Outsourcing: Turkey overview
A Q&A guide to outsourcing in Turkey.
This Q&A guide gives a high-level overview of legal and regulatory requirements on different types of outsourcing; commonly used legal structures; procurement processes; and formalities required for transferring or leasing assets. The article also contains a guide to transferring employees; structuring employee arrangements (including any notice, information and consultation obligations); and calculating redundancy pay. It also covers data protection issues; customer remedies and protections; and the tax issues arising on an outsourcing.
To compare answers across multiple jurisdictions, visit the Outsourcing Country Q&A tool. This article is part of the global guide to outsourcing. For a full list of contents, please visit www.practicallaw.com/outsourcing-guide.
Regulation and requirements
National law does not specifically regulate outsourcing transactions. However, outsourcing transactions must comply with the Turkish Code of Obligations. In addition, the provision of outsourcing services can under certain circumstances be characterised as subcontracting, which is regulated by the Turkish Labour Code and also has consequences under the Social Security and General Health Insurance Law.
Banking. Under the Regulation on Procurement of Support Services by Banks, banks can use external support services only if:
A risk management programme is prepared.
A technical adequacy report is prepared.
A board resolution approving procurement of support services is adopted.
Liability insurance agreements are executed by the support services institution.
An evaluation report regarding the support services institution is submitted to the audit committee and board of directors once a year.
In addition, all financial institutions must act in compliance with the Turkish Commercial Code when they use external support services.
Insurance and pensions. The Regulation on Insurance Support Services regulates the provision of support services to insurance and pension companies. Such services include:
Technical evaluation for policy issuance and payment of compensation, other than insurance expertise.
The reduction of risk before damage and reduction of loss after damage.
Damage notification, repair and maintenance, supplying spare parts, assistance, treatment and aid services.
Archive management services.
There are no further regulations that are specifically relevant to business processes outsourcing.
IT and cloud services
There are no further regulations that are specifically relevant to IT and cloud services outsourcing.
There are no further regulations that are specifically relevant for telecommunications outsourcing.
Outsourcing in the public sector is possible under the Public Procurement Law. The details of these contracts are regulated under the Law of Public Procurement Contracts. Public procurement contracts can be transferred to third parties where the relevant public administration gives written permission and the requirements of the original bidder are preserved in the transferred contract. If a contract is transferred to a third party, it cannot be transferred to another party in the following three years.
Outsourcing is permitted in almost all sectors, and is subject to tighter rules in regulated sectors such as banking, insurance and pensions.
If the relationship between a service provider and its customer qualifies as subcontracting under the Turkish Labour Code, it is subject to certain other rules. Under the Turkish Labour Code, exclusive outsourcing of the principal's works in its workplace to a third party is possible to the extent that the assigned works are related to supplementary activities associated with the main work, or part of principal employer's main work, as long as:
Such work requires expertise due to technological necessities.
Is required by the nature of the enterprise and work.
The principal and the service provider are jointly liable against the employees. If some or all of these conditions are not respected, the subcontracting relationship is deemed as fictitious and is subject to sanctions and penalties under the Turkish Labour Code.
Due to the broad range of outsourcing services, it is advisable to check whether additional sector specific regulations apply before entering into an outsourcing arrangement.
Further requirements related to outsourcing in any industry sector include that:
The customer must make a payment to the vendor for the work done by the vendor.
The vendor must carry out its work faithfully and with due care.
The vendor must act in compliance with the legislation, especially in regulated sectors, to avoid suspension of services and fines.
A confidentiality agreement must preferably be executed.
If the outsourcing qualifies as subcontracting under the Turkish Labour Code, the principal must supervise the service provider to ensure that the employees' annual leave rights are exercised and their salaries are paid in a timely manner. It is common practice to receive a bank letter of guaranty to minimise the risk of exposure due to the latter. The agreements should accordingly regulate the allocation of liability between the parties and stipulate dispute resolution mechanisms.
In principle, unless the outsourcing is in a regulated sector, there is no specific requirement to notify the outsourcing relation to regulatory bodies.
If the relation qualifies as an outsourcing under the Turkish Labour Code, then the outsourcing relation must be notified to the Ministry of Labour and Social Security by submitting the subcontracting agreement, among other documents. Afterwards, the vendor must register itself as an outsourcing (subcontractor) company with the Turkish Social Security Institution and register its employees under that workplace number.
Services and service providers must be reported to the Banking Regulation and Supervision Agency annually within three months of the following year. Failure to notify such services is subject to fines.
Insurance and pension
Under the Regulation on Insurance Support Services, insurance and pension companies must, before outsourcing, electronically submit a report to the Insurance Information and Monitoring Centre, detailing:
The risks arising from the outsourced services.
The management of these risks.
Expected benefits and evaluation of costs.
The minimum content and format of the report are determined by the Undersecretariat of Treasury. Such companies must also submit their assessments related to this report to the Insurance Information and Monitoring Centre at the end of March of each year. The regulation requires the providers of insurance support services to be registered with the Insurance Information and Monitoring Centre in order to carry out these activities.
Direct or indirect outsourcing
Description of structure. A direct outsourcing is the simplest structure for outsourcing, where an outsourcing agreement is executed between the customer and the external service provider.
It is very common for holdings to centralise purchases of services by entering into an outsourcing contract for the provision of services to itself and its affiliates, and to pay for all of its affiliates. In such a case, it is advisable to include provisions allowing affiliates to exercise and enforce rights against the service provider and to include an assignment clause.
If an external service provider with whom an outsourcing agreement has been executed appoints another sub-contractor, this is called indirect outsourcing.
Advantages and disadvantages. The advantage of direct and indirect outsourcing is that they are simple and easy to put in place. There are also economic advantages for holding companies who use centralised outsourcing. However, unless the indirect subcontracting agreement is well regulated in terms of qualifications and liability, the customer can end up with undesired and unqualified third parties.
Joint venture (JV)
Description of structure. In a joint venture (JV), the customer and the vendor set up an special purpose vehicle that provides the services. Both parties participate in this entity by bringing in people, know-how, IP rights and/or funding.
Advantages and disadvantages. The use of a JV increases the customer's involvement and control over the provision of the services, and the quality of the services may increase as the customer is able to bring in its know-how of the business and infrastructure. The customer may also share in the profits in the event the joint venture also provides services to other customers. The main disadvantages are the costs and management attention and complexity of the liquidation of the business should the parties decide to end the JV.
Description of structure. In a captive entity structure, outsourcing services are provided by wholly-owned subsidiaries and advice is taken from local suppliers on a consultancy basis.
Advantages and disadvantages. As an advantage, this system enables the customer to completely manage the operational control of the outsourcing service. However, some costs and risks cannot be passed on to a third-party supplier.
There is no mandatory competitive tender process in the private sector.
External legal and business experts can be involved at any stage of outsourcing but it is advisable to involve them in the early stages and especially for the preparation and negotiation of the contract.
Request for proposal and invitation to tender
When selecting a supplier, the customer should define its requirements and produce a list of possible partners. Most customers then prepare and file a request for proposal with several suppliers. However, other options include filing an invitation to tender or entering directly into negotiations with a preferred supplier. The total duration of the procurement process depends on many factors, such as the approach chosen and the scope of the outsourcing project.
The customer should conduct a detailed due diligence over the vendor, covering its corporate structure, financial strength, know-how, intellectual property rights, reputation, information technology qualifications and insurance policies.
Negotiation and finalisation of the agreement
The customer generally negotiates with either one preferred vendor or more vendors before finalising the outsourcing agreement.
Transferring or leasing assets
Formalities for transfer
The transfer of immovable property can only be realised by an official deed prepared by the title registry officer at the title deed office where the immovable property is located. If the parties choose to realise a transaction later, they can initially execute a promise-to-sell agreement, which must be executed before a notary public. The acquisition of real estate by a company with foreign capital is subject to approval of the local governorship. Additionally, the acquisition of 50% or more of the shares (or voting rights) of a Turkish entity by a foreign legal or real person has certain consequences if the entity owns real property in Turkey. On notification of the transaction to the General Directorate of Incentive Practices and Foreign Capital, the competent governorship performs a background check on the property, seeking the opinions of the General Staff of the Turkish Armed Forces and the General Directorate of the Police Department, to determine whether the indirect ownership of such property by the acquiring foreign shareholder is a threat to national security (which usually depends on whether the property is located in a military, security or strategic zone). If this is determined to be the case, the Ministry of Finance may require the Turkish entity to divest the property in question by a certain deadline.
IP rights and licences
Under Article 49 of the Law of Intellectual Property and Artistic Works, a person who has acquired an economic right or a licence to exploit IP from the author or his heirs, can only transfer such right or licence with the written consent of the relevant person.
Trade marks, patents, industrial designs and geographical signs should be registered with the Turkish Patent Institute for full validity and protection in Turkey. Such rights are also protected under the Turkish Commercial Code.
There are specific formalities regarding some specific movable properties, such as the sale of a vehicle or seized assets. Otherwise, movable property can be transferred through transfer of possession, which can be by transferring control of the movable to the transferee, or in writing.
The transfer of key contracts is possible through a written contract under which the counterparty gives consent.
Data and information
See Question 18.
Formalities for leasing or licensing
The Turkish Code of Obligations regulates leasing of immovable properties. These provisions generally aim to protect the lessees. Accordingly, a clause, contrary to law, that affects the lessee negatively, cannot be inserted to a lease agreement. However, if a clause is in favour of the lessee, it generally can be inserted.
IP rights and licences
A written licence agreement must be entered into as a matter of good practice to record the agreed terms.
A written lease must be entered into as a matter of good practice to record the agreed terms.
The concept of a contract being leased or licensed is not generally recognised. Contractual rights can be assigned, rights and liabilities can be novated, or rights can be exercised by a third party as the contracting party's agent or subcontractor (subject in each case to the counterparty's consent, as required). Each of these has a different legal analysis and risk profile, so it is good practice to have a written contract clearly setting out the basis on which this is being done.
Data and information
See Question 18.
Transfer by operation of law
Article 6 of the Turkish Labour Code provides that where a legal transaction implies the transfer of a workplace in whole or in part, the employment agreements of all the employees at the workplace, as well as all the associated rights and obligations, automatically transfer to the purchaser.
The Court of Appeals has established the following criteria to assess whether a transaction amounts to a workplace transfer implying an automatic transfer of employees:
Whether the tangible assets of the workplace, such as building or movable assets, have been transferred.
The value of intangible assets of the workplace.
Whether the new employer has taken over all or a major part of the workforce in terms of numbers and skills.
Whether the customer portfolio has been transferred.
Whether the operations of the workplace are similar before and after the transfer.
Whether there has been an interruption in operations following the transfer.
It is essential that the transferee continues or resumes the same or similar business activity. The Court of Appeals has indicated that even a mere transfer of employees may constitute a workplace transfer to the extent the economic unity continues.
For outsourcings that do not fall under Article 6 of the Turkish Labour Code, the transfer of employment agreements requires the written consent of each employee.
Change of supplier
If a change of supplier results in transfer of business/workplace, the rules under Article 6 of the Turkish Labour Code apply.
If termination of an outsourcing agreement leads to the retransfer of the outsourced business from the supplier to the customer, the rules under Article 6 of the Turkish Labour Code apply.
For more information on transferring employees on an outsourcing, including structuring employee arrangements (including any notice, information and consultation obligations) and calculating redundancy pay, see Transferring employees on an outsourcing in Turkey: overview.
Data protection and secrecy
Data protection and data security
General requirements. Data protection issues generally relate to employees' personal data, such as payroll and recruitment, and customers' personal data, including customer relationships and marketing.
In practice, parties choose to cover these issues under a non-disclosure agreement or a provision regarding non-disclosure in the outsourcing agreement.
A draft law on data privacy has not yet been adopted and is awaiting parliamentary approval. Currently, data protection is regulated under the following laws:
The Turkish Constitution. Individuals have a right to protect their privacy and that of their family.
The Turkish Civil Law. An individual whose personal rights are breached unjustly has a right to initiate a lawsuit to prevent the breach or for compensation for damages arising from the breach.
The Turkish Criminal Code. The unlawful storage of personal data attracts criminal liability.
Data protection is regulated under the Labour Law, Insurance Law, Banking Law and Bank Cards and Credit Cards Law.
Mechanisms to ensure compliance. The non-disclosure agreements executed between the parties should have clear confidentiality requirements.
International standards. Turkey is a signatory to the Convention for the Protection of Individuals with regard to Automatic Processing of Personal Data but this has not been yet ratified.
General requirements. Under Article 31/A of the Insurance Law, insurance companies, their employees and persons involved/public officers in insurance activities (as defined) cannot disclose any secret or confidential information they learn by virtue of their duties. This obligation continues even after their provision of services has ended. This rule also applies to pension companies. As an exception, insurance, reinsurance and pension companies can disclose information to each other for the purpose of risk assessment, provided they execute a confidentiality agreement.
Mechanism to ensure compliance. Persons who breach the confidentiality obligations under the Insurance Law are subject to imprisonment for one to three years and a punitive fine.
General requirements. Under Article 73 of the Banking Law, banks' directors, managers and other personnel must not disclose personal information of their customers.
Mechanisms to ensure compliance. Banking Law stipulates imprisonment for one to three years and an administrative fine for breach of secrecy, which can increase by one-sixth if the persons in breach have benefited from the breach. Depending on the severity of the breach, such persons can also be banned from work temporarily for at least two years, or permanently for banks and financial institutions within the scope of the Banking Law.
Confidentiality of customer data
General requirements. Under Article 23 of the Bank Cards and Credit Cards Law, personal data obtained by using credit cards with merchants and shops cannot be used without the written consent of the customer.
Mechanisms to ensure compliance. The Bank Cards and Credit Cards Law stipulates imprisonment for one to three years and an administrative fine for breaches of personal data requirements.
Service specification and levels
When parties set their objectives in an agreement, they also identify measurable sanctions arising from non-performance of the agreement such as:
In addition, if the vendor does not act in compliance with its obligations arising from the agreement, the customer has a right to lower the service fee based on the service level credits. As a mandatory rule in Turkish law, the liabilities of the vendor cannot be restricted, even if the vendor enters into an agreement with a sub-provider.
Flexibility in volumes purchased
Charging methods and key terms
The parties determine a fixed price to be paid by the customer to the outsourcing party.
Pay as you go
The customer pays a pre-agreed unit price for specific items.
In this method, parties determine an hourly amount to be paid to the vendor in return for its work.
Under this method the vendor adds a margin to the expenses and cost made for the services under the outsourcing agreement.
Customer remedies and protections
The following minimum customer protections are generally included in the contract documentation:
In addition, it is common practice to seek a guarantee from a parent company, as well as a bank letter of guarantee.
Warranties and indemnities
Warranties and indemnities can be freely determined by the parties under the Turkish Code of Obligations, as long as such warranty or indemnity does not result in termination of one of the parties' business.
In practice, one of parties is generally required to provide a performance bond or a check.
As a new Data Protection Law is waiting enactment, there may be changes in practice in relation to requirements for indemnities for personal data.
The agreement must define what type of agreement is under the Turkish Code of Obligations. While one outsourcing service may be deemed within the scope of a contractor agreement, another outsourcing service may be deemed as a service agreement. The limitations are subject to the type of the agreement.
Under Article 112 of the Turkish Code of Obligations, a debtor must compensate the other party's damages arising from non-performance of the agreement. However, if the debtor proves that it has no fault regarding non-performance of the agreement, it would not have to compensate for such damages.
Term and notice period
Termination and termination consequences
Events justifying termination
There are no specific provisions setting out events that justify termination of an outsourcing. However, a material breach of the contract is generally deemed to be a justified reason for ending the contractual relationship.
Under Article 98 of the Turkish Code of Obligations, if a party cannot perform its contractual obligations due to insolvency or bankruptcy, the other party can terminate the contract, unless its contractual claims are guaranteed.
The parties can also agree on the reasons for termination of the agreement. It is commonly agreed that, if the vendor has started its work before the date of the termination, costs and expenses regarding such work should be borne by the customer.
Unless otherwise stated in the outsourcing contract, the customer does not gain access to the know-how of the vendor after the termination of the contract. However, non-confidential information can be used during and after the contract, unless it is prohibited after termination with anti-competition or confidentiality clauses.
Liability, exclusions and caps
See Question 28.
There are no statutory rules on dispute resolution for outsourcing agreements. If the parties have not agreed on a dispute resolution process (local courts or arbitration) then the rules regarding disputes arising from the contracts in Code of Civil Procedure apply.
Parties to an outsourcing agreement must always consider whether to have potential disputes resolved through court litigation or through binding arbitration, which could be international. Arbitration is normally perceived to be quicker, to have neutrality and be more competent when compared with court litigation, which is confidential but also expensive.
Transfers of assets to the supplier
Transfers of assets to a supplier would be subject to:
Corporate income tax at 20% on capital gains generated, if any.
Value-added tax (VAT) at 18% of the total amount of the transaction.
The amount of the invoice issued by the vendor for goodwill that is related to the transfer of off-balance sheet assets (such as labour force), if any, is subject to corporate tax at the general rate of 20% and VAT at 18%.
Transfers of employees to the supplier
Employment related tax liabilities are transferred with the employee.
Most of the services and products in Turkey are subject to VAT, usually at the general rate of 18% over the monetary value of the services rendered or products delivered.
Each of the parties to written agreements (such as deeds, contracts or protocols) is jointly responsible for payment of stamp duty. Stamp duty is calculated at 0.948% of the highest monetary amount stated in the contract or of an externally computable monetary base. For 2015, the maximum stamp duty amount payable per each original copy of a contract was TRY1,702,138.
Other tax issues
If a real person provides an outsourcing service, income tax may be applicable on a progressive rate-basis between 5% and 35%, and VAT can also apply under the same general principles as for corporations.
Directorate of Legislation Development and Publication
Description. All of the laws of Turkey are available at the website with the most recent amendments.
Elvan Aziz, Partner
Professional qualifications. Turkey
Areas of practice. Mergers and acquisitions; corporate and commercial; private equity; labour and employment; real estate.
Non professional qualifications. Maltepe University, School of Law, University of Sheffield, School of Law, LL.B., Middle East Technical University, Sociology, BA
- Extensively advising sellers, strategic buyers and PE clients in M&A projects.
- Advising clients regarding corporate and commercial issues, including corporate restructuring and restructuring of business, legal mergers and spin-offs and corporate governance.
- Advising on employment law, including implementation of management incentive schemes, strategy building on HR aspects of restructuring or closure of business, preparation of employment agreements and internal bye-laws, dealings with the trade union as well as collective and individual termination of employees and top management.
- Advising on structuring of real estate development, including residential, commercial property and hotel development, drafting and negotiating relevant project agreements for developers and investors, as well carrying out legal land due diligence to determine whether the property is fit for its purpose.
- Advising on high profile and strategic transactions, including cross-border acquisitions and international joint ventures.
- Acting for foreign and Turkish strategic investors and PEs in their acquisitions in Turkey, as well as advising selling shareholders in transactions of all sizes and sectors.
Professional associations/memberships. International Bar Association
Selen Terzi Ozsoylu, Senior Associate
Professional qualifications. Turkey
Areas of practice. Mergers and acquisitions; corporate and commercial; labour and employment.
Non professional qualifications. Galatasaray University, School of Law, LL.B., 2006
- Advising clients on due diligence reviews, drafting the transaction documents such as SPAs, SHAs, and other ancillary agreements.
- Advising clients on compliance in pharmaceutical and medical device industries, monitors industry standards as well as legislation changes, and providing consultancy regarding relations with health care professionals and promotion of pharmaceuticals and medical devices.
- Reviewing and/or drafting compliance procedures and SOPs, and realising compliance interviews.