I. How does legal framework of the FDI regulated under the Turkish Law?
The legal framework of the Foreign Direct Investments are regulated by the Law numbered 4875 and dated 17.06.2003 (hereinafter “no. and dd.”). This law is structured as a legal guideline for investors, which consists of 7 Articles and regulates general rules and principles about FDI. Additionally, the “Mutual Protection and Promotion of Investments Agreements” (hereinafter “MPPI) are applicable to the Foreign Direct Investments. Turkey has signed MPPI agreements with 80 countries and 64 of these agreements entered into force.
In a brief definition, foreign investment can be defined as the transfer of movable and immovable assets from one country to another for the profit of multinational companies under partial or complete supervision of asset owners by means of contributing welfare of the invested country.
The concept of foreign investors classified into two groups in the Article 2 of FDI Law. The first group consists of real persons who possess foreign nationality and Turkish nationals who are residents abroad. The second group is foreign legal entities established under the laws of foreign countries and international institutions.
In Paragraph (b) of Article 2 of Law no. 4875 regarding foreign direct investment, the concept of foreign direct investment is classified under two main topics: instruments that are transferred from abroad and instruments that are provided by domestic market.
Instruments that are transferred from abroad are defined as follows:
Instruments that are provided domestically are defined as follows:
III. What are the fundamental principles that Foreign Investors shall be subject in Turkey?
The fundamental principles, which foreign investors shall be subject to, are regulated under the title of “Principles Regarding Foreign Direct Investments” in Article 3 of Law no. 4875.
According to sub-paragraph (a) of Article 3 of Law no. 4875, firstly the freedom of investment and principles of equal treatment are regulated. Accordingly, unless otherwise stipulated by international agreements and provisions of specific laws, foreign investors are free to invest directly in Turkey, and they are subject to equal treatment with domestic investors.
In the regulations regarding expropriation and nationalization, it is stipulated in sub-paragraph (b) of Article 3 of Law no. 4875 that the direct foreign investments cannot be expropriated and nationalized unless required by the public interest and their considerations are paid in accordance with the current legislation. With the regulation included in the Law, it is assured that the general regulations and principles on expropriation and nationalization specified in Articles 46 and 47 of the Constitution of Republic of Turkey are also applied to foreign investments without exception.
Another principle, stated in sub-paragraph (c) of Article 3 of Law no. 4875, is the principle of free transfer. In line with this principle, foreign investors can freely transfer the followings abroad through banks and special financial institutions: the considerations of net profit, dividend, sale, liquidation and indemnity; amounts arising from license, management and similar agreements; and foreign credit capital and interest payments arising from their business and activities within Turkey.
The regulations concerning access to real estate in Turkey can classify into 3 categories.
a) Regulation on foreign real persons:
b) Regulation on Foreign Companies outside the Context of FDI Law no. 4875:
c) For companies with Foreign Direct Investor status under Law no.4875;
In paragraph (d) of Article 3 of Law no. 4875, freedom of access to real estate was granted for foreign investors. Also the condition of access to real estates regulated under Deed Law no. 2644, Article 35. The legal and de facto conditions are taken as basis for the determination of the reciprocity. According to these provisions, in the context of real estate acquisition, it is essential that where land property right is not entitled to the citizens of a country, foreign state entities to the citizens of the Republic of Turkey the same rights that it entitles to its citizens. It is a fact that ; after the decision of Constitutional Court regarding the real estate access it should
It is stipulated that one can resort to national or international arbitration or other dispute settlement methods besides recourse to appointed and authorized courts for the regulation drawn up for the resolution of disputes of a foreign nature and disputes arising from investment contracts subject to private law as well as investment disputes arising from public service privilege stipulations and agreements between foreign investors and administration, provided that the conditions specified in the relevant legislation occur and the parties mutually agree.
Another principle concerning the foreign investments is about value assessment of non-cash capital. The value assessment of non-cash capital is done within the scope of the provisions of Turkish Commercial Law. In case the stocks and bonds of companies established in foreign countries are used as investment instruments, the assessments of authorities entitled for the value assessment in accordance with the legislation of country of origin or experts assigned by courts of country of origin or international assessment institutions are taken as basis.
In case of employment of foreign personnel, the work permits for the personnel with foreign nationalities to be employed at companies, branches or organizations that have been established within the scope of Law no. 4875 are granted by Ministry of Labor and Social Security. More information on this subject shall be addressed in the following sections.
The last principle regarding foreign investments that is included in the Law is about liaison offices. According to this principle, The Undersecretaries of Treasury is authorized to permit foreign companies that are established under the laws of foreign countries to open liaison offices, provided that they do not engage in commercial activities in Turkey.
According to Article 9 of Implementation Regulation for Foreign Direct Investments Law which has come into force by being published in Official Gazette no. 25205 and dd. 20.08.2003, the companies which can be established or affiliated to by foreign investors are the companies stipulated in TCL (Commercial Code) and unincorporated companies stipulated in Obligations Law .
The partnerships which have been established by contractual agreements under names such as incorporated partnership consortium, business partnership, joint venture and partnerships that do not bear the specific qualities of the companies stipulated in TCL are deemed as unincorporated companies as far as the application of the Law is concerned. The Joined-Stock-Company and Limited Liability Partnership are the most commonly used company types in Turkey.
A Joint-Stock-Company is a commercial company which is founded by at least five people to deal with a particular economical subject and purpose through a contract under a title and whose capital stock is stated and divided into shares, and which is liable for its debts only with its amount of assets, limited with the capital that the partners subscribed liability, has legal identity and limited capacity. Joint-Stock-Companies are stipulated by Articles 269 etc. of TCL.
A “Limited Liability Company is a company established by two or more persons, real or legal, under a commercial title, the liability of the partners of which is limited with the capital they have undertaken to provide and the capital stock of which is certain.”According to Article 504 of TCL, the number of partners in a limited liability company cannot be less than two and more than fifty.
In Turkey, legal framework regarding privatizations is regulated by Law on Privatization no. 4046 and dd.24.11.1994. Within the scope of the Law, High Board of Privatization, Directorate of Privatization Administration, relevant administrative and organic structure is regulated in detail for carrying out privatization activities in Turkey. In Article 18 of Law no. 4046, methods of privatization are defined. Accordingly, privatizations should be implemented by following ways:
In practice, it is seen that foreign investments in Turkey are mainly made by the methods of affiliate to privatization or merger and takeover. There is a regulation for foreigners to affiliate to privatization in Article 14 of the Law no. 4046. The followings are stated in this Article: “Sales and transfer of real estate to foreign real persons and legal entities, within the framework of implementation of privatization according to the provisions of this Law, are subject to the provisions of applicable legislation by taking principle of reciprocity into consideration.”
In Turkey, it is seen that eccentric regulations are made for foreign investors in implementations of privatization which have close relation with national security and strategic public service from time to time. High Board of Privatization determines the procedures and bases of privatization of establishments subject to privatization program; and decisions for this purpose are implemented by Directorate of Privatization Administration. Hence, we believe that it would be useful for foreigners, who are intending to invest in Turkey by affiliate to privatizations, to follow up decisions and announcements made by High Board of Privatization and Directorate of Privatization Administration .
VII. How does working permit issue for foreigners regulated in Turkish Law?
With a view to the legislation in Turkey, it is seen that foreigners can have same rights and responsibilities that are enabled to its own citizens. In the same legislation, however, it is stated that these rights and responsibilities can be limited. The rights which are stipulated in TR Constitution under the title of “Fundamental Rights and Responsibilities” applied to citizens as well as foreigners equally. As it is stipulated in Article 16 of TR Constitution, however, these rights and responsibilities for foreigners can be limited in accordance with international law. In the legislation in force in Turkey, these limitations are especially stand out for the issues concerning employment of foreign personnel.
Work permits of foreigners, which were regulated by different laws and executive orders, are endeavored to be collected under the same umbrella by Law no. 4817 put into effect. Since the permissions issued by different institutions cause unsound comments about foreign employees and inability of supervision of these workers in Turkey, Law on Work Permits For Foreigners has been prepared for the purposes of preventing unfair competition and unemployment in Turkey, bringing the unrecorded earnings in our economy and because of the necessity of concentrating work permits at a single center in order to fight against employment of illegal workers in terms of economical status and labor market in Turkey as well as to fulfill our international commitments.
VIII. What type of tax practice applicable in Turkey?
The incentives provided by the government have contributed greatly to the development of private sector in Turkey. There are some attractive incentives in Turkey concerning Foreign Direct Investments such as interest support, tax exemptions, investment funds, technology development scenes etc. Additionally, Turkey has bilateral prevention of double taxation agreement with 68 countries. Also various exemptions and incentives can be benefited from depending on the region to be invested in. If we are to examine these regions separately;
It is a fact that the process of Turkey’s accession to EU has deeply affected Turkish legal system, and crucial amendments are made since 2000. These revisions and amendments are concluded in the field of FDI Law as well. In particular, the new principles which are introduced by new FDI Law such as freedom of investment and national treatment, access to real estate, expropriation and nationalization restrictions, applicability of ADR and arbitration etc. are very effective and positive provisions to attract and protect Foreign Direct Investors in Turkey. Moreover, newly structured public institutions are mindful and fruitful to support investors during the bureaucratic term of investment. As a result of new legal system and efforts of administrative organizations, quality and quantity of FDI has been rapidly increasing in Turkey since 2000. The actual situation and economical/statistical indicators are available at: http://www.invest.gov.tr
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PULAŞLI, H. ; Şirketler Hukuku, 6. Bası, Adana, 2007, s. 188.
PULAŞLI, H. ; Şirketler Hukuku, 6. Basım, Adana, 2007, s. 188.
POROY/TEKINALP/ÇAMOĞLU; Ortaklıklar ve Kooperatif Hukuku; Istanbul 2003; 9. Bası; s. 108.