Business rules for foreign investors in Turkey

The foreign investment Office of Turkey was established in 1986 and is a Department of the Treasury. Turkey's foreign investment management is authorized to:

  • Provide informational support and assistance to foreign investors in research investment opportunities in Turkey
  • Negotiate bilateral support investment and conclude agreements on promoting investment in Turkey

In 1987, Turkey has signed and ratified the ICSID (International Centre for agreements in matters of investment) and MIGA (international investment guarantee Agency).

Law on foreign direct investment 

The new law on foreign direct investment in Turkey came into force on June 17, 2003. The challenge of a new law on foreign direct investment in Turkey is a regulation of principles of the promotion of foreign direct investment in Turkey; protection of the rights of foreign investors in Turkey; determination of the investments and investors within the framework of international standards; establishment of a system of notification for foreign direct investment, in addition to the selection and approval, and increase in foreign direct investment through the conduct of appropriate policies.

The new law on foreign direct investment in Turkey is based on the policy, which goes from predictive control to move and simplified approach with minimal actual monitoring to improve long-term favorable investment for growth and development. Turkish foreign investment regulations have encouraged foreign individuals and legal persons to invest in the economy of Turkey, to participate in commercial activities, to be members of partnerships, transfer shares, open branches and establish departments interact.

With the effect of the new law, all the permissions provided by the General Directorate of foreign investment, have been abolished. As a result, all transactions for the establishment of companies with foreign capital in Turkey have become the same as for local companies. Foreign investors have the right to establish or accept any form of equity participation in the business organization, under the Turkish commercial code and compulsory code. Thus, foreign investors have the same rights in Turkey to the Turkish national investors. National principles of operation are required to the application. In accordance with these principles, additional approvals and permits for the establishment of foreign organizations, affiliates, and participations in existing companies are not required. However, the establishment of departments interaction must be accompanied by a resolution of the Office of the Treasury.

Foreign investors are no longer limited to the minimum amount of capital into the venture $ 50000.This restriction was lifted after the entry into force of the new law on foreign direct investment. Now foreign investors need the amount of capital to invest, which  was defined by the Turkish commercial code. In accordance with the code, the amount of capital for limited liability companies must have a minimum size-5000 TL, for joint-stock companies-50000 TL when you open organization.

Any form of business organization, defined by the Turkish commercial code is acceptable.

All rights, benefits and privileges offered to companies with national capital, will be available on similar terms to companies with foreign capital operating in the same area.

Organizations that own legal entities with foreign capital in Turkey, have the same rights to own and use land and domestic investors. The new law affirms these rights. Nevertheless, the principle of reciprocity still applies to foreign individuals.

Basic principles of direct foreign investments in Turkey in accordance with the new law on foreign direct investment

1) objectives and field of view of the law on foreign direct investment: the objective of the new law on foreign direct investment is to promote foreign direct investment in Turkey; protection of the rights of foreign investors; determine the investments and investors in accordance with international standards; convert existing monitoring and approval system based on notifications for foreign direct investment; and thus regulate the principles in order to increase the flow of foreign direct investment through policy.

2) the freedom of investment and the national support to investments in Turkey: in the absence of treaties or special legal norms, as opposed to:

  • Foreign investors can freely invest in Turkey
  • Foreign and domestic investors are regulated in the same way.

3) Expropriation and Nationalization: foreign direct investment may not be alienated or nationalized, except where the expropriation and nationalization guarantee public and subject to compensation.

4) transfer funds abroad: foreign investors may freely transfer the net profits, dividends, proceeds from the sale or liquidation of all or part of the investment, compensatory payments, income from licenses, management or similar agreements and interest payments on foreign loans to banks.

In addition, it is no longer necessary to record royalties, equity participation, management services and similar types of agreements in the management of the Treasury on foreign direct investment.

5) acquisition of real estate by foreign investors in Turkey: in accordance with the law on foreign direct investment, foreign investors may freely acquire immovable property or have limited rights to property through a legal person registered in accordance with the Turkish commercial code. In accordance with article 36 of the law on the title of the documentation of a company established in Turkey by foreign investors, have the right to acquire real estate for its activities, under the conditions laid down in the Charter. However, acquisition of real estate companies in Turkey with the participation of foreign investors in the war zones, security zones and strategic areas must be carried out with the permission of the Turkish general staff.

6) dispute resolution (on the basis of the law on foreign direct investment): to resolve disputes on investment agreements arising from civil law, and investment disputes for the concession of public services contracts concluded with foreign investors, foreign investors may contact the authorized local, national or international courts, arbitral tribunals or other dispute settlement bodies, if the relevant standards are met and by agreement of the parties.

7) evaluation of capital in kind, invested by foreign investors: capital in kind is estimated in accordance with the Turkish commercial code. However, if the shares of a foreign company shall be made by a foreign company as capital in kind to the company in Turkey, amounts to a distribution of courts or other relevant organizations in the country of origin of the foreign investor or international organizations may be accepted.

8) employment of foreign personnel: work permits for foreigners in companies, branches and organizations established under the law on foreign direct investment, are issued by the Ministry of labor and social protection.

9) divisions: the General Directorate of foreign investment may authorize foreign legal entities for opening a Division in Turkey, provided that they were not engaged in commercial activities in Turkey.

Foreign trade and customs in Turkey

Following the adoption of the 1980's economic liberalization program, Turkey decided to soften the control of imports and exports that have resulted in a substantial increase in foreign trade. The most significant phenomenon in Turkish foreign trade policy was the establishment of a Customs Union between the EU and Turkey on January 1, 1996. This key moment initiated the period required for a legal infrastructure to harmonize trade strategy with EU standards and thus export and import regimes were brought into line with EU norms.

The main Turkish customs regulations and foreign trade in Turkey

Turkish Customs Code corresponds essentially to the customs EU rules.

Relevant organs, controlling foreign trade:

  • Management of foreign trade of Turkey: governs all aspects of foreign trade of Turkey
  • Customs office in Turkey is responsible for the observance of the rules on foreign trade customs borders

Turkish customs tariff: customs duties are levied in Turkey during import based on customs tariff database, based on the principles of the customs valuation in accordance with the nomenclature of the customs tariff.

The definition of the tariff base in Turkey: customs tariff base is formed in accordance with the provisions of the agreement on implementation of article VII of the General Agreement on tariffs and trade (GATT).

The definition of the base for calculation of VAT for imported goods in Turkey: the basis for calculating VAT consists of the following amounts:

  • The price of imported goods, which is the basis for the calculation of customs duties in the absence of the base of the customs tariff, value of the goods according to the formula - cost, insurance, freight, if such a value is not defined, the price is determined by customs.
  • All taxes, fees and charges payable in the case of imports.
  • Other costs and expenses incurred prior to the registration of customs statements, as well as any price and exchange difference, calculated on the basis of the value of the goods.

Basic customs regimes in Turkey:

  • Customs warehouse mode
  • Mode processing of goods within the customs territory
  • The processing mode of the goods outside of the customs territory
  • Regime of temporary import
  • Processing under customs controls regime
  • The transit regime
  • Export mode

(first 5 modes are "customs regimes with economic impact")

Penalty on customs payments in Turkey

In the customs legislation, it is provided 2 types of penalties on customs payments:

  • Penalties levied as a result of operations, causing tax losses
  • Penalties related to violations (procedural irregularities)

Fines are levied regardless of whether the taxpayer's actions are intentional or not.

Imports of goods to Turkey

Import to Turkey remains the subject of a variety of control measures provided for by the legislation of Turkey in part of import regime. These regulations and measures define the system of import tariffs, as amended in accordance with special agreements between Nations and exemptions from customs duties and/or permissions on certain products. In accordance with the rules of the import regime of Turkey, imported goods may be divided into 3 groups:

  • Goods imported with permission: permission may be required for special bodies, such as the Ministry of agriculture and agrarian relations, Ministry of health, the Ministry of defense, the Ministry of environment and forestry, Turkish Atomic Agency, etc. Moreover, some goods can be imported only by authorized agencies, for example, weapons (imported by the army), paper money (imported only by the Central Bank of Turkey), etc.
  • Goods prohibited from importation to Turkey: the importation of certain products is strictly prohibited:
  • Free imported goods: most goods can be imported freely based on the payment of customs duties and contributions to certain funds (if required) at varying rates. Except for the goods to be imported with permission, any importation may be carried out through the mediation of any bank authorized to operate foreign exchange cash.

Import documentation: Turkey is in the Customs Union since January 1, 1996, import documentation is carried out mainly in accordance with the system of the European Union. The original invoice must accompany the goods to be imported. Import permit (if required) is available to customs in order to install the transparency of customs goods.

All documentation and information must be kept for 5 years for control by the Customs authorities.

Import duties in Turkey: based on a Customs Union between Turkey and the EU; Turkey has eliminated all customs duties applicable to imports of industrial products from the EU and began to apply the common customs tariff of the community to imports from third countries.

Exemption from customs duties shall be granted on the basis of the certificate of investment incentives. Reimbursement of customs duties in Turkey is also possible for companies importing goods for use in the manufacturing of goods manufactured for export.

Value added tax (VAT) is applied to imported products at prevailing rates (1%, 8%, and 18%). VAT is paid on imported goods, non-refundable, as VAT paid and VAT received is calculated from sales of goods and services. Since August 1, 2002, VAT standard rate of 18% was implemented instead of higher VAT rates. The difference between the standard rate and the higher limit (26% and 40% who applied prior to August 1, 2002) is now offset by "the special consumer tax" that began to apply from August 1, 2002

Imports within the framework of the promotion: imports of machinery and equipment investment incentive Certificate is governed by the laws of Turkey on stimulation and is exempt from VAT and customs duties.

The conditions to be considered by an importer in Turkey: any individual or legal person holding individual tax identification number, may be considered as an importer. However, in accordance with the customs legislation of Turkey, importers must provide an information folder containing the certificate of registration with the Chamber of Commerce and industry, a copy of the newspaper trade register, card signatures of authorized persons and written authorization to the appropriate customs authorities.

Exports to Turkey

Export procedures have been simplified in Turkey export regime, in order to increase exports of Turkey. All products can be freely exported, except those requiring approval by the Office of foreign trade. This applies to rice, oilseeds, vegetable oils, animal feeds, fertilizers and live animals. Specific exports require permits from other ministries, and some articles for export are prohibited.

The rules governing the protection of the Turkish currency in export operations, until February 8, 2008:

Income in foreign currency received from exports of goods for commercial purposes must be brought into Turkey by exporters within 180 days. There is a specific exception to this rule. If 70% of foreign currency proceeds resulting from export, imported into Turkey and placed in the Bank to convert TL within 90 days from the moment of the export transaction, the exporter can freely use the remaining 30%; he can import them into Turkey or use outside the country.

The rules governing the protection of the Turkish currency in export transactions, effective from February 8, 2008:

Exporters can freely bring into Turkey proceeds in foreign currency in the case of export of goods exported for commercial purposes, on February 8, 2008.

The requirements for obtaining the status of exporter in Turkey:

Any individual and legal entity or joint venture that has the individual tax number and a member of the Association of exporters may be an exporter in Turkey. In addition, in accordance with the customs legislation, exporters must provide an information folder containing the certificate of registration in the trade or industry, a copy of the newspaper trade register, a list of certified signatures of the authorized persons and the power of attorney to the appropriate customs office.

Registration and licensing in Turkey

For the establishment of any units (companies, representative offices, branches) in Turkey, there are the following formalities:

  • Registration of a trademark must be in accordance with government standards for the protection of trademarks.
  • Registration of commercial names is carried out together with the Ministry of industry and trade.
  • All traders should be registered in trade or Commerce of the place for the conduct of its business.
  • Commencement of operations of the permit must be issued by municipal authorities.
  • Registration with the provincial Department of the Ministry of labor and social protection is required.
  • Real estate objects made as capital must be registered in the land registry office.

Control of pricing and anti-monopoly policy Turkey

In General, in Turkey, there are no price controls. However, the Turkish Government sets prices for certain goods and services. Moreover, prices for medical services are controlled by the Ministry of health of Turkey.

Turkish law prohibits unfair competition in accordance with the rules of a mandatory code, the Turkish commercial code and specific laws issued solely for the purpose of protecting healthy competition, namely, Antimonopoly Law of Turkey.

Merge and transfer ownership of companies with common shares of more than 25% of the total volume of sales on the market, equal more than 25 million.

In case not in the Council for Antimonopoly Policy of Turkey within the prescribed period, to inform them of the merger or transfer of ownership of a company or non-receipt of permission for merger transaction or transfer of rights, penalties are imposed.

The monitoring of money circulation in Turkey

Appropriate legislation on money transfers in Turkey

Remittances from Turkey and turnover in Turkey are regulated by Act No.1567, protecting the value of the national currency of Turkey and the Decree on the protection of the value of Turkish currency, includes also other rules on the transfer of foreign currency and capital, credit transactions and money transfers for the purposes of various transactions.

Domestic direct investments in Turkey

Organizations and individuals may freely invest in Turkey without any restrictions on the size and form of investment. The most common type of investment company-Turkish subsidiary company. Here there are no requirements for equity participation in the capital or form control. Foreign investors may also participate in any shares of local companies through portfolio investment.

Repatriation of funds

Rules for the transfer of foreign capital and dividends abroad established in law No. 1567, protecting the value of the Turkish currency. In accordance with these regulations, foreign investors have the same rights and obligations as domestic investors. The rules also guarantee the transfer of profits, fees, and royalties, as well as the repatriation of capital in case of liquidation or sale.

In accordance with the new law on foreign direct investment restrictions on the transfer of dividends, interest and royalties abroad. However, for specific types of income paid to non-residents with a source of tax on income or profits tax.

a) the distribution of dividends to foreign investors in Turkey

Foreign investors/shareholders holding a certain percentage of equity may receive their dividends through banks without any restrictions. Transfer of such proceeds shall be carried out upon request of a foreign investment company, and the details of such transactions must be notified by the Office of foreign investments and the Office of the Exchequer.

After the completion of the accounting period, the company may transfer abroad dividends declared at the annual general meeting of shareholders, subject to the proviso that the withholding tax on dividends properly calculated, withheld and paid to the tax authority. In accordance with the Law on foreign direct investment, companies with foreign capital must fill out a form on an annual basis, on the basis of which they must provide the following information in the Office of foreign investments of the CRIMINAL CODE before the end of May next year, together with the balance sheet and statement of profit and loss report for the reporting year:

  • Information about the company
  • Information on the capital structure (interest share of shareholders)
  • Information on foreign shareholders
  • Information about transfers of dividends (amount of transfers in TL and United States dollars, the country of destination, transfer date of transfer)
  • Information about royalties, know-how, technical cooperation and payment of franchise
  • Information about foreign trade transactions (import/export)
  • Information on the number of employees
  • Information on production volumes
  • Information on the investments made in the respective year

But under the new law on foreign direct investment companies with foreign capital should only provide information about transfers abroad on the basis of a form (annex 1 to the directive of the law on foreign direct investment).

b) Dividend Distribution

In accordance with the Turkish commercial code, the company can distribute dividends to earnings received in the previous reporting year. In accordance with the new law on profit tax, companies now are allowed to distribute interim dividends in certain boundaries, as set out in the communiqué No. 1 Law on profit tax, if the necessary provisions are included in the Charter of the United Nations concerning the distribution of interim dividends. (However, this rule is now canceled by the decision of the Court of appeal) social organization, made in Istanbul Stock Exchange list can also distribute interim dividends in compliance with the essential requirements of the Turkish law on a stock market. With dividend distribution charged to income tax on dividends, depending upon the tax status of shareholders receiving interim dividends.

c) managerial, licensing, know-how payments, royalties and interconnection agreements for franchisees:

All management fees and royalties can be transferred to companies residents of Turkey in the currency of the recipient country.

If payments are made on the basis of annual turnover or on a similar basis, should the agreement between a foreign investor (beneficiary/licensor) and company in Turkey (the licensed user/licensee). Based on the new law on foreign direct investment, such agreements are no longer required to be registered and approved in the Office of foreign investments.

g) cost sharing agreement:

Costs incurred by head offices located abroad can be attributed to the Turkish branches (in cases when the costs relate to income generation activities of the Turkish affiliate and calculated through the key distribution, in accordance with the principle of equality and lack of interest of the parties ("arm's length")).

d) Salaries of foreign workers (expatriates):

Foreigners working in Turkey can translate their earnings in foreign currency after deduction of applicable taxes.

e) Other money transfers:

Basically, any amount of foreign currency can be transferred from the country, regardless of the destination of the transfer. However, information on the transfers of amounts in excess of $ 50000 should be transferred to operating bank in Turkish Central Bank within 30 days from the date of transfer.

f) use of undistributed dividends:

Undistributed dividends and not stored as emergency reserves can be classified as equity. Add a residual dividend to equity not regarded as dividends and thus, they are not subject to income tax on dividends.

Transfer of shares in the Turkish companies with foreign capital

Transfer of shares of foreign shareholders of local shareholders or other individuals and legal entities-residents of Turkey no longer requires the permission of the office of foreign investments. Sales of shares can be determined by the parties.

Information on transfers of shares, made by local or foreign shareholders or any local or foreign investors outside the company should be in the form of a transfer of the share of foreign direct investment within one month following the date of the transfer of shares.

In addition, the companies pass the capital inside the country must also inform the Office of foreign investment within one month following the date of transfer of shares by filling out the form on the transfers of shares (annex III of the directive) in the case of:

  • Foreign shareholder participates in the capital of the organization or
  • The increase in share capital in the organization is funded by a foreign shareholder.

In accordance with the rules of the new law on foreign direct investment, transfer of shares in companies with foreign shareholders and foreign capital does not require any permission of the Office of foreign investments.

External direct investment (capital transfer from Turkey)

Treasury Department allows residents of Turkey's external direct investments by capital cash transfers through banks or in the form of capital in kind in accordance with the customs legislation (requirement to obtain permission to transfer the amount of capital that exceeds $ 5 000 000 lifted from December 30, 2006).

The accounting policies of Turkey and the principles of record keeping

According to Turkish tax code, all resident companies and Turkish branches of foreign organizations are required to keep records in accordance with the common Accounting Plan and in accordance with the accounting principles set out in the communiqué on accounting. Records must be kept for 5 years. There are initiatives to harmonize accounting in accordance with international financial reporting standards (IFRS) through the stock market Act and Brief the Turkish commercial code.

Summary of the Turkish Commercial Code stipulates that all accounting systems Turkish enterprises should be brought into line with Turkish accounting standards, which will be upgraded in accordance with the financial standards worldwide.


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