INTERNATIONAL FOREIGN INVESTMENT LAW
INVEST IN TURKEY
If you are interested in making an investment in Turkey, we would say, this article is prepared just for you. Turkey is a very attractive country indeed for foreign investors. More than twelve thousand companies with foreign capital are established in our country every year. Under this article our lawyers prepared, apart from the sectoral reasons, we will outline the reasons why foreign investors prefer Turkey for investment, the types of investments that can be made in Turkey, the types of companies that can be established in Turkey, the procedures to be held before and after company formation in Turkey and continuous expenses of an established company. We will also be providing key information generally foreign investors need before setting up a business in Turkey and also about work permit and residence permit in order to shed light to foreign investors for their investment to be made in Turkey. For your detailed and complex questions on how to invest in Turkey, you can contact our lawyers.
If you are willing to invest in Turkey, you can kindly contact with lawyers of MESCI Law Firm and obtain detailed and project based information on the legal matter. Our law firm in Turkey acts with teams of dedicated lawyers who are experts on foreigners law, investment in Turkey, company establishment, business set up in Turkey and obtaining Turkish citizenship. Our lawyers are also experts in the procedures to be held on before and after company formation, minimizing the risks that may arise procedurally and guiding you in any legal manner you may need.
REASONS TO INVEST IN TURKEY
Growing Economy: You may prefer to invest in Turkey due to the growing economy. Turkey has grown significantly for the last couple of years with its mega projects and research and development investments. As per January-March, 2022 Periodic Gross Domestic Product, 1st Quarter Data published by Turkish Statical Institute, GDP has increased by %7,3 compared to the same quarter of the previous year. With ruling prices, in the first quarter of the year 2022 GDP increased by %79,5 compared to the first quarter of the previous year and reached 2 Trillion 496 Billion 328 Million TL at current prices. According to the International Monetary Fund estimation, Turkey will again be one of the 20 largest economies in the world, ranking 19th in 2023, the 100th anniversary of the Republic.
A Liberal Investment Environment: You may prefer to invest in Turkey due to a liberal and foreign investment-oriented investment environment Turkey provides. Turkey has been the second largest reformer among OECD member countries in terms of restrictions on foreign direct investment since 1997 (Organization for Economic Cooperation and Development – Restrictive Foreign Direct Investor Regulations Index 1997-2016). As per World Bank, Doing Business Report 2017, Turkey offers investors a business friendly environment that takes an average of 6,5 days to set up a company. We can say that thousands of companies with foreign capital are established in Turkey every month. According to TOBB (The Union Of Chambers And Commodity Exchanges Of Turkey) data, the number of companies with foreign capital established during June 2022 is in total 2228. In addition, since Turkish and foreign investors are brought equal by law, foreign investors can directly establish a company and become the sole partner of that company. According to the Central Bank of Turkey data, the amount of direct investment made in Turkey between 2003 and 2020 is 165 Billion Dollars. According to the same data, it was stated that the first three countries with the highest foreign investments in Turkey are the Netherlands, the United States and the United Kingdom.
Citizenship for Foreign Investor: You can choose to invest in Turkey in order to obtain Turkish citizenship. Again, if you want to invest in Turkey for purely professional reasons, you can see this investment as a tool for obtaining Turkish citizenship. Turkey is a country that grants citizenship to foreigners based on investment, real estate purchase and generating employment in accordance with the Turkish Citizenship Law and the Regulation on the Implementation of the Turkish Citizenship Law. Pursuant to Article 20 of the Regulation on the Implementation of the Turkish Citizenship Law, a foreigner who is determined by the Ministry of Industry and Technology to have made a fixed capital investment in the amount of 500,000 USD or equivalent foreign currency can acquire Turkish citizenship by exceptional means. Pursuant to Article 20 of the Regulation on the Implementation of the Turkish Citizenship Law, the foreigner determined by the Ministry of Environment, Urbanization and Climate Change, who has purchased an immovable property worth at least 400,000 USD or equivalent in foreign currency, with a title deed restriction on its resale for at least 3 years, can acquire Turkish citizenship by exceptional means. Pursuant to Article 20 of the Regulation on the Implementation of the Turkish Citizenship Law, a foreigner determined by the Ministry of Labor and Social Security to employ at least 50 people can acquire Turkish Citizenship by exceptional means.
Low Taxes and Incentives: Republic of Turkey provides low taxes and incentive opportunities for foreign investors. The 20% corporate tax rate stated under Article 32/1 of the Value Added Tax Code numbered 5520, is applied as 25% for corporate earnings for the 2021 taxation period and 23% for corporate earnings for the 2022 taxation period. Turkey provides advantages such as exemption from corporate tax, allocation of land and support for employers’ social security premium share for companies to be established in free zones, technology development zones and industrial zones. Republic of Turkey, by signing agreements with many countries to prevent double taxation and to prevent tax evasion, preventing separate taxation of income both in the state where the income is obtained and in the state where the income earner is based in.
Population Targeted by Foreign Investors: One of the main reasons why foreign investors want to invest in Turkey is that the population in Turkey, hence the potential consumer mass is dense. According to the result of the Address Based Population System, the data announced by Turkish Statical Institute (TUIK) is that the population residing in Turkey has increased by 1 million 65 thousand 911 people as of 31 December 2021 compared to the previous year and reached a total of 84 million 680 thousand 273 people. According to the same data, as of the end of 2021, the young population in the 15-24 age group has reached 12 million 971 thousand 289 people. According to TUIK data, it has been observed that Turkey’s youth population rate is 15,3% much higher that of the European Union member countries. Therefore, we can say that nearly half of Turkey’s population consists of young and dynamic population under the age of 32.
Competitive and Qualified Workforce that Foreign Investors Can Employ: We can say that qualified workforce is among the reasons that encourage foreign investors to invest in Turkey. The number of Turkey’s young educated and motivated population is increasing day by day, which directly affects workforce productivity. According to the Summary Table of Number of Students for the year 2021-2022 announced by Higher Education Institution, the total number of students enrolled in undergraduate and graduate programs and doing doctorate is over 8 million.
INVESTMENT TYPES A FOREIGN INVESTOR CAN CONSIDER MAKING IN TURKEY
- Foreign investor can establish a company with a real person partner or a legal person partner in Turkey.
- Before establishing a company in Turkey with a real person or legal entity partner, foreign investor can establish a liaison office to get to know the relevant market, potential customers and competitors.
Foreign investor may establish a Turkish branch office of his company abroad.
- Foreign investor can make investment by buying movable or immovable properties. In Turkey, real estate investment is one of the most profitable investment, offering high returns in short time.
- Foreign investor can be a partner in a company already established in Turkey.
- Foreign investor can take over the shares of a company that is already established in Turkey. Especially if you are willing to establish a payment institution or an electronic money institution, it is recommended to take over an already established company.
- Foreign investor may prefer to invest in fixed capital.
TYPES OF COMPANIES A FOREIGN INVESTOR CAN ESTABLISH IN TURKEY
To ensure protection of the foreign investment and to encourage foreign investors, bilateral agreements made between countries consists of various principles such as ‘obligation of fair and equal treatment’, ‘national treatment’, non-discrimination’, ‘full protection and security’, which the host state must comply with. According to 4875 numbered Foreign Direct Investment Code, Article 3, foreign direct investment in Turkey is allowed for foreign investors to be made, unless otherwise is stipulated by international agreements and special law provisions. As per the same rule, it is regulated that foreign investors are subject to equal treatment with domestic investors. Foreigners can establish any type of company specified in the 6102 numbered Turkish Commercial Code. In our country, foreign investors are not limited in terms of business line and field of activity.
Turkish law system, divides types of companies into two; one being equity companies and the other being sole proprietorships. Our law system categorizes joint stock companies, limited liability companies and partnership limited by shares under equity companies and general partnership, limited partnership and ordinary partnership as sole proprietorships. Cooperative companies on the other hand, do not fall into the category of either a sole proprietorship or an equity company.
Foreign investors are generally in a tendency to prefer establishing limited liability companies in Turkey or establishing joint stock companies in Turkey. You can find detailed information on joint stock company formation in Turkey and limited liability company formation in Turkey, differences between joint stock companies and limited liability companies, the advantages of establishing a joint stock company, the advantages of establishing a limited liability company and documents required for company establishment through our blog.
We recommend our client candidates who will operate as a small business, to establish a limited liability company. Limited liability companies are way more easy and cheaper to establish, taking into consideration the joint stock company establishment. In addition, it is possible to establish limited liability companies with a capital of only 10.000 TL and to pay this capital amount within two years. On the other hand, start-up capital cannot be less than 50.000 Turkish Liras for joint stock companies. It is important also to note that not all legal entities can be established in joint stock company form such as banks and insurance companies. Nevertheless it is important to note that bearing in mind the field of activity you are willing to operate, different capital amounts can be determined by special laws.
You can rather consider the opportunity to start your commercial activities in Turkey in a much shorter period by establishing a branch office instead of establishing a company in Turkey. Most of our clients prefer branch office establishment rather establishing a limited liability company with foreign legal entity shareholder since branch office will be organically linked to the headquarters. The minimum capital amount required for limited liability company establishment or joint stock company establishment is not required for branch office formation in Turkey. On the other hand, if you are planning only to collect data about the sector you are willing to operate and get to know the market without engaging in any commercial activity yet, we recommend you to establish a liaison office in Turkey. Liaison offices are exempted from the obligation to withhold income tax on the salaries of the employees provided that the salaries are paid by the foreign parent company. Liaison offices are not subject to corporate tax and stamp duty.
We establish the following types of companies for our foreign investor clients who will set up a business in Turkey:
- Liaison Office formation in Turkey
- Branch Office formation in Turkey
- Joint Stock formation Company in Turkey
- Limited Liability Company formation in Turkey
- Free Zone Company formation in Turkey
- Ordinary Partnership formation in Turkey
MESCI Law Firm, acting with teams of corporate lawyers in Turkey and accountants specially appointed for your case are always prepared to assist you in company establishment procedures. Our team is not only specialized on LLC establishment in Turkey, joint stock company formation in Turkey, branch office formation in Turkey and company governance but also in post establishment procedures you will encounter. Besides, our law firm in Turkey has the knowledge and experience to assist your newly established company in any legal problem you might face in the business life. Our lawyers in Turkey will be a reliable source and familiar face to you in the world built with rapidly changing regulations.
BEFORE AND AFTER COMPANY FORMATION TRANSACTIONS YOU SHOULD BE AWARE OF
As a foreign investor, before making an investment in Turkey through establishing a company; making a research on market basis, determining the sources of information you will use or do business with to get to know the sector you will operate in, identifying your competitors and customers in the market, determining the field of activity, type and address of the company you will establish in Turkey, creating a business plan, having an accountant and a lawyer will be legally and commercially beneficial. It is important for you to detect legal liabilities you have to meet before establishing a company in a specific area of activity. The establishment of some companies listed in the Law such as Banks, Financial Leasing Companies, Asset Management Companies, Insurance Companies in Turkey and amendments to be made in their Articles of Associations are subject to the permission of the Ministry. Similarly, some companies, such as the payment institutions to be established in Turkey, are required to obtain an operating permit from the Central Bank of Turkey after the establishment.
Before establishing your company in Turkey, the preparation of Articles of Association based on the fields of activity you have determined saves you time. It is important to clarify with a financial advisor whether there are tax exemptions you can benefit from or not, related to the business you will be doing and type of company you will establish. At the same time, we recommend our clients to check availability of the title of the company they are willing to establish through MERSIS, have the company’s branding work prepared, have the similarity and availability check of the brand done over the database of the Turkish Patent and Trademark Office, have the availability check of the domains that will be used to be done. These are the essential key points clients should be aware of in order not to face with any third party claims brought forward through trademark infringement, invalidation or unfair competition lawsuits.
Depending on the type of your company, the company bank account is opened during or after the establishment. Following registration of the companies’ Articles of Association in the Trade Registry, the company immediately gains legal personality. After completing the establishment of the company in Turkey, it is obligatory to have the companies’ signature circular prepared through a Notary Public. Let’s not forget that the corporate books required by law as per type of the company shall be notarized, and the trade registry certificate shall be issued also. After registration of the company, your financial advisor will visit the Tax Office with several documents such as notarized Articles of Associations, signature circular, lease contract and will make an application in order to open your taxpayer record. Then officers appointed by the tax office will visit the company address once in order to investigate whether if company is really established in the registered address or not, issues an examination minute and obtains signature of the authorized person of the company or its accountant, appointed by a Power of Attorney. After the physical examination, the companies’ tax certificate can be requested from the tax office, but your financial advisor can approve your tax certificate without waiting for the mentioned examination.
As per 7099 numbered Law on Amending Certain Laws for the Improvement of the Investment Environment and 5510 numbered Social Insurance and General Health Insurance Law, notification of the company formation to the trade registry directorate will be deemed notification of the company formation to the Social Security Institution meaning that, after the company establishment all documents related to company formation will be sent to Social Security Institution by the Trade Registry. In case if the company has an employee, your accountant must visit the Social Security Institution after the establishment and present the information on the personnel to be insured and report number of employees.
WHAT ARE THE ROUTINE EXPENSES TO BE MADE AFTER COMPANY FORMATION IN TURKEY?
Below, we will be specifying basic expenses to be incurred by the company after the company establishment in Turkey. Your accountant will be assisting you, helping you figure out where, how and when most of these routine company expenses will be paid. In this respect we strongly recommend our clients to give authorization through a Power of Attorney to an accountant immediately after the establishment of the company.
- You will be obliged to pay a fee to your certified public accountant following the company formation in Turkey. It is worth noting that the fee to be paid to your financial advisor will vary according to the number of invoices issued by the newly established company and the number of personnel you employ.
- You will be obliged to pay Value Added Tax (VAT) every month following the company formation in Turkey. The Value Added Tax rate to be paid is generally %18 in Turkey.
- After the establishment, if you are considering hiring an employee, your employees’ insurance premium payments shall be made every month.
- If you have established a limited liability company or joint stock company it should be noted that 4B Social Security Institution premiums must be paid for those who are partners and also members of the board of directors. However, pursuant to Article 4 of 5510 numbered Code, nationals of a country with which Turkey has entered into international social security agreement that is on the basis of reciprocity, that are sent to Turkey to work by a foreign entity for and on behalf of that entity and that are able to document that he/she is subject to a social insurance paid by that foreign entity, will not be considered as insured in terms of 5510 numbered Law.
- It should be noted that withholding tax must be paid quarterly following the company formation in Turkey.
- Again, provisional tax must be paid quarterly following the company formation in Turkey. Provisional tax is applied as 23% to corporate earnings for the 2022 taxation period.
- Annual corporation tax must be paid once a year after the establishment of the company.
- There will be expenses related to annual legal book certification and annual legal book closing certification.
- If you are a member of a trade union, the membership fees of the trade union will have to be paid once in a year.
- Municipal taxes must be paid.
- If you presented a lease contract during establishment procedures for registration of the company address, you will have to pay monthly rent and maintenance fee. Along with these expenses, please note that you will monthly pay your water, electricity, natural gas, internet and fixed telephone bills. Considering the recently increasing rental costs in Istanbul, renting a virtual office at much more affordable prices will contribute to your budget management.
Expenses we mention here might be seem a little bit intimidating and complex for the foreign investor but it should be noted that, management of these expenses can be easily handled with an accountant.
RESIDENCE PERMIT IN TURKEY
We highly recommend our foreign investor clients to obtain a short term residence permit if they are willing to stay in Turkey during and after the company formation in Turkey.
Obtaining especially short term resident permit is generally preferred by foreign investors who will set up a business in Turkey. Although a short term residence permit is granted for one year, this period can be extended up to two years for Istanbul city. It is possible to extend the residence permit period by submitting an application within sixty days before the expiry of the residence permit and there is no limit to the number of extension applications.
- Residence permit applications are made online through the web page of the Provincial Immigration Administration. The applicant shall basically visit the link https://e-ikamet.goc.gov.tr/ and proceed by selecting “I am applying for the first time” and “I want to make a new application” buttons and fill a pre-registration form through the page that is opened and take an appointment. The application form opened on the screen must be printed after obtaining appointment date and time during the application. If the application form is printed, your application is considered complete and you cannot make any changes later. You can legally stay in Turkey with this form you have printed until the physical appointment date.
- The documents you need to bring with you on the appointment day are clearly stated in the ‘Short Term Application Form for Residence Permit’ that you have printed out. These documents are also listed below. Apart from these documents it may be necessary to submit a number of documents that are specifically required depending on the reasons for your stay. For more information on this subject, please contact our law firm in Turkey.
- Residence permit application form. This document must be signed by the foreigner and/or his legal representative.
- Original and translated, notarized copy of passport. It should be noted that the maximum period of stay you will request cannot be more than your passport duration. Pursuant to Article 21 of the 6458 numbered Law on Foreigners and International Protection, foreigners who will apply for a residence permit must have a passport with a validity of sixty days longer than the total residence permit period they request to stay.
- Four biometric photographs with white background, taken within the last six months.
- A statement that you have sufficient and regular financial means during your stay.
- Documents/receipts showing that the residence fee and card fee has been paid. After printing the application form, payment can be made by credit card using the virtual pos system by clicking the ‘make payment button’ on the relevant screen.
- Valid health insurance. Valid health insurance must be covering all the residence permit period.
- Proof of address. This document is the document that shows where you will reside in Turkey. If you are a tenant, your notarized rental agreement must be submitted, and if you are a landlord, a copy of the title deed is required.
- In case of being registered in the address registration system, a document proving your residency address (Certificate of Residence) shall be obtained. In case if you are not registered in the address registration system, providing notarized rental agreement to the immigration authority will be sufficient.
- If the applicant is married, marriage certificate.
- A criminal record document that must be taken from the foreigners home country. This document has to be apostilled.
- Potential tax number. Potential tax number for foreigner applicant is obtained by our immigration lawyers in Turkey.
- Health certificate from a public hospital in Turkey.
- E-visa document or a copy of the visa stamp on your passport.
- Documents proving clients income.
- Power of Attorney for our immigration lawyers to assist you in your short-term residence permit application in Turkey.
Following safe receipt of the residence permit, it is obligatory to apply to the District Population Directorate and register in the address registration system within 20 working days at the latest, and then go to the headman and obtain a Certificate of Residence. After obtaining the Certificate of Residence, you can go to PTT and receive your e-government (e-devlet) password and start using it.
After the residence permit application is made, a ‘resident permit application document’ will be provided to the foreigner who applies for the residence permit. With this document, the foreigner who applied for the residence permit can legally stay in Turkey for 90 days starting from the date of application. The residence permit application will also be finalized within the aforementioned 90 days.
Residence permit applications can be made through lawyer of the foreigner. In this case lawyer who will make the application will need to be authorized by a Power of Attorney. If you are in Turkey, Power of Attorney can be issued through any notary public.
As per Article 27 of the 6458 numbered Law on Foreigners and International Protection, a work permit replaces a residence permit. In other words, if you obtain a work permit, you do not need also to make residence permit application in order to stay in Turkey.
As we mentioned above, it is not possible to apply for a residence permit with an expired passport. Pursuant to Article 7/b of the 6458 numbered Law on Foreigners and International Protection, the passport of the foreigner who will apply for residence permit must be valid for at least 60 days following the end of the visa period. For example, a foreigner who has a 30 day visa will need to have a passport with a total validity of 90 days when entering Turkey.
If you are willing to obtain a residence permit in Turkey, another thing you need to know is that the residence permit conditions have been changed in our country. Due to the intense immigration to our country, residence permits are no longer given to foreigners with a notarized lease contract as of 26 April 2022. According to the new practice of the Ministry of Interior Directorate General of Migration Management, the foreigner who wants to obtain a residence permit must purchase a house in Istanbul with a value of at least 75,000 USD and also indicate that the real estate value is over 75,000 USD both in the real estate appraisal report and in the title deed.
Pursuant to Article 33 of the 6458 numbered Law on Foreigners and International Protection, short-term residence permit would be cancelled in case of staying abroad for more than 120 days in total out of 360 days. Article 33 of the 6458 numbered Law on Foreigners and International Protection dated 04.04.2013 has changed with 6735 dated and 13.08.2016 dated International Labor Law. With this law amendment, residence permits are not cancelled due to residence permit owner foreigner staying outside of Turkey more than 120 days in a year anymore.
If the residence permit application is rejected, an objection must be made to the relevant authority within 30 days following the notification of the rejection decision. The person whose residence permit has been refused can also file an action for annulment before the administrative court for the annulment of the rejection decision within 60 days starting from the notification of the rejection decision. It should be emphasized that if the residence permit application is rejected, if a new residence permit application is made by the same real person within 6 months following the date of notification of the rejection decision, it will be necessary to apply for a residence permit based on a different legal reason.
In the annulment action filed against the rejection of the residence permit application, the foreigner will not be required to leave the country if a stay of execution has been decided by the court. However, if the person does not have a visa or visa exemption and a stay of execution decision could not be taken from the relevant court, he/she must leave Turkey within 10 days following the notification of the rejection decision. Otherwise, a deport decision will be issued against the foreigner.
As per Article 11/1-b of the 5901 numbered Turkish Citizenship Code, it is possible to acquire Turkish citizenship if you have resided in Turkey for five consecutive years, backwards from the date of application for citizenship, and if you confirm with your actions that you have decided to settle in Turkey.
SHOULD WORK PERMIT BE OBTAINED FOR FOREIGNER PARTNER OF THE COMPANY ESTABLISHED IN TURKEY?
We obtain many questions regarding work permits most of them being ‘whether if foreign partner of a newly established company shall obtain work permit or not’ and ‘whether if a work permit replaces a residence permit or not’.
First of all, it is possible to define work permit as a document issued by the Ministry of Labor and Social Security in Turkey, which gives the foreigner the right to both work and to reside in Turkey during the period of validity. As can be understood from this legal definition, a work permit also replaces a residence permit in our law.
The provisions regarding whether a foreign company partner shall obtain work permit or not is clearly regulated within the scope of 6735 numbered Code. Pursuant to Article 6 of the 6735 numbered International Labor Law, it is prohibited to work or be employed in Turkey without a work permit, as a rule, of foreigners stated within the scope of thus covered by 6735 numbered Code. Similarly, Article 10/5 of the 6735 numbered International Labor Law, it is stipulated that foreign managers who are partners of limited companies established AND foreigners who are members of the board of directors and also are partners of joint stock companies must work, provided that they obtain a work permit. On the other hand, as per Article 13/7 of the 6735 numbered Code indicates that the members of the board of directors of joint stock companies who are not residing in Turkey AND the partners of limited liability companies that are not having the title of manager, will be considered within the scope of work permit exemption, and that these persons are not obliged to obtain a work permit.
On the other hand, we would like to draw attention to the fact that there are a number of mandatory criteria companies shall meet if they are willing to employ foreign personals. It is obligatory to employ at least 5 citizens of the Republic of Turkey in the workplace for which a work permit is requested. If it is aimed to employ more than one foreigner in the same workplace, at least 5 citizens of the Republic of Turkey will have to be employed for each foreign person desired to be employed. On the other hand, if the foreign person to be employed is the partner of the company, the employment requirement of 5 people will be sought for the last six months of the one-year work permit to be given by the Ministry. In addition to this rule, foreign partner of the company requesting a work permit must have at least 20% of the capital, equaling not less than 40.000 TL. Apart from these conditions, workplaces that want to employ foreign personals must have a paid-in capital of at least 100,000 TL, or the gross sales of the company must be at least 800,000 TL, or the export amount for the last year must be at least 250,000 USD.
In addition, if your work permit is rejected, you must appeal the rejection decision with a petition to the Ministry of Labor and Social Security, General Directorate of International Labor, within 30 days of the notification of the rejection decision to the person made the application. In case of refusal as a result of the examination, an action for annulment will have to be filed before the administrative judiciary.
If you are in need of a company formation lawyer in Turkey, real estate lawyer in Turkey, foreign direct investment lawyer in Turkey and real estate lawyer in Turkey, MESCI Law Firm is pleased to assist you. Our law firm in Turkey, experienced for many years in different jurisdictions consists of lawyers demonstrated technical, practical and academic success on sub-areas of corporation and commercial law, foreign investment law and immigration law. Please do not hesitate to contact our lawyers in Turkey for your queries, we offer proactive and high quality services to our national and international clients.