INVEST IN TURKEY

INVESTING IN TURKEY

For global companies and investors, establishing a sound and successful presence in Turkey has become more crucial than ever for their global success. Turkey, a land of more than seventy million inhabitants, offers endless advantages to global players, both as an organizational center for regional expansion in EMEA and as a non-negligible market in itself with its developing economy, young and qualified workforce, world-class infrastructure facilities, cost-efficient production opportunities and its strategic location on energy routes. Turkey’s strong banking practice as harmonized with EU regulations, provides reliability and confidence like no other country in the region, thus making it the right place for long term investment plans.

LEGAL FRAMEWORK AND HISTORY OF INTERNATIONAL INVESTMENT IN TURKEY

International investment law in Turkey has been established throughout the last half century. In 1954, the Law on Encouragement of Foreign Capital has been enacted and supported by decrees and communiqués of Council of Ministers. Moreover, The Council of Ministers Decrees and Communiqués had significant revisions in 1995 considering the liberal policy of the 1980s, which attained to meet the requirements of foreign investors and requirements of proper environment for investments.

After substantial revisions and harmonisation with modern law, The Foreign Direct Investment (FDI) Law, No. 4875 entered into force on June 17, 2003. In addition, the previous FDI Law on Encouragement of Foreign Capital was repealed. Furthermore, on August 20, 2003 Application Regulations of the FDI Law entered into effect. Consequently, the main part of the international investment law had been innovated.

Bilateral Investment Treaties (BIT) are another significant factor. Through BITs, countries (that accepted BITs among each other) promote and protect investments, prevent double taxations, grant social security for international employees, create customs union and free trade, and provide above-nations security with international arbitration clauses.

With respect to inducement; Turkey has applied some periodical incentive policies in order to bring new regulations in laws, bylaws and regulations, reorganize the relations and attract foreign investors’ attention. The key purposes of incentives are to affect FDI inflows and outflows in a positive way by providing partial or total exemptions.

Mostly, BITs are signed among developing countries and they have significant impact in means of ensuring protection against uncompetitive applications, the transfer of pollutant effluents or technologies, or the alienation of local companies from the market. BITs also organise economic relations.

Furthermore, with respect to the Turkish Constitution, the international agreements are considered as law and appeals against a duly approved international treaty are not allowed.

The BIT Model text in Turkey has been updated regularly to meet international standards as well as have been improved in the light of the experience gained through international arbitration cases involving Turkey. Main principles of Turkey’s BITs, respectively are:

  • The promotion of long term, productive investments,
  • ‘Fair and equitable treatment’ of and ‘full protection and security’ for investments,
  • Most favoured nation and national treatment for investments,
  • Protection against expropriation,
  • Compensation for losses,
  • Guarantee for transfer of returns & profits,
  • Access to international arbitration for foreign

BILATERAL TREATIES IN RESPECT OF INVESTMENT PROMOTION AND PROTECTION:

BITs for the Promotion and Protection of Investments were signed from 1962 onwards with countries that reflect the potential to improve bilateral investment relations. The main purpose of BITs is to reach the requirements of a favourable environment and economic cooperation between the contracting parties by defining the guideline for the investors and their investments within the boundaries of the countries concerned. Turkey has signed BITs with 75 countries. Namely;

“Afghanistan, Albania, Argentina, Australia, Austria, Azerbaijan, Bangladesh, Belarus, Belgium, Bosnia and Herzegovina, Bulgaria, China, Croatia, Cuba, Czech Republic, Denmark, Egypt, England, Estonia, Ethiopia, Finland, France, Georgia, Germany, Greece, Hungary, India, Indonesia, Iran, Israel, Italy, Japan, Jordan, Kazakhstan, Kuwait, Kyrgyzstan, Latvia, Lebanon, Libya, Lithuania, Luxembourg, Macedonia, Malaysia, Malta, Moldova, Mongolia, Morocco, Netherlands, Oman, Pakistan, Philippines, Poland, Portugal, Qatar, Romania, Russian Federation, Saudi Arabia, Serbia, Singapore, Slovakia, Slovenia, South Korea, Spain, Sweden, Switzerland, Syria, Tajikistan, Thailand, Tunisia, United Arab Emirates, Turkmenistan, Ukraine, United Kingdom, United States of America, Uzbekistan, Yemen.

BILATERAL TREATIES PREVENTING DOUBLE TAXATION:

Turkey has signed double taxation prevention treaties with 79 countries. Turkey continues to expand the scope of the double taxation prevention treaties by coming to an agreement with more countries on an on-going basis.

BILATERAL SOCIAL SECURITY TREATIES:

Turkey has signed Social Security Agreements with 26 countries. These agreements facilitate the moving of expatriates between countries. The number of these countries will increase in line with the increased sources of FDI.

CUSTOMS UNION AND BILATERAL FREE TRADE

A Customs Union Agreement between Turkey and the European Union has came into force in 1996 in order to allow trade between Turkey and the EU countries without any customs restrictions. Turkey has Free Trade Agreements with 23 countries, creating a free trade area in which the countries agree to eliminate tariffs, quotas and preferences on most goods and services traded between them.

FOREIGN DIRECT INVESTMENTS (FDI) IN TURKEY

The Law regarding the Foreign Direct Investments numbered 4875 and dated 17 July 2003 (the ‘FDI Law’) and the relevant implementation regulation adopted thereunder (‘FDI Regulation’) constitute the primary basis for all legislation regarding foreign investments in Turkey (altogether, the ‘FDI Legislation’). By amending the previous FDI regime in Turkey, the legislation grants foreign direct investors equal protection under the law as local investors, thus greatly simplifying the investment procedures and abolishing the old ‘permission’ system.

FDI Inflow to Turkey between 2009 and 20131.

The purpose of the FDI Law is to encourage FDI in the country, to protect the rights of foreign investors, to align investors and investments with international standards, to establish a notification-based system rather than an approval-based one for FDI and to increase the volume of FDI through streamlined policies and procedures.

The FDI Law provides a definition for foreign investors and foreign direct investments. Additionally, other significant principles of FDI are the freedom to invest, national treatment, expropriation and nationalization, transfers, access to real estate, dispute settlement, valuation of non-cash capital, employment of expatriates, and liaison offices.

The regulation on the application of the FDI Law contains specific procedures and principles on the issues subject to the FDI Law. The new FDI Law focuses on work permits for foreigners by regulating the work carried out by foreigners and stipulating the rules on work permits which are given to foreigners.

Turkey was an under-performer in attracting FDI until 2006. In 2001 and 2002, three analysis regarding Turkey’s overall investment environment were undertook by the World Bank and the ‘Foreign Investment Advisory Service’ (FIAS). Afterwards a second analysis focused on the administrative barriers against investments. Finally the last one set out the framework for an investment promotion strategy and recommended the creation of an investment promotion agency. These analyses examined the investment barriers: overall policy instability, a complex, slow and opaque bureaucracy, incomplete legislative reforms, inadequate administrative implementation and judicial enforcement of legislation.

After these analyses an action plan with a focus on 11 key reform areas which consisted of Company Registration; Employment of Foreigners; Sector Licenses; Taxation and State Aid; Customs and Technical Standards; Land Access and Site Development; Intellectual Property Protection; Foreign Direct Investment Legislation; Investment Promotion; the Promotion of Small and Medium-sized Enterprises; and Corporate Governance were determined. The Government took several precautions in compliance with the recommendations and enacted 20 laws, including a very liberal Foreign Direct Investment Law and an equally liberal Company Registration Law. As a result of the general improvement of the Turkish economy as well as the reform program to improve business environment, FDI inflows to Turkey started to increase in 2002 and reached to a record high level in 2006.

There has been a substantial rise in the number of companies with foreign capital since the “Foreign Direct Investment Law No.4875” entered into force on June 17th 2003. The number of companies with foreign capital established between June 17th 2003 and December 31th 2006 is 101% more than that of the previous year’s total.

Besides, the FDI outflows are relative to its inflows and to global outflows. The OFDI performance index is the ratio of the share of a country's FDI outflows within the global FDI outflows to its portion of GDP within the global GDP. The key factors of Turkish FDI abroad can be summarised as the following: Turkish outward FDI is market seeking. Foreign markets are used as substitutes for the domestic market by Turkish FDI firms.

Turkish FDI firms produce low quality alternatives to high quality products in host countries and therefore, as incomes in host countries increase Turkish outward FDI decreases. Corruption risk is an obstructer for Turkish FDI outflows and the economic instability in Turkey reduces outward FDI.

THE FDI LAW AND ITS PRINCIPALS

FREEDOM TO INVEST AND EQUAL TREATMENT

(Article 3 of Law No. 4875)

This article gives freedom to the foreign investors to invest in Turkey whilst acknowledging the restrictions brought via BITs or any other local regulation. New liberal foreign investment policy of Turkey amended the permissions clause and annulled the need to acquire permission for screening approvals given by General Directorate of Incentive Implementation and Foreign Investment of the Ministry of Economy.

Furthermore, another amendment has been made for the minimum capital requirement, and cancelled it all together as well. The minimum foreign capital limit per person or entity to establish a foreign company or branch was minimum USD 50,000 in previous legislations. Therefore foreign investors are now able to establish a company by acquiring any of the shares of a Turkish company for as much as they desire. Foreign investors may acquire the shares of a company regardless of the foreigners’ existence in the management. All established companies are regulated with equal rights, privileges, and exceptions that are granted to local companies. Thus, the Turkish Commercial Code associated with the law No.6102 covers foreign companies.

EXPROPRIATION AND NATIONALISATION

(Article 3 of Law No. 4875)

As well as foreign and local investors, citizens of Turkey and said foreign countries are also subject to this article.

This article aims to demonstrate that there is no distinction between investors and citizens, and illustrates that the properties of foreign investors are bound by the same rules as local investors’ properties. If a property is required for public interest there can be an expropriation with a fair compensation. Again Turkish investors are subject to the same rule as well.

TRANSFERS

(Article 3 of Law No. 4875)

As well as foreign and local investors, citizens of Turkey and said foreign countries are also subject to this article.

This article aims to demonstrate that there is no distinction between investors and citizens, and illustrates that the properties of foreign investors are bound by the same rules as local investors’ properties. If a property is required for public interest there can be an expropriation with a fair compensation. Again Turkish investors are subject to the same rule as well.

ACCESS TO REAL ESTATE

According to the new regulation of the Land Register Law No. 2644, the subject of foreign investors accessing real estate has been revised and the amended version entered into force by Law No. 5444 dated December 29, 2005. The real estate Regulation has been amended in 2012 as well and in accordance with the current Law and Regulation.

Under the Land Register Law No. 2644, foreign real persons are able to acquire real estate according to their own state’s acquisition policy for Turkish citizens. Pursuant to the created regional zone plans of Turkey, real estate or limited property can be acquired by foreigners given only 10% of every single zone is acquired without any exception. Thus, the maximum amount is 30 hectares of real property in total.

Turkish companies can be established by foreign capital. There is no limitation in this context, but the acquisition of the real estate has to be in accordance with the activities specified in the Article of Association of the company and with the Regulation on Acquisition of Real Estate and Limited Property Right of Companies Established by Foreign Capital, dated October 6, 2010.

DISPUTE SETTLEMENT

The FDI Law gives reasonable opportunities to foreign investors to determine the way of dispute settlement. It is a general necessity to provide these options in order to create a secure environment for investors. So, foreign investors may choose another jurisdiction or authorised court rather than a local one within the scope of international arbitration, which is a highly preferred way of dispute solution.

VALUATION OF NON-CASH CAPITAL

In Turkey, according to The FDI Law, non-cash capital, for instance stocks and bonds, or other considered values of the foreign companies are all appreciated. There is one difference among them. Shares and bonds are recorded as foreign capital; other values are recorded as capital in kind. These values and their domestic equivalents are subject to Turkish Commercial Code, No. 6102. Furthermore, determinations regarding appraisals made by the courts or relevant authorities of the host country or international valuation agencies are accepted.

EMPLOYMENT OF EXPATRIATES

(Article 3 of Law No. 4875)

According to this article, foreign investors can participate in business individually. Subsequently, foreign companies are eligible to work with their own partners and employees liberally in order to control and operate business in Turkey.

Principally, work permits, which are granted by the Ministry of Labour and Social Security, are essential for a foreigner before the actual commencement of the first working day unless a bilateral agreement between Turkey and the foreign employee’s country allows working without a work permit. Freelance workers or dependent employees are subject to work permits as well. Additionally, in order to work in Turkey a residence permit is also required.

Work permit types for foreigners are mentioned below in accordance with the Law on Work Permits for Foreigners, No. 4817 and the Implementation Regulation of Law. Namely:

  1. Fixed Term Work Permit: These permits’ maximum duration is one year. If the employee is still working in the same company; permit can be extended for two
  2. Indefinite Work Permit: after working for six years as a foreigner or being a resident legally and continuously for eight years in Turkey, indefinite work permit will be
  3. Freelance Work Permit: Foreigner freelance workers who resided legally and continuously for five years in Turkey will be granted the right to have a freelance work permit2.
  4. Exceptions: Diplomats, foreigners who are married with a Turkish citizen and resident, and foreigners born in Turkey have indefinite 3

    2 D. Arıkan, Türkiye’de Doğrudan Yabancı Sermaye Yatırımları [Foreign Direct Capital Investments in Turkey ], Arıkan Press, 2006.

Moreover, when compared to other countries it is obvious that foreign workers from European Union countries may easily acquire an indefinite work permit via Law on Work Permits for Foreigners, which adopted a clear, and running system with merely determined key points.2 D. Arıkan, Türkiye’de Doğrudan Yabancı Sermaye Yatırımları [Foreign Direct Capital Investments in Turkey ], Arıkan Press, 2006.

LIAISON OFFICES

Foreign companies that will be represented in Turkey for purposes other than commercial ones can establish liaison offices, which also distribute promotions, follow marketing movements, and assist the customers and suppliers in Turkey. However, liaison offices can be established for a limited period of 3 years. After this period the permission has to be renewed by The General Directorate of Incentive Implementation and Foreign Investment of the Ministry of Economy.

  • § Freedom of investment Unless otherwise required by the international agreements and special statutory provisions, foreign investors are free to make direct investments in Turkey,
  • § Freedom for the transfer of profits through banks and private financial institutions,
  • § Acquisition of real estate Foreign capitalized companies would be able to acquire real estate on equal terms with Turkish citizens, excluding the military and national safety zones,
  • § Settlement of disputes through international arbitration The law assures foreign investors the right to apply either to the authorized local courts, or to national and international arbitration or other means of dispute settlement,
  • § Assessment of the value of non-cash capital The non-cash capital valuation for the assets of foreign investors shall be accepted as they are valued in their home countries, as long as such valuations are made by authorities which are empowered to do so under the respective foreign law.

Furthermore, Turkey, as a member of OECD and WTO, has ratified BITs with the majority of the world countries, thus undertaking fair and equitable treatment for the citizens and companies of these major economies.

3 The Republic of Turkey Prime Ministry Investment Support and Promotion Agency (ISPAT), www.invest.gov.tr

INVESTMENT INCENTIVES PROGRAM (IIP)

  • The new investment incentive system is designed specifically for the aim of encouraging investment for intermediate goods, which are important for the country's strategic sectors that have the potential to reduce dependence on imports.

    Under the regime set forth with the program, Turkey is classified into six regions and the incentive measures are differentiated with respect to the development status of the region where the investment shall be located. With regards to encouragement of investments concerning the production of goods and services, the Program is based on four pillars, which differ in terms of encouragement measures:

    • § Regional and sectorial implementation,
    • § Implementation for large investments,
    • § Implementation for strategic investments,
    • § General investment incentive mechanism.

    Regional and sectorial implementation aims to eliminate interregional imbalances by means of encouragement of sectors determined in the Decree varying on the development level of the respective region. Amount of support for certain measures to be provided under this pillar reduces as the development level of the region increases. The second pillar regarding the encouragement of large investments tries to contribute to international competitiveness and employs high technologies and R&D activities. In addition to that, investment subjects which do not fall into the first two categories may benefit from measures provided under general investment incentive mechanism. As in the previous IIPs, both domestic and foreign investors can benefit from the measures under equal terms and conditions and the measures offered under the Program are not directly related to trade.

    International Direct Investment Inflows by Home Country4.

Legal Basis

Investment encouragements, which are designed and implemented by the Ministry of Economy, are primarily based on the provisions of the Board of Ministers decrees and implementation communiqués.

The Decree on the State Encouragements to Investments” (‘Incentives Decree’) numbered 2012/3305 and dated 15.06.2012, which has been adopted to replace the Decree on the State Encouragements to Investments numbered 2009/15199 and dated 14.07.2009, is amended by another Decree on the Amendments to the Decree on the State Encouragements to Investments numbered 2014/6058 and dated 27.01.2014. The Incentives Decree that is in line with the objectives envisaged in the Annual Programs establishes the necessary legal framework for state encouragements to investments by determining the purpose, scope, encouragement measures, regional classification, eligibility criteria and other basic rules regarding implementation. The Incentives Decree was subject to minor modifications by Amending Decrees to provide compatibility with “Customs Union with EU” rules.

Purpose

The purpose of the Incentives Decree is, in line with the projected targets in Development Plans and Annual Programs as well as international agreements, to direct savings from investments to higher value added investments, increase production and employment, ensure continuity of investment propensity and the sustainable development, encourage larger investments raising international competitiveness and employment of high technologies, reduce regional development disparities, support investments for environmental protection and research and development (R&D) activities.

Scope

All investors, along with their investment feasibility studies and relevant project proposals, may apply to the Ministry of Economy in order to be granted an “Investment Incentive Certificate”. After the evaluation of the Ministry which shall be based on the macro- economic program, market conditions and sectorial, financial and technical terms, eligible investment projects conforming with the Incentives Decree and Communiqué are granted an Investment Incentive Certificate which enables to benefit from the encouragement measures enlisted on it.

By taking into consideration the international commitments and regional and sectorial restrictions determined in the Incentives Decree, investment activities related to the production of goods and services, R&D and environmental protection can benefit from the encouragement measures provided by the Incentives Decree.

  • § In the Incentives Decree, encouragement of the investments concerning the production of goods and services is mainly differentiated into four categories of encouragement measures: General investment encouragement implementation,
  • § Regional investment encouragement implementation
  • § Large Scale investment encouragement implementation
  • § Strategic investment encouragement implementation

Incentive Measures

The core objective of the system is to eliminate inter-regional imbalances. In the Incentives Decree provinces have been classified into six regions as Region I, Region II, Region III, Region IV, Region V and Region VI according to Annex-1 of the Incentives Decree.

Thereunder investments can benefit from the following investment encouragement measures depending on their region.

Regional Support

Investments exceeding the designated thresholds may benefit from the below-mentioned incentives.

  • § In Regions I and II; Customs duty exemption, VAT exemption, Tax reduction, Social security premium support, Land allocation
  • § In Regions III, IV and V; interest support, in addition to the aforementioned for
  • § Regions I and II.
  • § In Region VI; VAT stoppage support, in addition to the aforementioned for regions I, II, III, IV and V.

Large Investments

In order to benefit from incentives for large investments, various thresholds are established in Annex III of the Incentives Decree independent from the region of the contemplated investment. In case an investment qualifies as a large investment, the following incentives are granted:

  • § Customs duty exemption
  • § VAT exemption
  • § Tax reduction
  • § Social security premium support
  • § Land allocation
  • § VAT stoppage support (for the investments in the Region VI).

General Investment Encouragement Mechanism

For the investments, which do not fall into the scope of regional support or large investments, with a fixed investment cost above the specified minimum amounts provided that it is not contained within the list of sectors not to be supported determined by the Annex IV of Incentives Decree. Following incentives are granted:

  • § Customs duty exemption
  • § VAT exemption

Minimum Fixed Investment Cost

The minimum amounts of fixed investment costs required in order for an investment project to qualify for an investment incentive certificate, are identified in Incentives Decree. Within the scope of regional and sectorial implementation certain thresholds are determined within Annex II for varying investment subjects. Regarding other subjects of investments for which no amount has been specified in Annex II, the amounts are;

  • § 1 million TL for the provinces located within the borders of Region I and Region II,
  • § 500 thousand TL for the provinces located within the coverage of Region III and Region IV, V and VI.

Application Procedure

Submission of following documents is required for applying to the Ministry of Economy for the issuance of incentive certificate;

  • § Circular of signature of the persons authorized to represent and bind the company to realize the investment project,
  • § Turkish Commercial Registration Gazette or Turkish Tradesmen and Craftsmen Registration Gazette documenting the current status of the company,
  • § Investment application form and its annexes containing information in accordance with the format provided in the Communiqué published pursuant to the Decree,
  • § Original copy of the receipt indicating deposit of the amount mentioned in the Decree to the account of the accounting unit,
  • § Original of the letter to be received from the related departments of the Social Security Institution confirming that the company has no premium debt and administrative fine due or it has been deferred, credited or re-structured pursuant to the Social Insurance and General Health Insurance Law No. 5510 and that the restructuring is still valid,
  • § For the investments indicated in the lists annexed to the Environmental Impact Assessment (EIA) Regulation published pursuant to the Environment Law No 2872, EIA Report indicating affirmation of the investment in terms of its environmental impact or the document indicating that EIA Report is not necessary.

The Ministry of Economy is authorized to request additional information and comments, permission, license and other documents received from the public authorities and institutions depending on the subject of investment if deemed necessary.

Encouragement Measures

Within the scope of the Decree investors could benefit from the following encouragement measures:

Exemption from Customs Duties

For the investment projects that are granted Investment Incentive Certificate by the Ministry of Economy, imports of the machinery and equipment to be used in the production process shall be subject to Customs Duty exemption.

Value Added Tax Exemption

Pursuant to the Law No: 3065 dated 25/10/1984, imports and domestic purchases of machinery and equipment within the scope of the investment encouragement certificate are exempted from the Value Added Tax.

Interest Support

Interest support shall be will be available for investment loans, borrowed to finance the investment, with a maturity of at least one year for Regional Investments (Region 3, 4, 5 and 6), Strategic Investments, R&D and Environment Investments. The Ministry will cover a specific portion of the interest/profit share of the loans that do not exceed 70% of the fixed investment amount registered on the certificate for a specific period, which would not exceed 5 years. Rates and the maximum interest rate support applicable to the example investment

project are as follows6:

Support Rate Maximum Support Amount
TL Loan FX Loan
7 Points 2 Points 900,000 TL

Social Security Premium Support

Large investments and regional investments that are granted an investment encouragement certificate are eligible to benefit from the measure. The social security premium to be paid by the employer, corresponding to the amount to be paid on minimum wage cost, is funded from the budget for the specified periods given in the table below.

The support is provided after the new investment becomes fully operational. For all other types of investments, each additional employee recruited after the notification of the average number of employees to the related Provincial Directorate of Social Security with the SSK Monthly Premium and Service Document in the last six months before the starting of investment is subject to the support following the completion of the investment.

Social Security Premium Support Period

Regions Investments started before 31.12.2013 Investments started after 01.01.2014

  • 2 years -
  • 3 years -
  • 5 years 3 years
  • 6 years 5 years
  • 7 years 6 years
  • 10 years 7 years

In Regional and Sectorial Implementation, Social Security Premium Support should not exceed 6% of the total investment amount in Region I, 8% in Region II, 10% in Region III and 14% in Region IV. For SMEs, 5% premium should be added to these percentages in each region.

In Implementation for Large Investments, Social Security Premium Support should not exceed 2% of total investment amount in Region I, 3% in Region II, 5% in Region III and 7% in Region IV.

Tax Reduction

According to Article 32/A of Corporate Tax Law No.5520 corporate or income tax will be reduced to the rate of contribution to investment7:

 

  Regional Investment Incentives Large Scale Investments
 

Regions

Rate of Contribution to Investments (%) Corporate Tax or Income Tax Reduction Rate (%) Rate of Contribution to Investments (%) Corporate Tax or Income Tax Reduction Rate (%)
1 10 30 20 30
2 15 40 25 40
3 20 50 30 50
4 25 60 35 60
5 30 70 40 70
6 35 90 45 90

 

However, if an investment within the scope of an investment encouragement certificate has started before December 31 st 2013, the following investment contribution rates and annual tax reduction rates apply:

 

  Regional Investment Incentives Large Scale Investments
 

Regions

Rate of Contribution to Investments (%) Corporate Tax or Income Tax Reduction Rate (%) Rate of Contribution to Investments (%) Corporate Tax or Income Tax Reduction Rate (%)
1 15 50 25 50
2 20 55 30 55
3 25 60 35 60
4 30 70 40 70
5 40 80 50 80
6 50 90 60 90

 

Land Allocation

In accordance with the procedures and principles set forth by the Ministry of Finance, land can be allocated to the investments within the scope of regional implementation.

7 http://www.resmigazete.gov.tr/eskiler/2012/06/20120619-1.htm

Real Estate in Turkey

Under Turkish Law, although the ownership of real estate by foreign persons/legal entities is subject to substantial restrictions (e.g. certain limitations in terms of total acres owned), the relevant legal framework is significantly more incentive with regards to ownership of real estate by subsidiary companies incorporated under Turkish law, whose shares are owned by foreign real persons or legal entities in whole or in part (‘Foreign Capital Company’).

However, with regards to real estate purchases, Foreign Capital Companies incorporated in Turkey are able to acquire a real estate to realize their objects mentioned in their articles of association. Various inquiries shall be coordinated by the governorship in connection with various other bodies such as Turkish Armed Forces and provincial Directorate of Security with regards to the location and the nature of the relevant real estate and on whether the real estate is located within the boundaries of military prohibited zones or special security zones. In case these inquiries that are initiated by the governorship are not replied by the relevant bodies in 15 days in writing, the governorship shall proceed with the approval process by assuming that the ownership of the relevant real estate shall not cause complicacies in terms of national security, thus significantly accelerating the outcome of the approval application

Purchase and Lease of Real Estate owned by Treasury

In order to maximize the utilization of Treasury assets, the Turkish lawmaker adopted the Law numbered 4706 dated 29 June 2001 (‘Treasury Estate Law’).

Having been subject to various amendments and Supreme Court’s partial nullification, with its current wording the Treasury Estate Law sets forth the regime applicable for long-term lease and the sale of Treasury estates.

Provisional Article 15 of the Treasury Estate Law sets forth that an operation right or a right for easement over the real estate owned by Treasury, special budgeted administrations or municipalities can be granted to investors for a maximum period of 49 years, provided that the total value of the investment has a substantial value (for industrial investments, 3 times the value of the estate’s current market price). In case such right is granted, the first annual fee shall be 3% of the real estate’s tax value. Secondly, the real estates owned by the Treasury can be directly sold in consideration of its tax value to those investors, who shall;

  • § Undertake to create jobs for 100 employees for a period of 5 years, and
  • § Eventually make an investment with a value exceeding both (i) a threshold of 50 million Turkish Liras and (ii) 3 times the market value of the relevant real estate.

In the event that there is more than one investor who has applied for the purchase of the same real estate, the administration decides for the winning party by conducting a comparison on the basis of total amount of company’s equity and contemplated amount of employment and investment. Furthermore, in case such real estate is not subject to any existing zoning plans, the investor shall be granted with a 1year grace period for the issuance of a zoning plan and to obtain relevant permits.

Investment in Organized Industrial Zones

The notion of Industrial Zones is implemented in Turkish legislation by the Industrial Zones Code No. 4737 dated 09.01.2002 and the Industrial Zones Regulation published in the Official Gazette numbered 25672 and dated 16.12.2014.

In the Industrial Zones Code Article 1/A/b, industrial zones are defined as: “Production areas established to encourage investments, to direct the Turkish employers’ savings to invest in Turkey and to provide the increase of the foreign capital entry to the country.”

The individual and corporate investors are entitled to have incentives in these industrial zones. The discretion power on deciding on the type of incentives will be applied under the Investment Incentive Decree to the individual and corporate investors while commencing to operations for the first time in industrial zones is own by The Council of Ministers. The Council of Ministers is also authorized to decide on the overall implementation method and on the scope of incentive for different types of investments.

Other special zones that investment incentives are applied are the Organized Industrial Zones. The legal basis of the Organized Industrial Zones is the Organized Industrial Zones Code No: 4562 dated 12.04.2000. The objective of the Organized Industrial Zones implementation is to provide zones convenient for technology and large-scale intensive investments.

All the support implemented for investments in Organized Investment Zones under Code No. 5084 'Regarding the Encouragement of Investment and Employment; and the Amendment of Certain Acts'; and the Council of Ministers Decree No. 2002/4367 regarding Government Subsidies, will also apply to investments in Industrial Zones.

GENERAL OVERVIEW

Turkey has become one of the key countries in terms of foreign direct investment due to its geographical significance and its fair and equal attitude under the legal regime, which is subjected to international standards in order to provide wide and easy ways to invest and secure the environment for foreign investors.

Actually, Turkey is one of the leading countries in automotive sector including automotive parts and components, construction and real estate, information and communication technologies, glass manufacturing, services, agriculture and food processing, environmental technologies, petrochemicals, tourism, logistics and infrastructure. Secure investment environment is mostly created and the incentive policy of the Turkish government is enhanced by the FDI Law and BITs.

The FDI Law has entered into force in 2003 and innovations have arisen on the actual investment legislations of Turkey. After these amendments and variations domestic laws have apprehended international standards. Consequently, principles of FDI Law, which are individually mentioned above, are subjects to national laws. Innovation on the FDI Law leads to a significant adjustment in legislations and considerably contributes to the foreign direct investment inflows.

Furthermore, incentive packages generally reflect the countries’ intention on investments. Recently the Turkish Prime Minister has launched an incentive package in order to attract foreign direct investments; therefore it implies the exact purpose and intention of Turkey. Hence, Turkey attains to meet necessary legislative changes and requirements to create a more secure and appropriate environment and encourage foreign investors.

Another significant element is BITs, which are subjects to national laws. The most crucial feature of BITs is; if a dispute arises between a foreign investor and a host state, international arbitration is an easier and international way of dispute settlement. Therefore, BITs provides a more secure environment for foreign investors. Consequently, it is significant to increase the number of signed BITs among countries in order to attract more foreign investment.

As mentioned before Turkey is a developing country. As every country faces some problems such as corruption and bribery in local institutions, Turkey give great effort in order to prevent and curb them. Recently Turkey has caught the attention of foreign direct investors especially from Middle Eastern countries from where many investors are coming to invest in Turkey. Turkey has the adequate legal and secure environment for foreign direct investments. Turkey presents a liberal and modern investment environment in order to achieve its final goal.

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