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Country overview

1 Give an overview of the country’s economy, its structure and main characteristics, and prevailing government economic policy, particularly as regards foreign investment.

A natural gateway connecting Europe and Asia, Turkey is geographically proximate to Europe, the Middle East, North Africa, Russia and the Turkic states. The workforce is also accessible to foreign investors because of the relative weakness of the Turkish lira against the euro and US dollar.

There were two elections during 2015 and 2016, followed by a failed coup and a post-coup purge of state officials, along with a constitutional referendum in 2017. Despite the turbulence and the state of emergency declared following the coup attempt, Turkey is still stable, especially in comparison with its neighbours.

The main driving force behind the Turkish economy is urban construction and infrastructure projects. Looking at the overall size of the economy, it can be said that Turkish industry has much room for improvement to add value to the economy.

Turkey has a liberal foreign investment policy and aims at equal treatment of foreign and local investors.

Legal overview

2 Describe the legal framework and legal culture in your jurisdiction as regards business and commerce.

Turkey has adopted the national law system, consisting of public and private law. The Turkish legal system has adopted the principles of supremacy of law and separation of powers.

The Turkish legal system has been modelled on various European law systems such as French, German, Swiss, Italian and Austrian law. There have also been significant legal developments to facilitate foreign investments.

Commercial practices are supervised by government authorities, which may impose monetary and administrative penalties on companies. Each year a significant number of companies face sanctions for commercial malpractice. To this end, it would be fair to conclude that the Turkish commercial space is well governed and supervised by the government in line with related legislation, with a culture of litigation.

3 What are the main sources of civil and administrative law applicable to companies?

The main sources of civil law are the Turkish Commercial Code, Turkish Code of Obligations, Turkish Civil Code, Intellectual Property Rights Law, Industrial Property Law and International Private and Civil Procedure Law, while the Turkish Constitution, Turkish Criminal Law, Tax Law, Labour Law, Enforcement and Bankruptcy Law and Administrative Jurisdiction Procedures Law are the main sources of administrative law.

Dispute resolution

4 How does the court system operate with regards to large commercial disputes?

The procedural rules do not make any distinctions based on the size of commercial disputes. One difference in that regard would be in the examination of commercial records, considering that large commercial disputes usually involve large companies or long-lasting commercial relationships, rendering the examination of records more complex.

5 What legal recourse do consumers typically have against businesses?

Consumers can resort to the Arbitration Committee for Consumer Problems for certain claims, and this is a swift remedy for consumers, as the process takes about six months, which is quite fast given that court proceedings usually take about two years. Class actions are always a concern for businesses as they may provoke media coverage and ultimately place a significant financial burden on the business. There is no plaintiffs’ bar in Turkey, but one can petition the bar association to be assigned an attorney.

6 How significant is arbitration as a method of dispute resolution?

Use of arbitration has increased significantly in international business transactions owing to globalisation and transnational disputes, especially with the establishment of the Istanbul Arbitration Centre. Courts are, however, still seen as the first option.

7 What other methods of dispute resolution are commonly used?

Mediation, which is a fairly new concept in the Turkish legal system, is another dispute mechanism used in Turkey.

8 How easy is it to have foreign court judgments and foreign arbitral awards recognised and enforced in your jurisdiction?

The Law on International Private and Civil Procedure stipulates the recognition and enforcement of foreign arbitral awards in Turkey. For an arbitral award obtained in a foreign country to gain effect in Turkey, the award must be recognised and approved by Turkish courts. The recognition lawsuit or the enforcement lawsuit may take approximately two years.

Foreign investment and trade

9 Outline any relevant treaty organisations, economic or monetary unions, or free trade agreements.

Turkey is a party to many treaties, including accession treaties for membership of the Organisation for Security and Co-operation in Europe (OSCE), NATO and the United Nations (www.mfa.gov.tr/sub.en.mfa?7cafe2ef-78bd-4d88-b326-3916451364f3).

Turkey maintains close cooperation with the monitoring bodies of the Council of Europe and is party to almost half of the Council of Europe’s Conventions and Protocols.

Turkey entered into the Ankara Agreement with the European Economic Community in 1963, which was then extended by the Customs Union Decision in 1996. Turkey signed the Free Trade Agreement with the European Coal and Steel Community in 1999.

Turkey also has free trade agreements with several countries.

10 Are foreign exchange or currency controls in place?

The main regulation relating to exchange controls is the Council of Ministers’ Decision on the Protection of the Value of Turkish Currency. Pursuant to the decision, considerations regarding net profits, dividends, proceeds, liquidation and indemnification, royalty, any of which arises from the activities and operations of foreign investors in Turkey, can be transferred abroad through banks without any restrictions.

The following rules are significant in this regard:

  • Foreign currency can be imported and exported without any restrictions.
  • Residents in Turkey may freely possess and purchase foreign currency, hold foreign currency with banks and dispose of foreign currency in and out of Turkey through banks.
  • Residents in Turkey can accept payment in foreign currency from non-residents, for transactions to be conducted in Turkey in favour of such non-residents.
  • Non-residents can purchase foreign currency.
  • Residents in Turkey and non-residents may freely transfer foreign currency abroad through banks.
  • The transfer of an amount exceeding €10,000 should be carried out in compliance with the rules set out by the relevant ministry.

11 Are there restrictions on foreign investment?

As a rule, there are no restrictions on foreign investment, and Turkey considers foreign and local investors equal.

As an exception to this rule, the rights of foreign natural persons and foreign legal persons with respect to acquisition of real property in Turkey could be restricted by a decision of the Council of Ministers.

Foreign natural or legal persons acquiring real property without any buildings should submit the project they will develop on the acquired real property to the approval of the relevant ministry. The relevant ministry will send the project to the land registry to be entered as a note in the land registry.

Foreign natural persons, foreign legal persons duly established under foreign laws and international organisations may hold real property subject to legal restrictions. Companies with foreign capital where foreign investors hold 50 per cent or more of the shares or may appoint or dismiss the majority of the persons who have the right to govern may acquire and use real property and restricted real rights in Turkey to carry out the activities contained in their articles of association.

12 Are there grants, incentives or tax reliefs for foreign investors or businesses?

Upon receipt of the necessary certification, incentives could include:

  • customs duty exemption;
  • exception for and refund of the value added tax (VAT);
  • interest support on financing;
  • contribution to the social security employer premium;
  • support related to income withholding tax;
  • reduction in corporate tax; and
  • allocation of land.

13 What are the main taxes that apply to cross-border or foreign-owned business and investors?

There are two main income taxes: individual income and corporate income.

Natural persons’ income is subject to an individual income tax rate that varies from 15 to 35 per cent.

Companies, cooperatives, public economic enterprises, economic enterprises owned by associations, foundations and joint ventures are subject to corporate income tax, which is levied on business profits as 20 per cent.

The generally applied tax on expenditures is VAT, which is generally applied at 1, 8 and 18 per cent.

Banking and insurance company transactions remain exempt from VAT, but are subject to a banking and insurance transaction tax, whose rate varies from 1 to 5 per cent.

No tax is levied on sales from foreign exchange transactions.

Stamp duty applies to a wide range of documents. It is levied as a percentage of the value of the document at rates ranging from 0.189 to 0.948 per cent or is set as a fixed amount for some documents.

Regulation

14 Which industry sectors are regulated or controlled by the government?

The main regulated sectors are banking or payment systems, tourism, agriculture, nourishment, medical or health, energy, transportation and retail.

15 Who are the key industry regulators, and what are their powers?

  • The Ministry of Economy determines the main policies and targets concerning foreign trade in goods and services.
  • The Ministry of Energy and Natural Resources regulates usage and consumption of natural resources.
  • The Ministry of Food, Agriculture and Livestock regulates agricultural and husbandry practices.
  • The Ministry of Customs and Trade generates, enforces and supervises the policies and practices promoting competition, entrepreneurship and economic growth in the realms of customs and trade.
  • The Ministry of Finance carries out implementation, monitoring and auditing of fiscal policy.
  • The Ministry of Health plans, coordinates and cooperates with all relevant internal and external stakeholders to provide human-oriented sustainable healthcare services.
  • The Ministry of Science, Industry and Technology develops and implements policies, strategies, plans and programmes on science, industry and technology.
  • The Ministry of Transport, Maritime Affairs and Communications provides and monitors transport, information and communications services for all users.

16 What are the other main enforcement authorities relevant to businesses?

These include the Revenue Administration, Competition Authority, Banking Regulation and Supervision Agency, High Council of Radio and Television, Capital Markets Board, Information and Communication Technologies Authority, Energy Market Regulatory Authority, Tobacco and Alcohol Market Regulatory Authority, and the Public Procurement Authority.

17 On which areas have regulators particularly focused their recent enforcement activities?

The regulators have focused on the enactment and implementation of the secondary legislation on Law on Protection of Personal Data (the DP Law) and implementation of the new Industrial Property Law which came into effect on 10 January 2017.

Compliance

18 What are the principal bribery, corruption and money laundering concerns for businesses?

The Turkish Criminal Code prohibits the direct and indirect bribery and bribery of foreign officials, in addition to private commercial bribery for publicly traded joint-stock companies. It also contains provisions on laundering of proceeds of crime and leniency for real persons for certain corruption crimes including bribery and laundering of proceeds of crime. Corporations can be held liable through administrative fines and other measures.

19 What are the main data protection and privacy risks for businesses?

The DP Law sets forth the conditions for the processing of personal data, which are, principally, obtaining the data subject’s explicit consent and being authorised by law. It states that where the interests of Turkey or the data subject will be seriously undermined, personal data may be transferred abroad with authorisation from the board. There is no guidance regarding how personal data will be transferred between group companies or the process that foreign companies will need to follow to prove that they provide an adequate level of protection of personal data. Also, the Personal Data Protection Board, in its official website, published the 'Draft Regulation on the Data Controllers’ Registry' (Draft Regulation) for public opinion for a certain period. The Draft Law requires non-resident data controllers to register to the Data Controllers’ Registry via a local representative, which was not regulated as an obligation under the DP Law, without defining any conditions or criteria which give rise to the obligation. In fact, the DP Law implies that assignment of a representative is optional. The Personal Data Protection Board, after gathering public opinion, continues working on the Draft Regulation. The Draft Regulation is not in force yet and it may be subject to changes. Implementation of the DP Law will be clearer once there are established Personal Data Protection Board decisions and/or guides on the matter and the relevant secondary legislation has been enacted.

20 What are the main anti-fraud and financial statements duties?

Companies shall prepare an income statement and financial statements that explain the relation of assets and liabilities in the beginning of the commercial activities and at the end of every operating period. The balance sheet and the income statement shall constitute the year-end financial statements.

Year-end financial statements shall be prepared in compliance with the Turkish accounting standards, be clear, and be prepared within such time as required by a regular course of enterprise operations.

Year-end financial statements shall be prepared in the Turkish language and in Turkish lira.

The board of directors of a joint stock company (that is controlled by another company) should prepare a dependency report, which explains the transactions conducted with its controlling company and other group companies, for each ordinary meeting of the general assembly. Within this report the controlled company should explain any loss it has incurred owing to transactions with, or under the instructions of, the controlling company.

21 What are the main competition rules companies must comply with?

The Turkish competition law regime deals with the following main concepts: (i) restrictive agreements, concerted practices and decisions, (ii) abuses of dominance, and (iii) merger control.

The regime prohibits:

  • agreements between undertakings, decisions by trade associations and concerted practices which have (or may have) as their object or effect the prevention, restriction or distortion of competition;
  • abuses by one or more undertakings, individually or through joint agreements or practices, of dominance in a market for goods or services within the whole or part of the country; or
  • concentrations that create or strengthen a dominant position, thereby significantly lessen competition in a relevant market in Turkey. The competition regime authorises the Competition Board to regulate which mergers and acquisitions should be notified to gain validity.

22 Outline the corporate governance regime.

The corporate governance regime is set forth in the Turkish Commercial Code (TCC) and its secondary legislation. Companies may tailor their own governance rules as permitted by non-mandatory provisions of the TCC.

Companies whose shares are traded on the stock exchange must comply with the corporate governance principles that relate to shareholder relations, public disclosure and transparency, stakeholders and boards of directors.

23 Can business entities incur criminal liability? What are the sanctions for businesses, related companies and their directors and officers for wrongdoing and compliance breaches?

According to the Criminal Code, entities cannot be held criminally liable. However, the following measures can be imposed on entities if the entity obtains an unjust benefit within the scope of the crimes explicitly mentioned in the Criminal Code: (i) invalidation of the licence granted by a public authority; (ii) seizure of the goods used in the commission of, or resulting from, a crime by the representatives of a legal entity; and (iii) seizure of pecuniary benefits arising from or provided for the commission of a crime. Administrative fines can be imposed on companies whose bodies or representatives commit the crimes listed in the Law on Misdemeanours (such as bribery, fraud, bid-rigging or money laundering).

In addition to the criminal sanctions that may be imposed upon the perpetrators (such as directors, managers, employees) of the crime committed, founders, members of the board of directors, managers and liquidators of the company can be held civilly liable to the company, its shareholders and its creditors.

Business operations

24 What types of business entity are most commonly used by foreign investors and why? What are the main requirements for their establishment and operation?

Among the different types of entities that can be formed, the limited liability company (LLC) and the joint-stock company (JSC) are the most common. A branch office of a foreign company can also be formed in Turkey.

JSCs are used by those who want to start large businesses. At least one shareholder and a minimum share capital of 50,000 lira are required for incorporation. The board of directors and general assembly are mandatory company bodies. Founders can be real persons or legal entities. A JSC is managed by its board. The board is composed of at least one director who could be a real person or a legal entity.

LLCs are used by those who want to start small and medium-sized businesses. At least one shareholder and a minimum share capital of 10,000 lira are required for incorporation. The board of directors and general assembly are mandatory company bodies. Founders can be real persons or legal entities. The company is managed by a board composed of at least one director who could be a real person or a legal entity, and at least one of the shareholders should be appointed as a director with unlimited authority to represent the company.

Branches of foreign companies may also engage in any commercial activities in Turkey within the scope of the activities and purpose of its headquarters. No specific minimum capital amount applies for branches. At least one of the branch representatives who resides in Turkey should be vested with full authority to represent the branch.

25 Describe the M&A market and the merger control regime. How easy is it to complete deals in your jurisdiction?

2016 was a challenging year for the M&A market in Turkey owing to the domestic and global political climate and weakened growth of the economy (https://www2.deloitte.com/content/dam/Deloitte/tr/Documents/mergers-acqisitions/annual-turkish-m&a-review-january-2017.pdf). The M&A market witnessed a total deal volume of US$ 7.7 billion through 248 deals resulting in the lowest deal volume since 2009.

The deal volume of foreign investors was low compared with previous years and the overall M&A volume dropped by 53 per cent.

Investors tended to focus on the internet and mobile services, technology, energy, manufacturing, financial services, food and beverage and healthcare sectors.

Communiqué No. 2010/4 lists the types of mergers and acquisitions that are subject to the Competition Board’s review and approval. Concentrations that result in a permanent change of control are subject to the Competition Board’s approval, provided that they exceed the applicable thresholds. Foreign-to-foreign transactions would also trigger a notification requirement if they exceed the turnover thresholds.

In practice, it is recommended that the filing be done at least 45 calendar days before the projected closing, except for high-risk concentrations or extremely complicated transaction structures that may require extensive discussions with the Competition Authority.

If following the notification, the transaction is found to be problematic under the applicable dominance test, it becomes a fully fledged Phase 2 investigation. Phase 2 takes about six months and if deemed necessary, may be extended only once, for an additional period of up to six months.

26 Outline the corporate insolvency regime. Is bankruptcy protection available for corporates?

Creditors who could not collect monetary receivables may prefer to commence bankruptcy proceedings. Bankruptcy lawsuits generally take more than one year.

The creditors may demand bankruptcy of a company by general bankruptcy, bankruptcy pertaining to commercial papers and bills, and direct bankruptcy.

A company can be terminated upon the decision of the Commercial Court of First Instance and go into liquidation.

If the company’s financial situation seems recoverable, bankruptcy may be postponed by the court at the request of managers, the board of directors or creditors. A recovery project should be presented to the court. However, as things stand, postponement of bankruptcy is no longer allowed, owing to measures taken during the state of emergency.

Employment

27 How easy is it to enter into and terminate employment contracts?

Every individual eligible to work can enter into an employment contract. However, termination of employment should only be considered as a last resort.

Fixed-term employment agreements terminate automatically upon expiry. Furthermore, parties of definite-term employment agreement can terminate the agreement with a valid reason if the other party breaches the agreement (if the fixed-term employment agreement is terminated by the employer without any valid or rightful reason before its term expires, the employee is entitled to compensation for the damage caused).

An employer who employs at least 30 employees must present a valid reason (as listed under the Labour Law) for dismissal of an employee who has worked for at least six months at a workplace under an indefinite-term agreement. Indefinite-term employment agreement can be terminated by prior written notice. The employer may also terminate employment agreement immediately, by paying compensation in lieu of notice.

An employer is also required to request the employee’s written defence before terminating employment agreement based on valid reasons.

Employers can immediately terminate an employment agreement based on one of the rightful reasons set forth under the Labour Law.

Employers’ right to terminate an employment agreement based on rightful reasons must be exercised within six business days after the employer becomes aware of the rightful reason or within one year of the rightful reason occurring. Notice periods are not applicable to terminations based on rightful reasons.

Employers and employees can also terminate employment by agreement. The validity of a mutual termination agreement relies on whether the relevant employee obtains a benefit. The employee’s benefit could be identified by financial inducement to accept the mutual separation agreement.

28 What are the key rights of local employees?

Employees rights include:

  • remuneration;
  • severance payment;
  • payment in lieu of notice;
  • overtime payment;
  • annual leave;
  • weekend leave; and
  • leave in general and public holidays.

29 What are the main restrictions on engaging foreign employees?

Foreigners intending to work in Turkey must obtain work permits. Employers who employ foreign employers must notify the Ministry of Labour and Social Security of the employment relation.

There are three types of work permits:

  • definite duration;
  • permanent; and
  • independent.

The employers or the foreign employees who have an independent or permanent work permit and who do not fulfil their obligation to notify the ministry may be subject to a monetary fine.

30 What are the other key employment law factors that foreign counsel, investors and businesses should be aware of?

Turkey is governed as a social state, which entails the protection of employees and thus interpretation of circumstances in favour of the employee. This means employers should duly document and support each action taken against the employee.

Intellectual property

31 Describe the intellectual property environment. How effective is enforcement and what are the key current issues?

Principles as to intellectual property (IP) are mainly set forth under the IP Rights Law, which mainly grants the following remedies for infringement of IP rights: (i) determination of the offence, (ii) prohibition of infringement and (iii) compensation claims. Many regional and international treaties on IP have also been adhered to by Turkey.

There is also a new legislation on Industrial Property that regulates many reforms and regulates trademarks, geographical indications, designs and patents in detail and in compliance with European Union regulations. Establishing a responsive system in order to substantially increase the number of applications for industrial property rights, harmonising the Turkish legislation with EU Law and abolishing the inconsistencies in the law are key objectives that led to the establishment of the Industrial Property Law.

The current key issues mainly revolve around the protection of recognisable brands and software, computer based intellectual properties as well as intellectual property right protection in scientific inventions.

Legal reform and policy

32 What are the key issues in legal reform, government policy and the economy?

As a part of the European Union accession process, the government is focusing on adaptation of national legislation to bring it in line with European Union regulations.

33 Are there any significant legal developments ongoing or pending? What are their effects on the business environment?

As a result of voting in the constitutional referendum held on 16 April 2017, a change to the political regime from a parliamentary system to an executive presidency will be put in effect during 2019.

Owing to a recent coup attempt, the government declared a state of emergency in July 2016 which introduced various measures and changes in the structuring of certain authorities. The term of the state of emergency has been extended. However, the current situation has not had an impact on the conduct of official authorities, and business is stable and continuing as usual at this stage.

Resources and references

34 Please cite helpful references, for example sources of law, websites of major regulators and government agencies.

None.

Published November 2016




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