Turkey 2015 (English & Chinese)

As of December 31 2014 there were 41,398 companies in Turkey which had foreign shareholders, 646 of which were COIs. The number of COIs was 112 in 2003 which increased to 540 at the end of 2013. This number gradually increased to 646 in 2014. The exceptional increase in the number of COIs illustrates the dramatic increase in Chinese investors' interest in Turkey.

Chinese investors have a wide range of investment fields in Turkey. They have a leading role in the mining sector. China is the third highest investor in the Turkish mining sector after Germany and the United Kingdom. Chinese investors have also focused on commercial trading, manufacturing, hotels and restaurants, sales, transportation, agriculture, maintenance and repair of motorised goods, construction, telecommunications and the generation and distribution of energy in Turkey.

The investment incentive scheme (see Section 4) introduced in 2012, among others, provides incentives for large-scale investments.

Large scale investment can be in relation to refined petroleum products, production of chemical products, harbour and harbour services, automotive OEM, automotive supply industries, production of railway locomotives and cars, transit pipeline transportation services, electronics production, production of medical, high precision and optical equipment, production of aircraft and spacecraft and/or related parts or production of machinery and mining. Large scale investments benefit from VAT exemption, customs duty exemption, tax reduction, contribution to investment by the State, social security premium support, land allocation and income tax withholding allowance.

In line with the Turkish government's 2023 targets for the centennial of the Republic, the sectors identified for large-scale investments provide a good guideline of where the government is seeking to attract foreign direct investment (FDI), including COI. If the target projects can be realised, they are expected to generate a trade volume of approximately US$1 billion between China and Turkey.

b. Is the government generally supportive of COI? Which government, and regional, bodies are responsible for driving COI in your jurisdiction?

Turkey attracted US$12.9 billion of FDI in 2013, a 38% increase from the previous year. According to the United Nations Conference on Trade and Development, Turkey, with an inbound FDI figure of US$12 billion, is the 19th highest FDI recipient country.

The bilateral trade volume between Turkey and China reached US$28 billion (Rmb175.2 billion). Also, statistics from the PRC Ministry of Commerce shows that Chinese non-financial FDI reached US$178 million (Rmb1.11 billion) in the first six months of 2014. This is an increase of 47.2%.

In order to attract US$80 billion of FDI per year by 2023, the Turkish government has incorporated the Republic of Turkey's Prime Ministry Investment Support and Promotion Agency (ISPAT) with the goal of providing assistance to investors before, during and after their entry into Turkey through a one-stop shop approach. The importance given to COI is illustrated by the fact that ISPAT provides assistance to potential investors in, among other languages, Chinese.

Section 2: Investment vehicle

a. What are the most common legal entities and vehicles used for COI in your jurisdiction? How long do they take to become operational?

Joint stock companies and limited liability companies continue to be the most common forms of legal entities for foreign investors. Chinese investors have chosen to facilitate their investments generally through limited liability companies. 602 of the entities which were incorporated by Chinese investors were limited liability companies, whereas 44 of them were incorporated as joint stock companies.

The procedures for the establishment and operation of these types of entities are quite similar and generally take around six business days once the required documentation is in place.

b. What are the key requirements for establishment and operation of these vehicles which are relevant to COI (e.g. is there a requirement for local directors)?

With the enactment of the Foreign Direct Investment Law (No 4875) (FDI Law) in 2003, foreigners and Turkish nationals have been subject to equal treatment. Accordingly, with the exception of a small number of special sectors, foreigners are subject to the same rules with respect to their investments as Turkish nationals/entities.

However, operationally, once a Chinese investor intends to employ foreigners, each foreign employee is required to obtain a work permit if the employee does not fall within the exceptional cases provided by the relevant legislation.

Section 3: Investment approval

a. For foreign investment approval (including any national security review) explain the approval process and timing.

As indicated above, the FDI Law diminished any prior approval requirements for FDI. However, if investing into a Turkish entity, the foreigner must notify the Ministry of Economy so that the inflow of FDI in Turkey can be tracked.

The notification carries more of a statistical purpose and therefore requires basic information in relation to the investment, such as where the foreign investment inflow is from, the purpose of the entity, the names of the relevant entities/individuals making the investment and the amount of the investment.

b. Briefly explain the investment restrictions for any specially regulated/restricted sectors (natural resources, financial services, telecoms and infrastructure etc.), including whether the government is entitled to any special rights (e.g. golden share) in those sectors.

While the FDI Law diminished any need to obtain an approval for foreigners to make investments in Turkey, there are still certain regulated markets which foreigners have limited access to due to certain specific legislations. For companies operating in the maritime and civil aviation markets, foreign shareholding is limited to 49% and the maximum foreign shareholding allowed for a broadcasting entity is 50%.

In relation to other regulated markets such as electricity, mining, petroleum, banking, telecommunications and civil aviation, prior approval of the relevant regulatory government agencies is required in order to effectuate a share transfer with companies which operate in such markets.

Aside from the limitations provided above, acquisition of real estate by foreigners is also subject to certain limitations which are worth mentioning. Accordingly, the total area of the real estate and limited rights in rem which a foreign real person can acquire in Turkey cannot exceed 30 hectares or 10% of the land of the relevant municipality subject to private ownership.

Only foreign legal entities which fall within the scope of a specific legislation such as the Tourism Encouragement Law (No 2634), the Petroleum Law (No 6491) or Industrial Zones Law (No 4737) can acquire real estate in Turkey.

Turkish companies controlled by foreign investors can acquire real estate in the country provided that the acquisition falls within the scope of activities provided in their constitutional documents.

Depending on the location, the acquisition of real estate by a foreign real person, a foreign legal entity or a Turkish legal entity controlled by foreign shareholders is subject to the approval of the commanderships which is authorised by the Turkish General Staff or the relevant Governorship.

c. Which authority oversees competition clearance, when is notification mandatory, and what is the merger clearance process (including whether pre- or post-closing)?

The Turkish Competition Authority (TCA) is the governmental body which ensures the formation and development of markets for goods and services in a free and sound competitive environment in Turkey. In order to achieve this goal, the TCA carries out antitrust reviews of transactions prior to their consummation if: (a) the total turnovers of the transaction parties in Turkey exceed YTL100 million (Rmb256 million), and turnovers of at least two of the transaction parties in Turkey each exceed YTL30 million (Rmb77 million); or (b) the turnover in Turkey for the acquired asset or operation in acquisition transactions or for at least one of the transaction parties in merger transactions exceeds YTL30 million (Rmb77 million), and at least one of the other transaction parties has a global turnover exceeding YTL500 million (Rmb1.28 billion).

Once the fundamental terms of the transaction are clear and the conditions are met, the parties of the transaction apply by completing a form. Following the submission of the application to the TCA, the TCA is required to respond to the clearance application within 30 days. In the event the TCA fails to respond within the said timeframe, the transaction will be deemed to have cleared.

d. Are there any unique processes that potentially could block a foreign investment, e.g. consent from labour unions?

Aside from the limitations and approvals provided above, there are no unique processes which could potentially block a foreign investment.

e. Are there approval requirements when a foreign investor increases or exits its investments?

Except for regulated markets where share transfers require the approval of a specific regulator and notification to the Ministry of Economy in relation to the FDI, there are no approval requirements when a foreign investor increases or exits its investments.

Section 4: Tax and grants

a. Are there tax structures and/or favourable intermediary tax jurisdictions that are particularly useful for FDI into the country?

Promoting growth and attracting FDI has played and continues to play a pivotal role in shaping policies in Turkey. For this purpose, various regional and sector-specific incentive schemes have been introduced and various double tax treaties have been put in place over the years.

While these generally are not FDI specific, they are useful for foreign investors in reducing the tax exposure of their investments, thereby giving investors more room for returns.

Incentive scheme

The Council of Ministers Decision (No 2012/3305) dated June 19 2012 introduced an incentive scheme with various advantages for both local and foreign investors.

The incentives system recognises four types of incentive implementations (i.e. general incentive implementation, regional incentive implementation, implementation for large-scale investments and implementation for strategic investments) and nine incentive items (i.e. support elements (destek unsurları)). These incentive items and their classification under the incentive implementations are as follows: