Key Developments Enhance Turkey’s Position as a Centre for International Investment  

By Görkem Bilgin, Managing Associate, Gün + Partners and Selin Başaran Savuran, Associate, Gün + Partners        

 Turkey has faced challenging times over recent years due to the turbulences in neighbouring countries, security concerns and a failed coup attempt. Foreign direct investment figures have inevitably been negatively affected by these unfortunate events. However, with its strong economy and solid efforts made by the Turkish government to improve the investment environment, Turkey remains an attractive location for foreign investors and continues to be one of the emerging markets offering many investment opportunities.

According to figures published by the Central Bank of the Turkish Republic, foreign direct investment reached USD 4.1 billion in the first half of 2017 with an increase of 50.1% when compared with the same period in 2016. Information revealed by the Turkish Ministry of Economy shows that investors from all over the world continue to invest in Turkey due to the many opportunities triggered by its solid economic fundamentals. The top twenty countries, which invested in Turkey between 2010-2017 include countries such as the Netherlands, Austria, the UK, Spain, the USA, Russia and Gulf countries such as the United Arab Emirates, Saudi Arabia, Kuwait and Qatar. There have been many features which have encouraged foreign investment into various sectors.

Turkey has a unique intercontinental position, acting as a bridge between Europe and Asia. This is particularly attractive for investors seeking to access multiple markets such as the Middle East and CIS countries. Due to the political uncertainties and security issues in the Middle East, many foreign investors choose Turkey to manage their regional operations in those countries.

Turkey has one of the most liberal foreign investment policy and legal regimes among the OECD countries and treats foreign and local investors equally. Although there may be sector specific restrictions, in general, there are no limitations on foreign ownership or control in Turkey. Foreign investors can establish their business without any restriction on nationality or place of residence. Investors can invest through various channels such as establishing a new company, a branch or liaison office or through share acquisitions.

Acknowledging the need for an improvement of international trade, Turkey continues to take important steps to increase its cooperation with other countries. It has been a member of the World Trade Organisation since 1995 and a member of the EU Customs Union since 1996. Furthermore, Turkey signs various regional and bilateral trade agreements for the liberalisation of trade reciprocally and the elimination of tariffs and quotas on international trade. Currently, Turkey is also party to Free Trade Agreements with 27 countries.

To develop a sustainable financial environment and attract foreign investment, the Turkish government established the Istanbul Finance Centre. Under the finance centre project, plans are underway to enable foreign investors to issue foreign exchange-based securities and to have leading roles within the country’s capital market.

Another feature attracting foreign investors’ attention is the extensive investment incentive regime. There are various investment schemes (i.e. general, regional, large-scale or strategic investment schemes), which provide valuable benefits to foreign investors such as customs duty exemption, VAT exemption, VAT refund and tax reductions, social security premium support, income tax withholding allowance, interest rate support and land allocation. In 2016, the incentive scheme was amended and introduced a project-based support system concerning projects with strategic qualifications for the country and projects covering medium and high technology industrial products. Again in 2016, a new and comprehensive law was introduced to provide special incentives for R&D and design investment projects in Turkey.

Turkey has an official organisation, the Investment Support and Promotion Agency (“ISPAT”) to promote Turkey’s investment opportunities. ISPAT provides various services such as consulting, coordination and business facilitation services, including the establishment of business operations, making incentive applications or work/resident permit applications etc. Foreign investors can benefit from the services of ISPAT free of charge while investing in Turkey.

Steps taken by the Turkish government to further develop foreign investment have also been supported by the Turkish legislator. In parallel to the approaches in the EU and across the world, structural reforms have been made in recent years to Turkish laws to create a more professional, transparent, equal and accountable business environment.

In 2012, the new Turkish Commercial Code (the ‘’TCC’’) and the new Turkish Code of Obligations entered into force, replacing the very old predecessors, to provide more flexibility to foreign investors. As a significant novelty, the TCC removed the restrictions on the single shareholder company and enabled foreign investors to establish a business in Turkey without the need for a Turkish business partner.

In 2016, the Law on Protection of Personal Data, which is very much in line with EU data protection laws, was published to ensure protection of privacy and personal rights. In the same year, the Law Amending Certain Laws for Improvement of the Investment Environment numbered 6728 was enacted (the “Amendment Law”) to reduce investment costs and create a more investor-friendly environment as well as encourage local and foreign investors to do business in Turkey. The Amendment Law amended various laws including but not limited to the TCC, bankruptcy law, various tax laws including corporate and stamp tax laws, the law regulating checks etc. Furthermore, a new Law on International Workforce was published to facilitate procedures for obtaining work permit/visa for foreign individuals and to support qualified foreign employment.

As of January 2017, a new Industrial Property Code was published to provide better protection to intellectual property rights in line with EU intellectual property laws. Finally, with the amendment of the Regulation on the Implementation of the Turkish Citizenship Law, foreign investors, providing that they meet certain requirements, can now obtain Turkish citizenship together with its combined benefits (such as access to all Schengen Zone countries, full and excellent medical assistance).

In addition to governmental and legislative movements, judicial reforms have been important to accelerate settlement of commercial disputes. Accordingly, the Istanbul Arbitration Centre (“ISTAC”) was established to provide new and efficient ways to resolve commercial disputes. Also, a mediation system has now been introduced to enable fast and easy completion of disputes and has recently been made compulsory for disputes between employees and employers.

Considering the concrete steps taken to provide a better environment for foreign investment, we believe Turkey has a promising future for investors despite the challenges Turkey has endured over the years.