Investment Guide For Foreign Investors In Turkey - Contracts and Commercial Law - Turkey (2024)

Investment Guide For Foreign Investors In Turkey

Turkey has been a good alternative for investors in recent yearswith its geographical, economic and demographic structure. Currenteconomic policies are shaped around the promotion and support offoreign investment. In this context, many innovations have beenmade in the foreign investment legislation that make investmentattractive in Turkey and make the investor's job easier.

Thanks to the economic and legal revision, the foreign investorscan complete almost all their business remotely by appointing aproxy in Turkey without having to come to Turkey personally. Theycan do some processing steps online over the internet. They can setup a business in Turkey in a shorter time and with less expensewithout having to travel many times and deal with bureaucraticprocedures.

1) What Are The Investments A Foreign Investor Can Make InTurkey?

There are many options for investors who want to invest inTurkey. Different investment opportunities are recommendedaccording to the way the investor arrives in Turkey. If theinvestor comes as a real person, he/she:

• Can be a partner in a company established in Turkey as a realperson,
• Can become a partner by taking over the shares of a companyestablished in Turkey,
• Can buy real estate,
• Can make fixed capital investment,
• Can buy securities.

If the investor comes as a legal person, he/she:

• Can establish a new company,
• Can open a branch, ( you can also find branch office procedureon this link https://www.solmazlaw.com/en/foreign-company-opening-a-branch-in-turkey/)
• Can open a liaison office,
• Can become a partner in a company in Turkey through his/hercompany established abroad.

The most advantageous type of investment should be determinedaccording to the expectations and wishes of the investor, aiming toget the maximum yield at the minimum cost.

2) Establishing A Company In Turkey

A foreign investor can establish any of the types of companiesspecified in the Turkish Commercial Code in Turkey. The investor iscompletely free to do business in the sector he/she wants and bycreating the kind of company he/she wants. All existingrestrictions on the line of business and field of activity forforeigners have been removed.

There are two types of companies in Turkish commercial law;equity companies and sole proprietorships. Capital companies are;joint stock companies, limited companies, limited partnershipcompanies and cooperatives. Sole proprietorships, on the otherhand, are ordinary companies, general partnerships and limitedpartnerships.

Capital companies are corporate structures. The most preferredtypes are joint stock and limited liability companies. In thesecompanies, company partners are in a safer position against companydebtors; because partners have no liability for company debts. Incapital companies, the partners are only obliged to pay the amountof capital they have committed to put into the company.

Sole proprietorships, on the other hand, are companies wherepersonal relations are at the forefront, not corporate. It is notmandatory to put up capital to set up a sole proprietorship. Theimportant thing is to establish a partnership relationship betweenat least two people.

To briefly mention the general characteristics of the mostpreferred company types:

2.1) Joint Stock Company

• A joint stock company is a type of capital company with a legalpersonality, whose capital is determined and divided intoshares.
• They can be established with two types of capital systems: withoriginal capital and with registered capital. In a joint stockcompany with original capital, the capital is at least 50,000Turkish liras. If the registered capital system is adopted, it ispossible to establish a joint stock company in Turkey with at least100,000 Turkish liras.
• Each share has an economic value. As a result of multiplyingthese economic values expressed by shares by the number of shares,the company's capital is found. The founders determine how manyshares will be in the company. Shares can be issued to stakeholdersfor shares.
• A joint stock company can be established with one or multiplepartners. There are two types: closed and public joint stockcompany. Closed joint stock companies are joint stock companieswith a small number of partners. In public joint stock companies,the number of partners is high. Apart from business owners, thereis a group that is involved in the company for investment purposes.There is no upper limit on the number of partners. However, jointstock companies with more than 500 partners are considered to beoffered to the public by law. This means that company shares can betraded on Borsa Istanbul and will be subject to the Capital MarketsLaw.
• Company partners have a share in the company at the rate of thevalue they bring to the capital. In other words, having a share inthe company means being a partner in the company. Partners earndividends from the profit received in the measure of theirshare.
• Joint stock companies can be established for any economicpurpose and subject not prohibited by law. In Turkish law, it isobligatory to establish a joint stock company in order to dobusiness in some branches of activity. Banking, insurance,brokerage houses and investment partnerships, financial leasingcompanies, public stores, financing and factoring companies must beestablished as joint stock companies.
• The company is only responsible for the debts of the companylimited to its own assets.
• Partners are not liable for company debts. The partners of thecompany are only obliged to pay the amount of capital they havecommitted to put in the establishment phase against the legalentity of the company. The partner who pays the capital investmentdebt does not have any responsibility for the debts of thecompany.
• In joint stock companies, investors are only at risk of losingthe capital they have committed to.

2.2) Limited Liability Company

• Another type of capital company with legal personality that canbe established by one or more real or legal persons is a limitedliability company.
• The number of partners cannot exceed 50.
• Its capital is specified in the articles of association.Capital refers to the total value of shares. It is possible toestablish a limited liability company with at least 10,000 Turkishliras.
• A limited company can be established for any purpose andsubject that is not prohibited by law.
• Partners are not liable for company debts. The partner, whofulfills the capital share and additional payment obligation thathe/she has committed to pay to the company at the establishment ofthe company, is not responsible for the company's debts. Thecompany's creditors can only apply to the company's assetsfor their receivables. The company is responsible for all debtslimited only to its assets.
• Shares cannot be issued as negotiable instruments for limitedcompany shares. The only company type in Turkey that can issuesecurities in the name of its shares is a joint stock company.

2.3) Collective Company

• It is a sole proprietorship and has legal personality.
• Only natural persons can establish a collective company. It isestablished by the partnership of at least two natural people.
• Company assets are primarily responsible for company debts. Fordebts whose assets cannot meet, each of the partners is unlimitedlyliable for all of these debts with their own assets.
• There is no minimum amount of capital to be brought into thecompany.

2.4) Limited Partnership

• It can be established by at least two people, one active andone dormant. Active partners are natural persons; dormant partnerscan be natural or legal persons.
• This separation of partners was made according to theprinciples of liability for debts. The active partner is thepartner with unlimited liability for the debts of the company andwith all his/her assets, and the dormant partner is the partnerwith limited liability for the debts.
• There are two types as ordinary limited and sharedlimited.

2.5) Ordinary (Private) Company

• An ordinary company is the simplest type of company. It has nolegal entity.
• It can be established with at least two partners.
• There is no minimum amount of capital to be brought.
• Since the company does not have an independent personalityseparate from the partners, all the partners jointly own the assetsof the company.
• Each of the partners is responsible for all debts of thecompany with their own assets and unlimitedly.
• No procedure is required for the establishment of the company,even verbal understanding is sufficient.

2.4) Joint Venture

• Joint ventures are contractual relationships frequently used bycompanies while integrating into foreign markets. In internationaltrade, companies can also sell manufactured goods and services inother countries through joint venture contracts.
• They can be established by two or more natural or legalpersons.
• There is no minimum capital required to be invested in thecompany.
• When entering a new market, companies seem to prefer thesestructures, called joint ventures, for purposes such as sharingrisks and receiving technical or technological support.
• Each of the companies establishing joint ventures creates a newcompany by maintaining their own autonomous structure. Although thecompanies continue to be independent of each other, they arejointly responsible for all debts of this newly formedcompany.
• It is subject to the provisions of the ordinary company.
• It is possible to establish a limited joint venture for acertain purpose or for a certain period of time.
• It can be established as a contractual joint venture and acapital-based joint venture.
• They are quite easy to establish and there are no specialprocedures. A simple contract is enough.

3) Company Establishment Procedures

A foreign investor does not need to obtain permission orapproval from any authority to establish a company. E-TUYS(Electronic Incentive Application and Foreign Capital InformationSystem) is sufficient to inform the General Directorate ofIncentive Implementation and Foreign Capital by forwarding thecompany information online. Capital, share transfer and activityinformation reports can be sent via e-TUYS. Apart from this, thecompany must fulfill the necessary procedure for itsestablishment.

Company establishment procedures in Turkey are carried outthrough the central registration system called MERSIS. The foreigninvestor must first obtain a tax number from the tax office fortransactions. A foreign investor can be identified as a partner orofficial of the company with a passport number. Then, he/she shouldapply to the Trade Registry Office and request to be defined as auser in the MERSIS system.

Articles of association is prepared in Turkish, in MERSIS. Thepotential identification number of the company is also issuedautomatically through this system.

The establishment of joint-stock, limited liability, limited andcollective companies is carried out by the registration process tobe made in the Trade Registry Offices within the Chambers ofCommerce. To establish a company in Turkey:

• Articles of association should be prepared, and the title,subject, headquarters, managers, capital and shares of the companyshould be determined in the contract.
• The contract is signed by the partners or the representativesassigned by the notary public, and these signatures are certifiedby the notary public.
• Apostille annotation of all documents issued abroad is takenand approved by notaries or consulates.
• The signatures of the persons authorized to sign on behalf ofthe company title are approved by the trade registrydirectorates.
• At least 1/4 of the capital committed in joint stock companieswith the share of the competition institution is deposited in abank account opened in the name of the company.
• All approved documents and contracts must be registered inMERSIS, the electronic database of the Trade Registry Office.
• In the last step, a request is made to the Trade RegistryOffice for the company to be registered in the trade registry.

With the registration process, the company is officiallyestablished.

After that, transactions such as the approval of the commercialbooks and the receipt of the tax plate are completed.

Depending on whether the foreign investor is a natural or legalperson, the documents and transactions required during and afterthe establishment varies.

• For Foreign Investor Real Person Establishing aCompany:

In order for the foreign investor to establish a company inTurkey or to take over the shares of the Turkish company, inaddition to the above, a translated notarized copy of the passportand potential tax number must be submitted. He/she should also opena bank account on the potential tax number.

If a natural person is going to establish a sole proprietorship(such as a collective, joint venture or ordinary company), he mustalso obtain a work permit. After 5 years of residence with aresidence permit, he/she must apply for a work permit and obtain apositive result at the end of 5 years.

Members of the board of directors of a joint stock company whodo not reside in Turkey and foreign partners of limited liabilitycompanies who are not authorized do not have to obtain a workpermit.

• For Foreign Investor Legal Entity EstablishmentTransactions:

In addition to the company establishment documents listed above,the investor legal entity must also submit the original andnotarized translation of the apostille annotated activitycertificate issued by the chamber of industry or commerce,consulate or courts where the company is registered.

4) Investment By A Foreign Investor Through Taking Over TheShares

It is also possible for a foreign investor to invest by takingover the shares of an existing company instead of creating a newcompany in Turkey. For taking over the shares, the investor isrequired to submit a translated notarized copy of passport,potential tax number.

Since registered and bearer share certificates can be printed injoint stock companies, the transfer of shares is possible with thetransfer of the certificates and clearing of accounts. The transferof shares in joint stock companies is free and cannot belimited.

In limited companies, in order for the shares to be transferred,all old and new partners must sign the transfer agreement and thisagreement must be approved by the notary public and the generalassembly of the company. The share transfer agreement and theapproval of the general assembly must be registered and announced.( You can find share transfer details on this link also https://www.solmazlaw.com/en/share-transfer-in-limited-companies/)

5) Opening A Branch Of A Foreign Company In Turkey

• A foreign investor company may also consider evaluating itsinvestment by opening a branch in Turkey. Branches are establishedunder the parent company and limited to its field of activity andduration.
• They do not have an independent personality.
• There is no minimum capital requirement to establish abranch.
• Branches must be registered in the trade register, just likecompanies. For this, you must apply to the Trade Registry Officewith the necessary documents.
• It is possible to return the profit of the branch to the parentcompany. Although the branch profit sent to the head office issubject to 15% dividend withholding tax, this rate may decreasewith double taxation agreements.

6) Establishment Of A Liaison Office In Turkey For A ForeignCompany

• Liaison offices can be established in Turkey only for thepurpose of conducting market and feasibility studies. They cannotengage in commercial activity.
• It is obligatory to obtain permission from the Ministry ofIndustry and Technology to establish a liaison office.
• In the application for the liaison office, a maximum of 3 yearsof activity is determined. Offices wishing to continue theiractivities at the end of 3 years must apply to the Ministry ofIndustry and Technology, General Directorate of Incentive Practiceand Foreign Capital.

7) Which Currency Can The Investor Use?

• It is possible for the foreign investor to use foreign currencyin Turkey's sales, lease, employment, license, consultancy andservice contracts including brokerage, air transportation contractsand contracts signed with public institutions.
• Again, it is possible for foreigners to conclude employment andservice contracts in foreign currency on branches, representativeoffices, liaison offices, companies in which they directly orindirectly hold 50% or more shares or have joint control orcompanies over which it has control are employers or servicerecipients.

8) Work Permit For Foreign Investors

The first of the requirements that an investor who makes aninvestment in the form of establishing a company in Turkey orbecoming a partner in an established company by purchasing sharesis undoubtedly the work permit he/she must obtain for him/herselfand his/her foreign employees. The work permits to be obtained by aforeigner who establishes a company in Turkey or becomes a partnerin a Turkish company, differ from the general regulations regardingwork permits in Turkish law.

A foreign investor must obtain a work permit to operate inTurkey through a company established in Turkey or a company inwhich he/she is a partner by taking over shares. In order to obtaina work permit, first of all, it should be determined whether theinvestment made by the foreigner is within the scope of SpecialForeign Investment. If there is an investment that can becategorized in this class, it is determined whether the personnelrequesting work permit are key personnel. If a work permit is to beobtained for key personnel, this procedure is regulated in theRegulation on Employment of Foreign Personnel in Foreign DirectInvestments.

In non-specific foreign investments, obtaining work permits offoreign company partners is subject to the provisions of theInternational Labor Law and the Implementation Regulation of theLaw on Work Permits of Foreigners. For this purpose, it isnecessary to provide a number of investment or workplacecriteria.

As a result; Turkey has great opportunities for investors inthis field as Solmaz Law& Consultancy Firm, we will be glad togive legal services to foreign person and entities. You canalso look at our other articles related to Foreign Investments onthis link https://www.solmazlaw.com/en/category/foreign-investment-law/