Investing in Turkey
A Q&A guide to investing in Turkey.
This Q&A gives an overview of the key factors affecting inward investment, including information on the jurisdiction's legal system; key laws and regulatory authorities; investment restrictions; and details of international treaties, customs and monetary unions. The guide also provides information on investor individuals; visa permits; restrictions on foreign ownership; transfer pricing and thin capitalisation rules; imports and import duties; safety regulations and standards for commercial goods and services; structuring and tax incentives; investment guarantees; recent developments and proposals for reform.
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This Q&A is part of the Investing in… Global Guide. For a full list of contents, please visit www.practicallaw.com/investingin-guide.
Turkey's accession process to the EU and its aim to become a financial centre in the region have triggered some notable structural reforms in the country's economy and business culture. The most important reform is the increased role of the private sector in the economy. Aggressive privatisation programmes significantly reduced state involvement in basic sectors. The sizeable privatisations, supported by various state incentives in a wide range of sectors, from telecommunications to the financial sector, gave significant momentum to Turkey's economic breakthrough.
Turkey's economy is expected to become one of the fastest growing economies among the Organisation for Economic Co-operation and Development (OECD) members. Turkey focuses on attracting and maintaining foreign direct investment (FDI). In support of this, the United Nations Conference on Trade and Development World Investment Reports 2014 and 2015 clearly reveals that Turkey is the largest FDI recipient (with FDI amounting to US$12 billion). For more than three decades, Turkey focused greatly on improving its economy's regulatory environment to introduce more business-friendly legislation and promote FDI. An example of this is the establishment of the Investment Support and Promotion Agency of Turkey in 2006.
Iran's re-integration into the global market will also encourage Turkey to review its economic plans. As a result, it is very likely that a more competitive investment environment will be built to maintain its leading position in the region.
The most active sectors are:
Information, communication and technology (ICT).
According to the reports published by the government authorities, in 2015 the manufacturing sector attracted the most foreign direct investment followed by the financial services and transportation sectors.
Additionally, the Turkish branches and subsidiaries of foreign companies are successfully expanding their investments in the country. For example, the Turkish division of Mercedes Benz plans to increase the amount of investment in its truck manufacturing plants in Turkey to EUR470 million to enhance its exports from Turkey. Likewise, ICT companies such as Vodafone Group and Huawei are also planning to invest more into their already established research and development centres.
The current global economic situation and the political developments in the region has not significantly affected Turkey's economic climate. The overall foreign direct investment inflow has decreased only slightly thanks to Turkey's relatively strong and stabilised banking system as the Turkish banks, relying on the system, did not take positions that could adversely affect the investor-friendly economic climate. Naturally, the global and regional developments increase the fragility of the domestic market. However, despite their lasting disagreements, the Turkish Central Bank, in co-operation with the government, takes the necessary measures to avoid significant down movements and maintain the volume of investments in the market. The depreciation of the Turkish lira against the euro and US dollar still constitutes a major risk especially for the domestic investors.
Some sectors (such as real estate) continued to show significant increase in 2015. According to the data provided by the Investment Support and Promotion Agency of Turkey, in 2015, Turkey emerged as the best-performing housing market in Europe, ahead of Ireland, Luxembourg, Estonia, and Iceland. Urban renewal and mega projects such as Marmaray, Canal Istanbul, the Third Bosphorus Bridge, and Istanbul's third airport played an important role in this success.
The energy sector will also continue to be an attractive field of investment, as Turkey's economic growth and industrialisation translated into a significant energy demand (an increase of about 6% per annum). To meet its energy need, Turkey offers a very competitive investment environment to the domestic and foreign investors through favourable incentives, such as:
Apart from the energy sector, the healthcare sector is and will be a key sector in the future given the fast developing public-private partnership (PPP) legislation. As this model is widely used across the country mainly for infrastructure and energy projects, Turkey is currently trying to adapt the PPP model to healthcare projects to allow private investors to play a bigger role in the healthcare sector.
Turkey is a parliamentary democracy with a multi-party system. The current Constitution enacted in 1982 states that the Turkish state is a secular, democratic and social state that recognises all basic human rights and freedoms such as:
Freedom of speech.
Freedom of the press.
Freedom of residence and movement.
Freedom of thought and opinion.
Freedom of expression and dissemination of thought.
Freedom of association.
Freedom of communication.
The right to privacy.
The right to property.
The right to legal remedies.
The constitutional system recognises the principle of separation of powers:
The legislative power is vested in the Turkish Grand National Assembly.
The judicial power is exercised by the independent courts.
The executive power is exercised by the President of the Republic and the Council of Ministers headed by the Prime Minister.
Turkey has a civil law system composed of two types of courts:
Civil courts, consisting of the courts of first instance and the Court of Appeal.
Administrative, structured as a three-tier system and consisting of the courts of first instance, regional administrative courts and the Council of State.
In the course of harmonisation with EU legislation, Turkey has amended a significant number of its laws including some main laws such as the Turkish Commercial Code and the Turkish Code of Obligations.
As a result of the current Turkish Government's intentions to fundamentally amend the Turkish Constitution to replace the parliamentary system with a presidency system, there are serious ongoing works run by a Constitution Committee comprised of the political parties and various constitution working groups. The details of the proposed reform have not yet been determined.
The main legislation applicable to foreign direct investment is:
The Law on Foreign Direct Investment No. 4875 (FDI Law).
The Regulation on Implementation of the Law on Foreign Direct Investments (FDI Regulation) and any other secondary legislation enacted on the basis of the FDI Law.
Various international and bilateral treaties.
Different regulatory authorities govern foreign investment, depending on the nature of the foreign businesses such as the:
Ministry of Economy.
Ministry of Finance.
Ministry of Customs and Trade.
Turkey is a signatory to many international (and regional) treaties relating to economic, customs or monetary unions. For example, Turkey is a party to the:
International Convention on Simplification and Harmonisation of Customs Procedures.
International Convention on the Harmonised Commodity Description and Coding System.
Customs Convention on the International Transport of Goods under Cover of TIR Carnets.
Vienna Convention on Diplomatic Relations 1961.
United Nation Convention on Contracts for the International Sale of Goods (CISG).
Turkey is also a member of several organisations, including the:
Organisation for Economic Co-operation and Development.
World Trade Organisation.
European Free Trade Association.
North Atlantic Treaty Organisation.
Turkey has also been in a customs union with the EU since 1986 and is negotiating to join the EU. Turkey is also a member of the:
Organisation of Islamic Co-operation.
Organisation of the Black Sea Economic Co-operation.
World Customs Organisation.
Apart from the international treaties, Turkey has signed double tax treaties with more than 80 countries and free trade agreements with 23 countries according to the information published by the Ministry of Economy of Turkey. Turkey has also embarked on pre-negotiations for free trade agreements with the US, Canada and India.
A foreign individual wishing to travel to Turkey must obtain a tourist visa. However, the tourist visa does not grant the right to work. Therefore, the foreign individual must refrain from performing any kind of work while in Turkey on a tourist visa. The foreign individual must obtain a work permit if the nature of the travel requires him to work.
The foreign individual can make a work permit application either:
Out of the country as a work visa application filed with the Turkish Embassy/Consulate at the place of residence, followed by a work permit application to the Ministry of Labour and Social Security.
On arrival in Turkey (by obtaining a residence permit and subsequently applying for a work permit).
Turkish authorities recommend that foreign individuals should make the work permit application out of the country.
To obtain a work visa, the foreign individual must be employed by a Turkish employer. There are also certain detailed requirements that the Turkish employer must satisfy. In work permit applications, the employee and the employer must submit certain documents separately.
Work permit application procedures vary depending on the:
Amount of the investment.
Foreign individual's country of nationality.
There are no specific fast-track procedures, however "key personnel" of companies qualifying as "special foreign direct investment" can obtain work permits relatively faster (Regulation on Employment of Foreign Personnel in Foreign Direct Investments).
"Special Direct Foreign Investment" is defined as any company or branch, which falls within the scope of the Foreign Direct Investment Law and that satisfies at least one of the following conditions:
The company's or branch's last annual turnover amounts to at least TRY30 million and the total capital share of the foreign shareholders amounts to at least TRY400,000.
The company's or branch's last annual exports amount to at least US$1 and the total capital share of the foreign shareholders amounts to at least TRY400,000.
At least 250 persons have been employed with the company or branch within the last year and registered with the Social Security Institution. In addition, the total capital share of the foreign shareholders must amount to at least TRY400,000.
If the company or branch realises an investment, the minimum fixed investment amount must be at least TRY10 million.
The principal company features any direct foreign investment in at least one additional country apart from the country where its head offices are situated.
"Key personnel" is defined as the persons meeting at least one of the following criteria (Regulation on Employment of Foreign Personnel in Foreign Direct Investments):
Persons serving as a company shareholder, chairman of the board of directors, member of the board of directors, general manager, vice general manager, managing director, assistant managing director and similar positions, with the authority or a role in at least one of the following field of activities:
a senior management or executive position in the company;
managing the whole or a part of the company;
auditing or controlling the work of the company auditors, or administrative or technical personnel;
being in charge of recruitment of new personnel or the termination of employment contracts or making suggestions in this respect.
A person having essential knowledge of the services, research equipment, techniques or management of the company.
The following are exempt from the work permit requirement (Regulation on Implementation of the Law on Work Permits of Foreigners):
If a provision regulates exemptions from work permits under bilateral and/or multilateral conventions to which Turkey is a party.
If the residence address of the employee is outside of Turkey and he plans to come to Turkey for less than:
one month for the purpose of scientific, cultural and artistic activities; or
four months for the purpose of sporting activities.
If the employee is coming to Turkey to give training regarding the use, maintenance and repairs of imported machines and equipment, or to receive the equipment, or to repair a vehicle which has malfunctioned in Turkey, provided that he will not stay in Turkey for more than three months within one year.
If the employee is coming to Turkey to provide training regarding the use of imported or exported goods provided that he will not stay in Turkey for more than three months within one year.
If the employee is working at a circus or at expositions, which are operating outside the scope of licensed tourism enterprises, provided that he will not stay in Turkey for more than six months.
If the employee is coming to Turkey to give training at universities and public institutions, provided that the term of his stay is limited to the term of the training and he will not stay in Turkey for more than two years.
If the employee notifies the relevant authorities that he will provide services in the field of culture, technology and education, provided that he will not stay in Turkey for more than six months.
If the employee is coming to Turkey within the scope of programmes conducted by the EU Education and Youth Programmes Central Presidency.
If the employee is a trainee within the scope of international trainee programmes provided that the Ministry of Labour and Social Security, Ministry of Internal Affairs, Ministry of Foreign Affairs and Higher Education Council have agreed on the term and scope of this programme.
If the employee is a representative of a tour operator, provided that his term of duty does not exceed eight months.
If the employee is a football player and his application is accepted by the Turkish Football Federation and General Directorate of Youth and Sports.
If the employee is a foreign seaman who works on ships that are sailing outside the coasting line and registered with the Turkish International Ship Registry.
If the employee is a foreign expert who works on projects conducted within the scope of the Turkey European Union Monetary Co-operation Programme.
Under the Income Tax Law, all real persons resident in Turkey are taxed on the income they have generated in and/or outside of Turkey, depending on their taxpayer status defined based on their residence in Turkey. Being a resident in Turkey is defined as either:
Having a permanent residence (or in other words a domicile) in Turkey.
Residing in Turkey continuously for a period of more than six months in a calendar year.
Persons that do not have a permanent residence in Turkey and that do not reside in Turkey continuously for a period of more than six months in a calendar year have a limited taxpayer status. These individuals are taxed for their income generated only in Turkey.
In general, it is legally possible under Turkish Law that the employees be paid outside of Turkey through their home country payroll. In the case the wages of the employees who are working in Turkey are paid from abroad, these wages may not be subject to taxation under certain conditions. In this respect, for employees of foreign based taxpayer employers whose legal and centre of business is not in Turkey, wages paid in a foreign currency that the employer has gained abroad are exempt from income tax (Article 23/14, Income Tax Law). However, in accordance with the tax rulings which were issued by the Ministry of Finance, there are certain conditions that must be complied with to benefit from this exemption.
Article 3 of the FDI Law sets out the basic principles regarding foreign investment. Unless an international treaty or a special provision of law states otherwise, foreign investors (Article 3, FDI Law):
Can invest in Turkey directly.
Must receive the same treatment as domestic investors.
There are certain regulated sectors in which foreign ownership and investment are either:
Prohibited by law.
Required to meet a certain maximum threshold.
In an establishment providing media services, the total foreign ownership cannot exceed 50% of the paid up capital (Law on Establishment and Broadcasting Services of Radio and Televisions).
Foreign shareholding in the maritime sector is limited to 49% (Cabotage Law).
In addition, foreign investors must obtain the prior approval of the relevant regulatory authority to invest in certain sectors such as the:
Banking sector, which requires prior approval from the Banking Regulation and Supervision Authority.
Telecommunications sector, which requires prior approval from the Information Technologies and Communication Authority.
There are sectors that are closed to foreign investments, due to their public service character. The government is the sole player in such sectors through the government business enterprise. These sectors include the:
Electric power transmission sector (via TEİA).
Railways sector (via TCDD).
The government is also a shareholder in certain sectors that are accessible to private investors. These include the:
Petroleum sector (via BOTAŞ and TPAO).
Mining sector (via ETİ Maden).
Banking sector (via Ziraat Bankası, Halk Bankası and Vakıflar Bankası).
Turkey has been carrying out significant privatisations over the years, leading to the decrease of the government's involvement in certain industry sectors.
While Turkish legislative framework had established strict restrictions on foreign ownership or occupation of real estate mostly due to security, political environment and public interest concerns, recent amendments to the Land Registry Law have eased these restrictions. The Land Registry Law regulates real estate acquisitions by both foreign real persons and foreign legal entities. However, because foreign investments are mostly carried out through legal entities, this article will discuss the restrictions concerning real estate acquisitions of legal entities.
Only foreign companies established abroad in accordance with their applicable legislation can acquire real estate and property rights in Turkey. Legal entities other than companies, such as foundations, associations and trusts, cannot acquire real estates or property rights. Companies can only acquire real estate or property rights in Turkey if they are regulated and permitted under specific legislation such as the:
Industrial Zones Law.
Law on Incentivising Tourism.
The Council of Ministers can determine, restrict, stay (temporarily or permanently) or prohibit real estate or property right acquisitions by foreign companies on the following grounds:
Country of incorporation.
Nature of the company.
Geographical area of the investment.
Duration of the investment.
Number of investments.
Ratio of the surface area of investment to the area of the geographical administrative unit.
Type of investment.
The characteristics of the investment.
Surface area covered by the investment.
Amount of the investment.
A foreign company that has acquired a real estate without any buildings must submit a project to the relevant Ministry within two years for approval. The project will be monitored and supervised until it is completed. There are no restrictions on establishing mortgages over real estates in Turkey in favour of foreign companies.
Companies established in Turkey with foreign capital are subject to a different regime. A company is considered a company with foreign capital if either:
50% or more of its shares are owned by foreign real or legal persons or international institutions.
A foreign real or legal person or international institution has the right to appoint or nominate the majority of the managers.
These companies can acquire real estate or property rights only to realise the activities outlined in their articles of association. Such acquisitions are still subject to approval if the real estate is in any of the following:
A military restricted zone.
A military security zone.
A strategic zone.
The above restrictions do not apply to:
Mortgages established in favour of companies with foreign capital.
Acquisitions of real estate as a result of foreclosure of mortgages.
Transfers of real estate and property rights as a result of mergers and demergers.
Acquisitions of real estate or property rights in special investment zones such as:
organised industrial zones;
technology development zones; and
Bank transactions considered as credit transactions.
A real estate acquired for the purposes of debt collection, provided that there is an obligation to dispose of such real estate in accordance with applicable laws.
In principle, there are no minimum capital requirements for foreign investment. However, there may be certain minimum capital requirements in certain regulated sectors.
In addition, if the investment is to be realised through a company incorporated in Turkey, the investor must take into account the minimum capital requirements for incorporating different types of companies. Foreign investors mostly prefer incorporating either a:
Joint stock company (anonim şirket), for which the capital requirement is TRY50,000.
Limited company (limited şirket), for which the capital requirement is TRY10,000.
The main pieces of legislation governing exchange control and currency regulations are the:
Decree No. 32 Regarding the Protection of Turkish Currency (Decree No. 32).
Communiqué No. 2008-32/34 on Decree No. 32.
Central Bank of the Republic of Turkey Capital Movements Circular.
Foreign investors can freely transfer the following to be paid for licence, management and other similar agreements abroad via banks (Decree No. 32):
Sale, liquidation and indemnity proceeds and amounts.
Banks must, within 30 days from the date of transfer, notify Turkish authorities (save for export, import and invisible transactions) of:
Turkish lira transfers exceeding the equivalent of US$50,000.
Foreign exchange of or equivalent to US$50,000.
Foreign investors must also comply with other relevant applicable legislation (such as legislation on the prevention of money laundering and terrorism financing).
The Ministry of Economy can determine the goods which are restricted from entering into the customs territory of Turkey. To protect the environment, importing certain waste, chemicals and junk is prohibited (Product Safety and Control Communiqué No. 2014/3, Product Safety and Control Communiqué No. 2014/6 and Product Safety and Control Communiqué No. 2014/23).
To protect human, animal and environmental health, the import of certain goods requires the approval of the relevant authorities. For example, electronic goods can only be imported in Turkey if they meet the required technical conditions determined by the Turkish Standards Institute and the European conformity (CE) legislation. Similarly, the import of food products which do not meet the required conditions determined by the Ministry of Food, Agriculture and Livestock is not permitted. Certain types of food can only be imported with the approval of the relevant public institution.
Some products can only be imported by specific institutions or persons due to their particular specifications. For example, the import of:
Unprocessed precious metal, which can only be performed by the members of the precious metals exchange.
Fuel and mineral oil, which can only be imported by the institutions that have obtained the licence from the Energy Market Regulatory Authority.
The common duties which are generally levied on imported goods are:
Value added tax (VAT).
Special consumption tax (SCT).
Motorised vehicle tax (MVT).
Other duties include:
Housing development fund.
Resource utilisation support fund.
Deductions based on the law on intellectual and artistic works.
Custom duties are determined by Import Regime Decrees, which are published by the Ministry of Economy at the end of each year to specify the importation details for the upcoming year. There are six different lists in the Import Regime Decree, which determine the custom duty rates of different goods.
VAT is another duty levied on imported goods and services, depending on their value and type. The standard VAT rate is 18%. However, a rate of 1% or 7% applies to certain products such as:
Cattle and small cattle animals.
Various textile products.
SCT applies to:
Various other products.
MVT specifically covers automotive sector products.
The main aim of the legislation regarding product safety and technical regulations is to determine whether the products which will be supplied to the market through import meet the minimum safety conditions for:
Security of life and property.
The life and health of animals and plants.
The protection of the environment and consumers.
To harmonise the Turkish safety standards in line with the EU directives, the Turkish Government has issued the:
Decree of the Council of Ministers on the Regime on Technical Regulations and Standardisation for Foreign Trade.
Regulation on the Conformité Européene (CE) mark to constitute a general identity for the products circulating over the world.
Communiqué on Monitoring the Conformity to Standards in Imports to determine the principles and procedures for monitoring the conformity of the required standards for the products subjected to the free circulation regime.
In addition, the Ministry of Economy monitors certain products including:
The cross-border export of services from Turkey is increasing rapidly. Throughout investments made abroad, Turkish service providers started to generate income in foreign countries, especially in the fields of:
However, Turkish service providers and service sector investors still face certain trade barriers in certain countries. Parties can overcome some of these trade barriers by executing trade service agreements. Turkey is a party to the General Agreement on Trade Services (GATS), which is executed within the World Trade Organisation, and participates in negotiations of bilateral and multi services trade agreements.
There are certain exemptions that apply to parties that perform their services in other jurisdictions. Services provided for clients located abroad are exempted from VAT (Article 11, Value Added Tax Law No. 3065). To be considered an export service, the services must:
Be performed for clients who are located abroad.
Benefit these clients.
Services conducted in Turkey must be related to the actions or transactions of the clients which will be performed abroad and must not relate to the activities of foreign clients to be performed in Turkey.
Structuring and tax
Foreign investors prefer to invest through either:
A newly incorporated limited liability company (limited company or joint stock company).
An acquisition of the shares of an existing limited liability company.
Alternatively, a foreign company can also establish a branch in Turkey.
All of the above forms are treated similarly in terms of taxation (see Question 21). Companies or branches of Turkish companies located in free zones benefit from significant tax advantages including (see Question 25):
Customs duty exemption.
Income and corporate tax exemption for companies performing manufacturing activities in free zones.
Having a permanent establishment or being a resident is not necessary for being considered a taxpayer in Turkey. Non-residents are liable to tax on their income derived in Turkey. However, residents considered as full taxpayers are taxed on a worldwide income basis.
If the income is generated by an individual, he will be, in principle, considered as a resident if he has a permanent residence in Turkey or remains in Turkey for more than six months in one calendar year (see Question 10).
If the income is generated by a legal entity, it will be considered a resident if either:
It was incorporated in Turkey.
Its management centre is located in Turkey.
The commercial income derived in Turkey by a non-resident legal entity can be subject to corporate tax, to the extent that the commercial income was derived from its permanent representative or place of business in Turkey.
Corporate income tax
Corporate income tax is based on a declaration made by resident or non-resident legal entity taxpayers. The current corporate income tax rate is 20% (subject to any applicable double taxation treaties). Each legal entity prepares and files with the tax office, on a quarterly basis, interim balance sheets according to which it must pay corporate income tax over its net profit. The interim payments must be deducted from the year-end corporate income tax amount payable as per the annual balance sheet.
Individual income tax
Individual income tax is based on declarations made by resident or non-resident natural person taxpayers. Individual income tax rates vary between 15% and 35% depending on the amount of annual income (subject to any applicable double taxation treaties). In general, the annual individual income tax declaration must be submitted by 25 March of the following year in which the income was derived. The tax is paid in two instalments.
Value added tax (VAT)
The delivery of goods and services performed in Turkey is subject to VAT. Although the standard rate is 18%, it can vary from between 1% to 18%, depending on the nature of the goods or services (see Question 17).
Documents that have a legal effect and are signed by the parties concerned (such as contracts, deeds and so on) are subject to stamp tax. The applicable rate for contracts is 0.948% of the contract value, with a current cap of TRY1,797,117.30. The applicable rate differs depending on the type of document subject to stamp tax.
Any dividend payments made to shareholders can be subject to a withholding tax after the deduction of corporate income tax imposed on income of the investee company. The application of the withholding tax varies depending on the shareholder receiving the dividend payment. Withholding tax does not apply to resident legal entity shareholders. If an applicable double taxation treaty does not provide for a lower rate, a 15% withholding tax applies if the recipient of the dividend is either a:
Non-resident legal entity shareholder.
Resident or non-resident natural person shareholder.
The remaining part of the dividend payments are excluded and can be transferred abroad via wire transfer.
Turkish transfer pricing rules do not differentiate domestic transactions from international ones. Income is deemed to have been distributed in a disguised manner by means of transfer pricing if the companies engage in related party transactions at prices that are not in line with the arm's length principle (Corporate Income Tax Law). Therefore, related party transactions between a non-resident investor and a resident investee company must comply with the arm's length principle and be documented appropriately. Otherwise, the resident investee company may be considered to have distributed income to the related party non-resident investor in a disguised manner through transfer pricing and the amount exceeding the arm's length price may be subject to:
Corporate income tax.
To the extent applicable, tax penalties and default interest, against the resident investee company.
If the total amount of loans obtained from shareholders or related parties of shareholders exceeds three times the shareholders' equity of the borrower resident investee company at any time within the relevant year, the exceeding amount is treated as disguised equity. The disguised equity cannot be deducted for corporate income tax purposes.
Turkey's current investment incentives system provides the following four main incentives schemes applicable to both foreign and local investors:
General investment incentives scheme.
Regional investment incentives scheme.
Large-scale investment incentives scheme.
Strategic investment incentives scheme.
General investment incentives scheme
This scheme provides VAT and customs duty exemptions for machinery and equipment to be used for projects with a fixed amount investment amount of TRY500,000 or TRY1 million (depending on the region where the investment will be made), if the type of investment is not excluded from the scope of such incentives.
Regional investment incentives scheme
Turkey is split into six regions, depending on each city's level of development. The supported sectors vary for each region. The regions are numbered from one to six, where Region one corresponds to the most developed areas and Region six provides the most advantageous incentives.
For projects with a fixed investment amount of at least TRY500,000 or TRY1 million (depending on the region where the investment will be made), this scheme provides:
Contributions to investment.
Social security premium support (for employer's share or for both employer and employee's shares, as applicable).
Income tax withholding allowances.
Interest rate support for investment loans.
Land allocation as support instruments.
VAT and customs duty exemptions for machinery and equipment.
The rates or durations of supports and exemptions differ for each region. Organised industrial zones provide more advantageous terms of support in each region. Certain fields of investments are defined as "priority" and are offered Region five incentives regardless of the actual region. For example, investments concerning the transportation of goods and passengers, manufacturing of carbon fiber and investments on test centers (concerning automotive, space and defense industry) are classified as priority investments which can enjoy Region 5 incentives such as:
Customs tax and VAT exemptions.
Large-scale investments incentives scheme
This scheme applies to 12 specific investment fields including:
Manufacturing of refined petroleum products.
Manufacturing of chemical products.
Electronic industry investments.
It provides the same incentives as the regional investment incentives scheme but with improved rates and durations (see above, Regional investment incentives scheme).
The rates or durations of supports and exemptions differ for each region. Organised industrial zones provide more advantageous terms of support in each region.
Strategic investment incentives scheme
"Strategic investments" are investments that must meet all of the following criteria:
The domestic production capacity for the product to be manufactured with the investment must be less than the production capacity of the import of the product.
The investment amount is at least TRY50 million.
The investment must create a minimum added value of 40%. This condition does not apply to refinery and petrochemicals investments.
The total import value of the product to be manufactured with the investment must be at least US$50 million for the previous year (excluding products that are not locally produced).
Apart from the strategic investment incentives, special incentives are provided for:
Research and development investments.
Investments in technology development zones and loans for technology development projects.
Small and medium-sized enterprises.
Investments within the scope of the Industrial Thesis Programme.
The following incentives apply to strategic investments:
The incentives applicable to regional investment incentives schemes (see above , Regional investment incentives scheme).
Technology development zones
Technology development zones are designed to:
Support research and development activities.
Attract investments in high technology fields.
There are 59 technology development zones out of which:
44 are operational.
Five have been approved and are currently under construction.
Investors in technology development zones benefit from the following incentives:
Income tax and corporate tax exemptions on revenues derived from software development and research and development activities.
VAT exemption on sales of application software produced exclusively in technology development zones.
Tax exemption for salaries of research and development and support personnel employed in the zone.
Social security premium support on 50% of the employer's share for five years.
To benefit from the technology development zones incentives, a permit must be obtained from the relevant Ministry.
Organised industrial zones
Organised industrial zones are designed to allow companies to operate within an investor-friendly environment with ready-to-use infrastructure and social facilities. The existing infrastructure provided in the zones includes roads, water, natural gas, electricity, communications, waste treatment, and other services. There are 290 organised industrial zones in 80 provinces of Turkey, out of which:
211 are currently operational.
79 are being constructed throughout Turkey.
Investors must apply to the management of the organised industrial zone to be allocated a parcel within the relevant zone.
In addition to the main investment incentives schemes in Turkey, investors operating in the organised industrial zones can benefit from the following advantages:
VAT exemption for land acquisitions.
Exemption from real estate duty for five years starting after the construction of the plant.
Low water, natural gas and telecommunication costs.
Tax exemption for unification and/or separation of plots.
Exemption from municipality tax for the construction and use of the plant.
Exemption from the municipality tax on solid waste if the organised industrial zone does not benefit from the municipality service.
Free zones are special sites which, despite being within the political borders of Turkey, are considered to be outside the customs area. There are 20 free zones in Turkey (19 of which are operational) located:
Close to the EU and Middle Eastern markets.
Adjacent to major Turkish ports on the Mediterranean, Aegean, and Black Seas, with easy access to international trade routes.
Investors must obtain operation licences to operate in free zones.
Investors in free zones benefit from a 100% exemption from all of the following:
Customs duties and other assorted duties.
VAT and special consumption tax.
Income tax on employees' salaries (for companies that export at least 85% of the free on board value of the goods they produce in the free zones).
Corporate income tax (for manufacturing companies).
Companies are free to transfer profits from free zones abroad (and to Turkey) without restrictions.
Under Turkish law, there are no special legal guarantees for foreign investors and the ordinary legal protections for expropiations apply. Foreign investors must be treated in the same way as domestic investors (Foreign Direct Investment Law). Foreign investments cannot be expropriated unless:
Required by the public interest.
Remuneration is paid in accordance with the applicable laws.
There is no right for compensation for expropriations, other than the immediate remuneration valuing the actual price of the expropriated investment. The expropriation of foreign investments is not a common practice in Turkey and there are no significant recent examples of expropriation of foreign investments.
There are also 82 bilateral international agreements signed by Turkey with different countries which state that the expropriation of investments is subject to public interest and immediate remuneration. Some of the agreements also state that the amount of remuneration must be determined in accordance with the foreign investor's own country standards.
Intellectual property (IP) rights are protected and enforceable in Turkey under the Turkish Commercial Code and the specific laws relating to certain types of trade marks, as well as international treaties. To ensure the protection of certain IP rights such as trade marks, patents/utility models and industrial designs, the holders of these rights can register them with the relevant registry held by the Turkish Patent Institute. Turkish IP legislation is widely compatible with the World Intellectual Property Organisation agreements.
Both domestic and international arbitration are recognised under Turkish law. Since there are usually procedural delays in court legislation, foreign investors generally prefer institutional arbitration for settling disputes with their partners.
Arbitral awards issued outside Turkey and within the territory of a state which is a party to the 1958 New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards (New York Convention) are recognised and enforced by Turkish courts, subject to the criteria and the procedures set out in the New York Convention. Turkey ratified the New York Convention under Law No. 3731 of 1991 and Decree No. 91/2151 of 1991, with the reservations allowed under Article 1(c). Foreign arbitral awards are enforced by Turkish courts provided that they do not contravene Article V of the New York Convention and Article 62 of the Turkish International Arbitration Law.
A foreign judgment cannot be enforced in Turkish courts if (Law No. 5718):
There is no factual or legal reciprocity in the field of enforcement of judgments between the relevant country and Turkey.
relates to a matter that falls within the exclusive jurisdiction of Turkish courts;
has been granted by the courts of a country that has no relation with the subject matter of the lawsuit or parties (provided that the defendant has raised the objection); or
contravenes Turkish public policy.
The person against whom enforcement is sought raises one of the following objections in the Turkish courts:
he was not duly summoned to or represented in the foreign court; or
the judgment was rendered in his absence in violation of the laws of the foreign country.
In general, foreign investor do not receive a significantly different treatment in either court or arbitration proceedings. However, when enforcing foreign judgments and arbitral awards, Turkish courts take a conservative approach and apply the above exemptions strictly.
Recent developments and proposals for reform
In 2015, certain activities (such as mining exploration investments and investments for the production of items in the high-tech industry) and implementation of certain incentives were added to the fields of investments which are prioritised and supported by the Turkish Government.
Investments for the production of turbines and generators used in renewable energy generation and the production of blades used in wind energy generation have become an important investment field in Turkey. Investments in research and development and design activities in Turkey are incentivised through the enactment of certain amendments in the relevant legislation. There are also proposed legal developments to simplify the process for obtaining work permits (especially for qualified foreign employees/investors).
The 64th Government Action Plan also introduces the following legal developments, which will likely be implemented in 2016:
Implementing necessary amendments in the legislation concerning commercial activities taking place in free zones to make the free zones (see Question 25, Free zones) more attractive to investors.
Minimising bureaucracy for investments (for example, simplifying the procedures for allocating land).
Simplifying the procedures for granting energy licences and permits.
Incentivising institutional capital markets investors.
As of 15 January 2016, Turkey became a shareholder of the Asian Infrastructure Investment Bank, a multilateral development bank which will focus on the development of infrastructure and other productive sectors in Asia. Turkey has also entered several bilateral treaties concerning the reciprocal promotion and protection of investments. The treaties entered into with the Republic of Mauritius and the Republic of Djibouti have been enacted recently. Bilateral treaties with the following countries are pending ratification:
Islamic Republic of the Gambia.
Main investment organisations
Turkey Ministry of Finance (T.C. Ekonomi Bakanlığı)
Description. The Ministry of Finance is responsible for evaluating the policies on investment in the production and exporting chains as a whole to achieve the best level of national welfare. It is especially involved in developing international trade and foreign investment in Turkey.
General Directorate of Incentive Practices and Foreign Capital (Teşvik Uygulama ve Yabancı Sermaye Genel Müdürlüğü)
Description. This Directorate, which is directly linked to the Ministry of Finance, promotes and supports international investments in Turkey. Its role is to regulate foreign investment through drafting legislation focusing on the regulation and development of foreign investment.
Turkey Prime Ministry Investment Support and Promotion Agency (T.C. Başbakanlık Türkiye Yatırım ve Destek Ajansı)
Description. This is the main government body responsible for promoting investment opportunities for foreign nationals in Turkey. It also acts as an assistant to international investors during the whole investment procedure (before and after the investment).
Turkish Union of Chambers of Commerce and Stock Exchanges (Türkiye Odalar ve Borsalar Birliği)
Description. The relevant branch of the union in each city keeps the records of the companies and provides dispute settlement solutions to its members.
Turkish Scientific and Technical Research Institution (Türkiye Bilimsel ve Teknik Araştırmalar Kurumu)
Description. This is a government-maintained institution responsible for developing science in Turkey. It promotes the scientific, technical and industrial research by supporting these activities with particular funds and other incentives.
All official websites below are maintained and updated by the Turkish Government.
Turkish Official Gazette
Description. The official website of the Turkish Official Gazette, which provides access to the published laws, regulations, other pieces of legislation and court decisions.
General Directorate of Legislation Development and Publication
Description. An official website that contains all pieces of legislation such as laws, regulations, directives and so on (both past and current versions).
General Directorate of International Law and Foreign Affairs
Description. The official website of the General Management of International Law and Foreign Affairs. The General Management is linked to the Ministry of Justice and acts as a governmental body regulating the affairs and relations with international institutions and foreign countries on legal matters.
Turkish Grand National Assembly
Description. The official website of the Turkish Grand National Assembly. The website includes draft laws and parliament commission reports.
Investment Support and Promoting Agency
Description. The official website of the Investment Support and Promoting Agency, which is directly linked to the Turkish Prime Ministry. The website contains information on investing in Turkey.
Turkish Ministry of Finance
Description. The official website of the Turkish Ministry of Finance. The website includes financial and commercial news, and information on investments and other commercial matters.
Turkish Undersecretariat of Treasury
Description. The official website of the Turkish Undersecretariat of Treasury, which is responsible for public finance.
Central Bank of Turkish Republic
Description. The official website containing information on monetary policy, such as monetary stability and statistics.
Directorate of Privatisation Administration
Description. The official website of the Directorate of Privatisation Administration, which is linked to the Turkish Prime Ministry and involved in the privatisation of properties within Turkey's borders.
Energy Market Regulatory Authority
Description. The official website of the Energy Market Regulatory Authority of Turkey, which provides a fair market for electricity, natural gas, petrol and liquefied petroleum gas by arranging the permits for, and restrictions on, generating and distributing energy.
Turkish Ministry Of Labour and Social Security
Description. The official website of the Turkish Ministry Of Labour and Social Security, which regulates and develops the employment and social security applications in Turkey.
Description. The official website of the Revenue Administration of Turkey, which determines and fairly applies the revenue policy in Turkey.
Immigration Authority of Turkey
Description. The official website of the Immigration Authority of Turkey, regulating the permits and restrictions for foreigners.
Information Technologies Institution of Turkey
Description. The official website of the Information Technologies Institution of Turkey, which is involved in activities aimed at regulating and developing the electronic communication and information technologies sectors.
Turkish Ministry Of Environment and Urbanisation
Description. The official website of the Turkish Ministry of Environment and Urbanisation, which arranges the rules, permits and restrictions for urbanisation and securing the environment.
Competition Authority of Turkey
Description. The official website of the Competition Authority of Turkey, which maintains the fair competition in markets by setting out restrictions and regulating the activities in the market.
Capital Markets Board of Turkey
Description. The official website of the Capital Markets Board of Turkey, which is responsible for maintaining a level of fairness in the capital markets by setting the restrictions and regulating the activities in the market.
Description. The official website of the World Bank.
Begum Durukan Ozaydin, Partner
Birsel Law Offices
First Law International Board Member Firm (Chambers Global Elite Network)
Professional qualifications. Turkey, Attorney at Law, 1997; New York, Attorney at Law, 2000; Turkey, Patent and trade mark representative
Non-professional qualifications. Master's Degree in Common Law Studies, Georgetown University Law Center, 1998; LLB, Dokuz Eylul University, School of Law, 1996
Areas of practice. Banking and finance; capital markets; commercial and corporate law; mergers and acquisitions; privatisation; competition; energy and infrastructure; intellectual and industrial property; litigation and arbitration; media and entertainment; real property.
Professional associations/memberships. Member, Izmir Bar Association; New York Bar Association.
Dr Ali Murat Sevi, Senior associate
Birsel Law Offices
First Law International Board Member Firm (Chambers Global Elite Network)
Professional qualifications. Turkey, Attorney at Law, 2000
Areas of practice. Commercial and corporate law; mergers and acquisitions; capital markets; competition; energy and infrastructure; intellectual and industrial property; litigation and arbitration.
Non-professional qualifications. PhD in Private law, Dokuz Eylul University, School of Law, 2011; Guest Doctorate student, Marburg Philipps University, Institute of Commercial Law and Law of Economics, 2005-2006; LLM in Private Law, Dokuz Eylul University, School of Law 2002; LLB, Dokuz Eylul University, School of Law, 1998.
Professional associations/memberships. Member, Izmir Bar Association; Istanbul Bar Association.
- Author, "Raising and Maintenance of Share Capital in Joint Stock Companies", Ankara 2013.
- Author, "Transfer of Share in Joint Stock Companies", 3rd Edition, Ankara 2014.
- Various published articles on corporate and commercial law.