigner's nationality or permanent residence. In such cases, the applications are forwarded to the Ministry of Labour. The prospective employer must also make an electronic application and submit the required documents to the Ministry of Labour within ten days following the foreign employee's application to the consulate. Afterwards, the Ministry of Labour finalises the application within 30 days, provided that all required documents are duly submitted.

A foreign person or their employer can file the application in Turkey directly to the Ministry of Labour only if the foreign employee has a residency permit that is valid for at least six months and the work permit application is made before the expiry of the term of the residency permit.

In order to employ foreign employees, Turkish companies must comply with certain requirements that are the "Evaluation Criteria" issued by the Ministry of Labour (for example, employing at least five Turkish citizen employees in the company for each foreign citizen). Depending on the circumstances, there are certain carve-outs for the satisfaction these criteria.

Types of work permits

Work permits can be issued for a definite or indefinite term, subject to the following conditions:

  • Work permits with a definite term. A foreign employee can be granted a work permit for a specific job in a specific workplace or enterprise for up to one year. The one-year term can be extended to three years and afterwards to six years, subject to certain conditions.

  • Work permits with an indefinite term. Foreign employees can obtain an indefinite term work permit if they have:

    • a long-term residency permit;

    • stayed in Turkey for at least an uninterrupted term of eight years with a residency permit; or

    • legally worked at least eight years in Turkey.

Residency permits

Work permits of foreign employees are deemed as residency permits (Foreigners and International Protection Law No. 6458). Therefore, foreign employees that have obtained work permits are not required to obtain separate residency permits.

Costs of work and residency permits

Fees applicable for obtaining work and residency permits in 2015 (to be adjusted each calendar year) are the following:

  • Work permit for a definite term (extensions are subject to the same charge):

    • up to one year: TRY 181; or

    • up to three years: TRY 545.

  • Work permit for an indefinite term: TRY 909.10.

  • Independent work permit: TRY 1,891.60.

  • Residency permit: TRY 55.

  • Residency permit charge: US$12 to US$80. The Ministry of Treasury announced the residency permit charges in US dollars.

The work permits of foreign employees function as their residency permits. Foreigners that are granted work permits must therefore pay fees for residency permits each year (Law on Charges No. 492).

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 management representation or consultation in relation to corporate transactions. However, if there is a collective bargaining agreement in force, the relevant collective bargaining agreement can provide for employee management representation or consultation through trade unions.

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

Employees that have completed six months of employment in a workplace with 30 or more workers under an employment contract with an indefinite term can benefit from certain safeguarding provisions of the Labour Law. The purpose of the safeguarding provisions is to prevent arbitrary termination of employment. However, safeguarding provisions do not apply to employees that are in charge of the management of the business.

Therefore, employment contracts can be terminated:

  • On the grounds of a valid cause by complying with the notice periods stated in the Labour Law.

  • Immediately on the grounds of a just cause.

Termination on the grounds of valid cause

The employer must terminate the employment contract by serving a written termination notice explicitly indicating the termination grounds to the employee. The valid causes can be based on factors such as:

  • Incapability or misbehaviour of the employee.

  • The necessities of the workplace or the work.

For termination on the grounds of a valid cause, the terminating party must comply with the following notice periods:

  • Less than six months employment: two weeks.

  • Between six and 18 months employment: four weeks.

  • Between 18 and 36 months employment: six weeks.

  • More than 36 months employment: eight weeks.

By the mutual agreement of the employer and the employee, the notice periods can be increased in favour of the employee but cannot be decreased.

With termination of an employment contract by an employer based on a valid cause, the employer must issue notice pay (if the notice period is not observed) and severance pay to an employee that has worked for the employer for at least one year.

The parties may immediately terminate the employment contract without observing the notice period by directly providing the total salary to be paid to the employee during the notice period.

Termination on the grounds of just cause

The just causes for termination are grouped under three main categories:

  • Health problems.

  • Immoral and dishonourable acts.

  • Force majeure as listed in numerous clauses in the Labour Law.

With termination of an employment contract due to just cause, the employment contract can be terminated immediately without complying with any notice period. The right to terminate an employment contract due to just cause must be exercised within:

  • Six days starting from the date on which the employer or employee becomes aware of the action of the other party resulting in just cause.

  • At the latest within one year of the action.

If the employer terminates the employment contract due to just cause based on health reasons or force majeure, the employer must give severance pay to the employee. On the other hand, if the employer terminates the employment contract due to just cause on grounds of immoral and dishonourable acts of the employee, the employer is not liable to pay severance.

If the employee terminates the employment contract due to just cause, the employer must pay severance in all cases. However, where the employee terminates the employment contract of his own will, without the presence of any cause set out under the Labour Law, the employer is not liable to pay severance to the employee (unless the employee terminated the contract due factors such as military duty, or marriage).

Restitution

Employees subject to safeguarding provisions can request restitution of their employment within one month of termination.

If the court determines that the termination cause is not just or valid, the employer must re-employ the employee within one month of the court ruling. If the employer fails to re-employ the employee then the employer must pay a compensation corresponding to four to eight months' (depending on the decision of the court) salary of the employee.

The employer must also pay a maximum of four months' salary for the period of his unemployment during the lawsuit, and provide him with other rights arising from the employment contract for this period.

 
15. Are redundancies and mass layoffs regulated?

The Labour Law governs the terms and conditions of mass layoffs The mass layoff provisions apply based on the number of employees to be laid off on the same day or on different days in a one month period:

  • If there are 20 to 100 employees in a workplace: minimum 10 employees.

  • If there are 101 to 300 employees in a workplace: minimum 10% of the employees.

  • If there are 301 or more employees in a workplace: minimum 30 employees.

If the employer is planning a mass layoff due to economic, technologic, structural or similar necessities of the enterprise, workplace or work, the employer must serve a written notice to the following 30 days in advance of the mass layoff:

  • The workplace labour union representative.

  • The relevant labour district office.

  • The Turkish Labour Agency.

This notice must indicate:

  • The grounds for dismissal.

  • The number and categories of the employees to be laid off.

  • The anticipated timing of the mass layoff.

After serving notice to the above authorities, the employer and the labour union representatives will meet to discuss the measures to minimise the number of employees to be laid off and mitigate the adverse effects of the mass layoff.

The termination notices become effective after 30 days following the date of the notice served by the employer to the relevant labour district office.

If the workplace is shut down entirely, the employer must also serve a written notice (that must be published in the workplace 30 days in advance) to:

  • The workplace labour union representative.

  • The relevant labour district office.

  • The Turkish Labour Agency.

 

Tax

Taxes on employment

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

Individuals that have Turkish residency are subject to individual income tax levied both on their domestic and overseas income. For the purposes of "Turkish residency", individuals are deemed to have Turkish residency if they:

  • Have permanent residence in Turkey.

  • Stay in Turkey for more than six months in a calendar year.

In that respect, individuals are subject to limited liabilities for individual income tax (that is, only for their income generated in Turkey) if they:

  • Reside outside of Turkey.

  • Stay in Turkey for less than six months in a calendar year.

Double tax treaties must also be taken into account for taxation of foreign individuals. Accordingly, foreign individuals are not subject to any tax in Turkey (if their country of national origin has signed a double tax treaty with Turkey) if they:

  • Stay in Turkey for a term less than 183 days in a calendar year.

  • Their salaries are paid by foreign entities.

Foreign individuals working in liaison offices are also exempt from Turkish tax, subject to certain conditions.

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

Tax resident employees

Turkish resident employees are subject to individual income tax levied both on their domestic and overseas income in accordance with the following rates:

  • Up to TRY12,000: 15%.

  • Up to TRY12,000: TRY1,800 for the first TRY12,000, plus 20% on the excess.

  • Up to TRY66,000: TRY5,200 for the first TRY29,000, plus 27% on the excess.

  • More than TRY66,000: TRY15,190 for the first TRY66,000, plus 35% on the excess.

  • Up to 106,000: TRY5,200 for the first TRY29,000 plus 27% on the excess.

  • More than TRY106,000: TRY25,990 for the first TRY106,000 plus 35% on the excess.

Such employees are also subject to social security payments, which are discussed below.

Non-tax resident employees

Non-tax resident employees have limited liabilities for individual income tax, that is it is solely for their income generated in Turkey. It is at the same income tax rates set out for tax-resident employees, except for the reduced rates or certain exemptions provided to such foreign nationals through double tax treaties.

Employers

Employers must pay social security contributions as a portion of their employee's gross salary (Law on Social Insurances and General Insurance Law No. 5510), in accordance with the rates below:

  • Short-term insurance premium: 2% (employer's share).

  • Long-term insurance premium: 11% (employer), 9% (employee).

  • General health insurance premium: 7.5% (employer) and 5% (employee).

  • Unemployment insurance premium: 2% (employer) and 1% (employee).

Business vehicles

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

Tax resident business

Companies or branch offices established in Turkey are fully tax liable for both their domestic and overseas income (Corporate Tax Law No. 5520).

Non-tax resident business

Companies having both their registered address and principal place of business in overseas countries are deemed as non-tax resident businesses. These companies are subject to limited corporate tax liabilities and corporate tax is levied only on their income generated in Turkey.

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

Corporate tax

Turkey has a declaration-based corporate taxation system and, accordingly, net income of any corporation is subject to corporate income tax at a rate of 20%. Net income declaration of a corporation must be supported with details of the respective financial year results.

Tax resident corporations are subject to unlimited corporate tax liabilities for both their domestic and overseas income, whereas non-tax resident corporations are only taxed on their income generated in Turkey.

Corporate income tax returns must be submitted to the competent tax office between the first and 24th day of the month following the end of each accounting period. Corporate income tax payments must be made by the end of month in which the corporate tax return is submitted.

Value Added Tax (VAT)

Delivery of goods and services in Turkey within the scope of commercial, industrial, agricultural and independent professional activities and import of goods and services into Turkey are subject to VAT at an 18% rate. However, exceptionally, certain goods and services are subject to a 1% or 8% VAT rate.

The VAT taxation period is quarterly. However the Ministry of Finance has the authority to set monthly taxation periods.

The VAT returns must be submitted to the competent tax office between the first and 24th day of the month following the taxation period. VAT payments must also be made until the 26th day of the month in which the VAT return is submitted.

Banking and insurance transactions tax (BITT)

Payments received by banks, bankers and insurance companies (such as interests, commissions, premiums and service charges) are subject to BITT at a 5% rate. However, there are exemptions for certain transactions where a reduced rate of 1% is applied.

The BITT returns must be submitted on a monthly basis, within the first and 15th day of the month following the end of each taxation period and BITT payments must be made in the declaration period.

Stamp Tax

Contracts, undertakings, assignments and other specific documents listed in the Stamp Tax Law No. 488 are subject to stamp tax. Therefore, contracts signed in Turkey that refer to a specific monetary amount are subject to a stamp tax (other than those that are exempt). If signed abroad, a stamp tax arises subject to certain conditions (for example, if the contracts are presented to Turkish public offices).

Each original copy of a contract is separately subject to a stamp tax. The general stamp tax rate is 9.48 per 1000. For specific documents, lower rates may be applicable.

There is a cap applicable to a stamp tax adjusted each calendar year. The current cap is TRY 1,702,138 for the year 2015.

Resource Utilisation Support Fund (RUSF)

RUSF is a tax levied on credit-based imports and loans:

  • RUSF rate for imports is 6% of import value.

  • RUSF rate for consumer loans provided by Turkish banks and financial institutions is 15%.

  • Foreign exchange loans provided to Turkish residents (excluding banks and financial institutions) from overseas entities are subject to the following rates depending on the average maturity intervals:

    • loans with an average maturity of up to one year: 3%;

    • loans with an average maturity of more than one and less than two years: 1%;

    • loans with an average maturity of more than two and less than three years: 0.5%;

    • loans with an average maturity of more than three years: 0%.

Special consumption tax

Delivery, import and sale of goods (categorised into four groups in the Special Consumption Tax Law No. 4760) are subject to a one-time special consumption tax for the following items:

  • Petroleum products, natural gas, lubricants, solvents and derivatives of solvents.

  • Automobiles and other motorised vehicles, motorcycles, planes, helicopters and yachts.

  • Tobacco and tobacco products, alcoholic beverages and sodas.

  • Luxury goods.

Special consumption tax for such goods is paid when they are imported or produced and the tax burden can be allocated to the end users (consumers) by the taxpayers.

Other taxes

There are various other taxes in relation to the environment, property, motorised vehicles, inheritance and gifts that may be applicable from time to time. Since Turkey is a unitary state, there are no local taxes or state taxes applicable.

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

Unless reduced by a double tax treaty, non-resident shareholders are subject to 15% withholding tax.

Dividends received

Dividends received by tax resident companies from their foreign subsidiaries are subject to income tax at a rate of 15%, unless reduced by a double tax treaty. Dividends paid by foreign subsidiaries are exempt from taxation if:

  • The tax resident company receiving the dividend holds at least 10% of the shares of its foreign subsidiary for at least one year at the date of the dividend payment.

  • The dividend distribution of the foreign subsidiary is subject to income tax and corporate tax or similar taxes with a minimum rate of 15% in its jurisdiction of incorporation.

  • The dividend is transferred to Turkey by the end of the declaration date of corporate income tax return of the respective year.

Interest paid

A withholding tax at a rate of 10% applies to interest paid by a Turkish corporation to a foreign corporate shareholder. However, where the lender is a foreign state, international institution, overseas bank or overseas financial institution, the withholding tax rate is 0%.

Interest paid to foreign shareholders on deposit accounts and foreign exchange deposit accounts is subject to withholding tax rates between 10% and 18%, depending on the maturity and the currency, unless the tax rate is reduced by a double tax treaty.

IP royalties paid

A withholding tax at a rate of 20% applies to payments of IP royalties (such as copyright, patents and trade marks) to foreign corporate shareholders, unless the rate is reduced by a double tax treaty.

 

Groups, affiliates and related parties

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

Thin capitalisation rules are applicable where the loans received from either related parties or shareholders exceed either:

  • Three times the total equity of the Turkish debtor company.

  • Six times the total equity of the Turkish debtor company if the shareholders or the related parties are banks and/or financial institutions.

In this case, the exceeding amount is deemed as profit and is subject to dividend taxation.

For the purposes of interpretation of thin capitalisation rules, a "related party" either means:

  • A legal entity where the shareholder directly or indirectly holds at least 10% of the shares, voting rights or dividend rights.

  • Individuals or legal entities that directly or indirectly hold 10% or more of the shares, voting rights or dividend rights of the shareholder or the entity related with the shareholder.

 
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)?

Income generated by foreign subsidiaries (that are controlled by Turkish taxpayer individuals or legal entities holding at least 50% of the share capital, dividend rights or voting rights over such foreign subsidiary) are subject to controlled foreign company rules and taxation in Turkey, provided that:

  • At least 25% or more of a foreign subsidiary's total gross revenue consists of passive income (for example, interest, dividends, rent, licence fees and revenues generated from securities).

  • The foreign subsidiary is subject to income tax and corporate tax or any similar tax, at a rate of less than 10%.

  • The foreign subsidiary's annual total gross revenue exceeds TRY 100,000 for the respective accounting year.

 
23. Are there any transfer pricing rules?

Transactions by and between a Turkish company and its related parties must be conducted in accordance with the "arm's-length transfer pricing" principles that are determined in line with guidelines of Organisation for Economic Co-operation and Development (OECD). Accordingly, three main transfer pricing methodologies are recognised under the OECD guidelines:

  • Comparable price method.

  • Cost-plus method.

  • Resale minus method.

Other methods can also be used, subject to approval by the Ministry of Finance.

Customs duties

24. How are imports and exports taxed?

Imported Goods and services are subject to VAT and customs tax, unless the importer benefits from certain tax incentives or exemptions provided subject to certain conditions such as:

  • Research and development (R&D) incentives.

  • Free-trade zone exemptions.

  • Technology parks exemptions.

  • Investment incentives.

Exported goods and services are generally either exempted or incentivised with lower tax rates.

Double tax treaties

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

Turkey has signed Organisation for Economic Co-operation and Development (OECD) model double tax treaties with 80 countries, including the US, BRICS countries (Brazil, Russia, India, China and South Africa) and most EU countries.

 

Competition

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

Competition authority

The Turkish Competition Authority is the regulating and supervising authority of competition in Turkey. The Turkish Competition Authority prepares the regulations, communiqués and guidelines concerning competition rules and practices. The competition rules and practices are mainly governed by the Law on the Protection of Competition No. 4054 (Competition Law).

The website of the Turkish Competition Authority (www.rekabet.gov.tr) provides guidance on the relevant legislation and decisions of the Turkish Competition Authority.

Restrictive agreements and practices

Agreements and joint practices of undertakings, and decisions and practices of associations of undertakings are prohibited if they have the purpose of, effect of, or is likely to have the effect of directly or indirectly preventing, distorting or restricting the competition in a particular.

Accordingly, the Competition Law prohibits the following practices:

  • Fixing the purchase or sale price or cost and profit determining the price, and any terms of purchase or sale.

  • Sharing markets for goods or services, market resources or elements.

  • Controlling the amount of supply or demand in the market, or determining them outside the market.

  • Complicating and restricting the activities of competitors.

  • Excluding undertakings operating in the market by boycotts or other ways.

  • Preventing potential new competitors from entering the market.

  • Applying different conditions to persons or transactions with equal status (except for exclusive dealing agreements).

  • Product bundling.

Unilateral conduct

Unilateral conduct is not regulated under the Competition Law. However, abuse of a dominant position in the market is regulated and strictly prohibited. The Competition Law also provides a list of exemplary actions indicating the situations where the practice constitutes an abuse of dominant position.

 
27. Are mergers and acquisitions subject to merger control?

Acquisition of direct or indirect control over all or part of one or more undertakings through the purchase of assets or a part or all of its shares is subject to the prior approval of the Turkish Competition Authority. Therefore, transactions resulting in a change of control must be notified to the Turkish Competition Authority provided that they exceed the following thresholds:

  • The total turnovers of the transaction parties in Turkey exceed TRY100 million and turnovers of at least two of the transaction parties in Turkey each exceed TRY30 million.

  • The turnover in Turkey exceeds TRY30 million for:

    • at least one of the transaction parties in merger transactions; or

    • the target in acquisition transactions.

  • Also at least one of the other transaction parties has a global turnover exceeding TRY500 million.

Turkish law provides an exemption for the anti-trust clearance for transactions that do not lead to a change of control. The control is defined as the right to exercise decisive influence over day-to-day management or on long-term strategic business decisions of a company (for example, budget, business plan, investments and appointment of senior management).

 

Intellectual property

28. Outline the main IP rights in your jurisdiction.

Patents

Definition and legal requirements. A patent is a set of exclusive rights granted to an invention that is new in the world and remedies or guides an existing technical problem. Therefore, inventions will be protected by patents if they are:

  • Novel.

  • Applicable in industry.

  • Surpass the state of art.

Registration. Protection of a patent is conditional on its registration at the Turkish Patent Institute (TPI). Further information on the registration process is available at the TPI's website (http://www.tpe.gov.tr).

Enforcement and remedies. The holder of a patent can prevent the following actions of third parties performed without permission:

  • Production.

  • Sale.

  • Use.

  • Import of patented products.

  • Keeping them in possession for purposes other than personal needs.

  • Use of a process that is the subject matter of the patent.

Where there is a patent infringement, the patent holder is entitled to request the following from the competent special IP courts:

  • Cessation of infringement.

  • Compensation of damages.

  • Confiscation of the products used directly by the infringers.

  • Transfer of ownership rights of the confiscated products.

  • Precautionary measures to prevent future infringement.

  • Publication of the court's judgment.

The persons infringing the patents may also be subject to imprisonment or punitive fines. The courts can also rule that the premises of the infringers must be closed and the infringers restrain from trading for at least one year.

Length of protection. Patents registered after a (substantive) examination are protected for 20 years following the date of the registration application. This 20-year term cannot be extended.

Patents registered without a (substantive) examination are protected for seven years. This protection term can be extended to 20 years where a substantive examination request is made within the seven-year time period and the patent is registered as a result of the examination.

Trade marks

Definition and legal requirements. A trade mark is a sign, design, or combination of words or expressions or similar descriptive means capable of being published and reproduced by printing that identifies and distinguishes products of a particular source from the products of others.

The main determinants of a trade mark are being capable of:

  • Distinguishing the goods and services of an undertaking from the goods and services of other undertakings.

  • Represented graphically or by similarly descriptive means.

  • Being reproduced and published by printing.

Protection

Protection of a trade mark is conditional on its registration at the TPI (www.tpe.gov.tr).

Apart from the registration-based trade mark protection regime, unregistered trade marks are also protected under the unfair competition provisions of the Turkish Commercial Code No. 6102 (Commercial Code).

Enforcement and remedies

The holder of a trade mark can prevent the following actions by third parties performed without permission:

  • Use of a sign that is identical with the registered trade mark in relation to goods and services that are identical with those for which the trade mark is registered.

  • Use of any sign where there exists a risk of confusion on the part of the public, including the risk of association between the sign and the trade mark since such sign is:

    • identical with or similar to the registered trademark; and

    • used for the same or similar goods and services.

  • Use of any sign where the use of that sign without due cause takes unfair advantage of or is detrimental to the distinctive character or the reputation of the registered trademark.

Where there is an infringement, the following actions of the infringers may be prohibited:

  • Affixing the design to the goods or to the packaging.

  • Offering the goods, putting them on the market or stocking them for these purposes under that sign, or offering or supplying services under the sign.

  • Importing or exporting the goods under that sign.

  • Using the sign on business, papers and in advertising.

The holder of a trade mark can request the following from the competent special IP courts:

  • Cessation of the infringement.

  • Compensation of damages.

  • Confiscation of the products used to produce these products.

  • Transfer of ownership rights of the confiscated products.

  • Precautionary measures to prevent future infringement.

  • Publication of the court's judgment.

The person involved in the infringement can also be subject to imprisonment or punitive fines.

Length of protection and renewability. The registered trade marks are protected for ten years from the filing date. The registration may be renewed for further periods of ten years.

Registered designs

Definition. Design means the entirety of the various features such as material, elasticity, sound, shape, texture, colour, lines or other characteristics of the appearance of the whole or part of a product or its ornamentation perceived by the human senses. In order to be registered, a design must be new and distinguishing.

Registration. Protection of a design is conditional on its registration at the TPI. Further information on the registration processes is available at the website of the TPI (www.tpe.gov.tr).

Enforcement and remedies. A holder of a design right can take all the necessary measures to protect the design and grant a licence to third parties for use of the design. Third parties cannot do any of the following without the consent of the design right holder:

  • Produce.

  • Supply.

  • Sell.

  • Offer.

  • Import.

  • Put a registered design or a similar design to commercial use.

  • Keep in stock for the same purposes.

The holder of a design can request the following from the competent special IP courts:

  • Cessation of the infringement.

  • Compensation of damages.

  • Confiscation of the products used to produce these products.

  • Transfer of ownership rights of the confiscated products.

  • Precautionary measures to prevent future infringement.

  • Publication of the court's judgment.

The persons infringing the designs may be subject to imprisonment or punitive fines. The courts can also rule that the premises of the infringers must be closed and that the infringers restrain from trading for at least one year.

Length of protection and renewability. A registered design is protected for five years from the filing date. This protection term can be renewed for a further five years, provided that the total protection term does not exceed 25 years.

Unregistered designs

Definition and legal requirements. Unregistered designs are protected by unfair competition provisions regulated under the Commercial Code. Unregistered designs can also be protected by copyright, provided that the required conditions are met (see Copyright).

Enforcement and remedies. Where the infringement constitutes unfair competition, the following remedies can be requested from competent courts:

  • Declaration of infringement.

  • Cessation of infringement (as well as the correction of the misleading statements or destruction of design).

  • Prevention of future infringement.

  • Compensation of damages.

Length of protection. The unregistered designs are protected as long as they are issued for commercial purposes and preserve their distinctive features.

Copyright

Definition and legal requirements. Copyright is an exclusive legal right to publish, print, perform, film or record literary, artistic, musical or similar material.

Copyright protection is granted to any kind of intellectual and artistic product bearing the characteristics of its owner that is considered a work of science and literature, music, fine arts or cinema.

Protection. Works fulfilling the copyright conditions automatically benefit from the protection set out under the Law on Intellectual and Artistic Works No. 5846 without requiring registration.

As an exception to the protection rule, cinematographic and musical works must be registered at the Ministry of Culture and Tourism to benefit from the protection.

Enforcement and remedies. The financial rights of the owner of the work are mainly grouped as follows:

  • Right to process.

  • Right to duplicate.

  • Right to publicise.

  • Right to present.

  • Right to broadcast.

In the event of an infringement, the copyright holder can request the following:

  • Cessation of the infringement.

  • Prevention of infringement.

  • Compensation of damages.

The infringers can also be subject to imprisonment and punitive fines.

Length of protection and renewability. Copyright can benefit from protection during the lifetime of their owners and for an additional seventy years following the death of the owners. The protection of the copyright starts from the death of the owner even if the work becomes public after his death. If there are multiple owners, the protection remains in force for 70 years after the last surviving owner's death.

Other

Other main IP rights are:

  • Geographical signs.

  • Trade secrets.

  • Utility models.

 

Marketing agreements

29. Are marketing agreements regulated?

Agency

Agency agreements are regulated under the Turkish Commercial Code No. 6102 (Commercial Code). The agents must carry out their activities relating to a business enterprise:

  • Based on an agreement.

  • In a certain area or region.

  • In a permanent manner.

The agents cannot authorise the execution of agreements on behalf of their clients, unless they are granted with this authority in writing. If the agreements are executed in a way that exceeds the agents' authority, the clients can either:

  • Grant their later consent to the transaction.

  • Withhold the later consent (if so, the agent itself is personally liable to perform the agreement).

The agents are entitled to remuneration and have retention rights over their clients' products if the amounts are not paid. Under certain circumstances, the agents can seek further fees of compensation following the termination of the agency agreement.

Distribution

Distribution agreements are not specifically regulated under the law. The relevant provisions of the Code of Obligations No. 6098 (Code of Obligations) governing agreements also apply to distribution agreements. However, distribution agreements can be subject to certain prohibitions or measures contemplated for protection of competition in accordance with the Competition Law (for example, limitations on the terms of distribution agreements), if not exempted from such prohibitions in accordance with the Communiqué on Block Exemptions for Vertical Agreements No. 2002/2 under certain circumstances.

Franchising

Franchising agreements are not specifically regulated under Turkish law. The relevant provisions of the Code of Obligations governing agreements also apply to franchising agreements. However, franchising agreements may be subject to certain prohibitions or measures contemplated for protection of competition in accordance with the Competition Law, if not exempted from such prohibitions in accordance with the Communiqué on Block Exemptions for Vertical Agreements No. 2002/2 under certain circumstances. The Communiqué on Block Exemptions for Vertical Agreements No. 2002/2 further regulates:

  • Assignment, sale and use of intellectual property rights.

  • Validity of non-compete clauses.

 

E-commerce

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

Under the law, execution of agreements by electronic means is effective only if executed through secure electronic signatures in accordance with the Electronic Signature Law No. 5070. Agreements executed by secure electronic signatures have the same legal effects as if they were executed in writing. However, the following exceptions exist:

  • For agreements where there are statutory form requirements (for example, notarisation), such form requirements must be complied with.

  • Collateral agreements cannot be executed via secure electronic signatures.

The Law on Regulation of Electronic Commerce No. 6563 (that will enter into force on 1 May 2015) mainly covers, amongst other things:

  • Obligations and liabilities of persons providing services through electronic mediums.

  • Prevention of unsolicited electronic commercial communications.

  • Personal data protection.

 

Advertising

31. Outline the regulation of advertising in your jurisdiction.

Commercial advertising is primarily regulated under the Regulation on Commercial Advertising and Unfair Implementations No. 29232.

 

Data protection

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

There is no special personal data protection law. Data protection is governed and regulated by the general provisions of various laws and regulations in which various administrative fines, indemnity payments and custodial sentences are recognised for breaches of the data protection liabilities, for example:

  • Banking Law No. 5411.

  • Law on Regulation of Electronic Commerce No. 6563.

Individuals also have a constitutional right to request the protection of their personal data.

There is a draft data protection law pending in parliemant.

 

Product liability

33. How is product liability and product safety regulated?

Relevant legislation

Product liability is primarily regulated by the following pieces of legislation, except for the sector-specific legislations:

  • The Consumer Protection Law No. 6502 (Consumer Protection Law).

  • Code of Obligations No. 6098 (Code of Obligations).

  • Commercial Code No. 6102 (Commercial Code).

  • The Law on the Preparation and Implementation of Technical Legislation of Products No. 4703 which implements the Directive No. 2001/95/EC of the European Parliament and of the Council on general product safety.

  • Regulation on Market Surveillance and the Auditing of Products No. 24643.

Definition of the defective product

The Consumer Protection Law defines a defective good as the product that does not comply with the sample or model agreed by the parties, or lacks qualifications that should be objectively possessed by the product.

Products are deemed as defected if they:

  • Do not have the qualifications indicated on its package, tag, instruction book, internet portal or commercials.

  • Do not comply with the qualifications stated by its seller or indicated in its technical specifications.

  • Have material, legal or economic defects that diminish or abolish the benefits reasonably expected by the consumer.

  • Are not delivered within the time agreed by the parties or installed properly, are deemed as defective products.

Liability for the defective product

A seller is liable for delivering the product in accordance with the sales contract. For delivery of a defective product, the consumer can request one of the following:

  • Rescission of sales contract (sözleşmeden dönme) by returning the defective product.

  • Keeping the defective product and requesting reduction of the price proportional to the defect.

  • Free repair at the seller's cost (if costs are not excessive).

  • Exchange of the defective product for a non-defective product.

Along with use of one of the foregoing rights, subject to certain conditions, the consumer can request indemnification from the seller (in accordance with the Code of Obligations).

Burden of proof

Any defect that appears within six months of the delivery date are deemed to have existed at the time of the purchase. Therefore, the burden of proof is on the seller to prove otherwise. If this legal presumption does not accord with the nature of the product or defect, it is not applicable.

If the consumer is aware of, or expected to, be aware of the defect at the time of the purchase, delivery of a defective product is not deemed as a breach of contract.

Statute of limitations

Unless a longer period is determined by other laws or the parties, the statute of limitation for claims arising from defective products is two years from the delivery date (in accordance with the Consumer Protection Law), even if the defect appears later. For immovable properties used for residential or vacation purposes, the statute of limitation is five years from the delivery date. In second-hand sales, the statute of limitation for seller's liabilities arising from the defective products cannot be less than one year, whereas for immovable properties used for residential or vacation purposes, this term cannot be less than three years.

If the defect is hidden by gross fault or fraud, the foregoing statute of limitations will not apply.

 

Main business organisations

Chamber of Commerce (Ticaret Odası)

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

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

Competition Authority (Rekabet Kurulu)

W www.rekabet.gov.tr/tr-TR/AnaSayfa

Main activities. This institution is responsible for preventing anti-competitive agreements, abuses of dominant position and mergers and acquisitions that would decrease the competition significantly.

General Directorate of Incentive Practices and Foreign Capital (Teşvik Uygulama ve Yabancı Sermaye Genel Müdürlüğü)

W www.ekonomi.gov.tr

Main activities. This institution drafts legislation concerning foreign investors and regulates requirements and prohibitions in that respect.

Ministry of Customs and Trade (Gümrük ve Ticaret Bakanlığı)

W www.gtb.gov.tr

Main activities. This institution is responsible for:

  • Collecting and safeguarding customs duties.

  • Controlling the flow of goods including animals, transports, personal effects and hazardous items.

  • Fighting against smuggling and investigating smuggling cases.

Ministry of Labour (Çalışma Bakanlığı)

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

Main activities. This institution is responsible for labour and social security affairs in the country and stipulates national labour standards.



Online resources

Revenue Administration

W www.gib.tr

Description. This is an official website, where the original text of the current legislation in Turkish can be obtained.

Mevzuat Bilgi Sistemi

W www.mevzuat.gov.tr

Description. This is the official website of the government, where the current legislation, rules and case law are provided.

There are no official websites to obtain English translations of legislation, case law or rules.



Contributor profiles

Itır Sevim-Çiftçi, Partner

Yegin Ciftci Attorney Partnership

T +90 212 339 0002
F +90 212 339 0097
E itir.ciftci@yeginciftci.av.tr
W www.yeginciftci.av.tr

Professional qualifications. Istanbul Bar Association, Turkey

Areas of practice. Corporate; mergers and acquisitions; privatisations; private equity; restructurings and real estate.

Languages.

Turkish, English

Kemal Aksel, Counsel

Yegin Ciftci Attorney Partnership

T + 90 212 339 0002
F + 90 212 339 0097
E kemal.aksel@yeginciftci.av.tr
W www.yeginciftci.av.tr

Professional qualifications. Istanbul Bar Association, Turkey

Areas of practice. Corporate; mergers and acquisitions; restructurings; private equity; real estate.

Languages. Turkish and English


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