Turkey: Foreign Investments In Turkey

Last Updated: 17 January 1997

I. LEGISLATION:

The legislation governing the Foreign investments in Turkey can be summarized as follows:

1. RELEVANT LAWS AND BILATERAL AND MULTILATERAL AGREEMENTS:

a. Law Concerning the Encouragement of Foreign Capital (No. 6224 dated January 18,1954 as amended by law No. 4046 dated November 24,1995 and Law 4105 dated April 27, 1995)("Law 6224")basically granting equal treatment to foreign capital vis-a-vis domestic capital (Article 10), repatriation rights to foreign investors enumerating the types of foreign capital to be invested in Turkey and prohibiting majority shareholding to foreign investors in ventures having country-wide monopoly activities.

b. Law Concerning the Protection of the Value of Turkish Currency (Law 1567 dated February 20, 1930 as amended ), governing foreign exchange regime of Turkey. Both of these Laws authorize the Council of Ministers to issue Governmental Decrees for regulating; (i) Foreign Investments in form of equity , (ii) Foreign Loans, (iii) Licensing Agreements.

c. Law Concerning the Organizations and Functions of the Undersecretariat of Treasury and the Undersecretariat of Foreign Trade (Law 4059 dated December 9, 1994)

d. Bilateral Investment Agreements relating to the protection of Investments on the basis of reciprocity with Germany (1963), USA (1989), Holland (1989), Bangladesh (1989), Switzerland (1989), Swiss Confederation(1989), Republic of Austria (1991), State of Kuwait (1991), Denmark (1992), Japan (1992), United Kingdom (1993), Ireland (1993), China (1994), Korea (1994), Romania (1994), Turkmenistan (1995), Republic of Uzbekistan (1995), Republic of Kyrgyzstan (1995), Republic of Argentina (1995), Republic of Hungary (1995), Republic of Kazakhstan (1995), Republic of Georgia (1995), Republic of Albania (1996).

e. Turkey has signed and ratified the convention on ICSID (International Center for Settlement of Investment Disputes) and MIGA (Multinational Investment Guarantee Agency).

Turkey has signed agreements with several countries for avoiding double taxation. These countries may be counted as: Republic of Austria, Norway, Italy, Korean, Jordan, Germany, Tunisia, Romania, Pakistan, England, Ireland, Holland, Finland, Belgium, North Cyprus, Republic of France, Saudi Arabian Kingdom, Sweden, Denmark, Japan, Hungry, United Arab Emirates, Russia, Kazakhstan, Republic of Republic of Albania, Poland, Egypt, Malesia, China, India, Algeria, Mongolia.

2. THE RELEVANT GOVERNMENTAL DECREES, COMMUNIQUES:

a. Foreign Capital Framework Decree (No. 95/6990 dated June 7, 1995);

b. Decree 32 relating to the Protection of the Value of Turkish Currency (No.89/1439 dated August 7, 1989 as amended);

c. Communiques of the Undersecretariat of Treasury and the Central Bank of Turkey respectively issued on the subject;

d. Decree relating to State Support to Investments (No. 94/6411 dated December 26, 1994 as amended).

II. DIRECT EQUITY INVESTMENTS

1. The General Directorate of Foreign Investments

The authorized approval agency for direct foreign equity investments is the Undersecretariat of Treasury, General Directorate of Foreign Investments ("GDFI") located in Ankara. The GDFI is authorized:

a. to issue and amend Foreign Investment Permits and to register foreign investments;

b. to grant the Government support to foreign investments under Decree relating to State Support to Investments;

c. to register increase of share capitals;

d. to approve the transactions envisaged for buying the shares of Turkish Companies by foreign investors or selling the shares of Turkish Companies owned by foreign investors to Turkish entities to be performed in accordance with the rules and regulations established by GDFI (except Portfolio Transactions);

e. to authorize for the establishment of branches and liaison offices of foreign companies;

f. to register license, know-how, technical assistance and management agreements concluded by Turkish public and private sector enterprises with real persons and/or legal entities residing abroad;

g. to authorize foreign personnel employment;

h. to appraise foreign capital in kind;

i. to organize and coordinate Build Operate and Transfer("BOT") models or Build and Operate ("BO") models.

2. The Foreign Share Capital

The Foreign Share Capital may be in cash i.e. share capital subscribed in foreign currency (minimum in equivalent of US $ 50 000.-) and/or in kind i.e. machinery, equipment, tools, spareparts, and intellectual property such as patent rights, know-how, trade marks, licenses. Dividends, proceeds of sale of shares and liquidation proceeds of foreign shareholders and claims of foreign lenders from Turkish entities, if approved by GDFI, may also be subscribed as foreign capital in kind.

Foreign exchange transferred from abroad can be kept in banks at the foreign exchange deposits accounts without being converted into Turkish Liras if so requested, to be opened in the name of the company to be established, or the company which increases its capital or in the shareholders' name who transfers his shares, and can be paid to the beneficiary as foreign partner's capital share.

For the foreign capital kept in a foreign exchange deposits account, the bank concerned shall prepare a receipt stating the name of both the foreign capital company and the foreign partner, the country of origin of the foreign exchange , the amount of currency, the equivalent in US Dollars, and the TL equivalent calculated by applying the foreign exchange purchase rate of the Turkish Central Bank on the date the foreign exchange deposit account is opened.

3. Repatriation Rights

Law No. 6224 provides in favor of shareholders a repatriation guarantee on profits (i.e. dividends), proceeds of liquidation, or proceeds of sale of shares in Turkey. Such monetary rights shall be remitted to foreign shareholders in the currency of origin at the rate of exchange prevailing on the date of such payment.

Subject to conditions in Article 4 of Law No. 6224, the following dividends and funds may be transferred abroad in the currency of the country of the foreign share capital at the current official rate of exchange;

a. Net dividends accruing to the owner of the foreign share capital out of the profits obtained and determined in accordance with the tax laws in force.

b. In case of a partial or total liquidation of a company operating under Law No. 6224, the share payable to the owners of the foreign share capital out of the proceeds of the liquidation.

c. the proceeds of the sale at a reasonable price of the whole or part of the foreign share capital invested in a company under Law No. 6224.

4. Government Support

Foreign Investments may also benefit from Government Support which mainly cores the following incentives:

a. Custom Tax Immunity and Fund Immunity

b. Investment Allowance

c. Stamp Tax, Fee and Charge Exemption

III. OTHER INVESTMENT FORMS:

1. Portfolio Investments

Real persons and legal entities residing abroad (including investment trusts and investment funds abroad) can freely purchase and sell all sorts of securities and other capital market instruments through banks and intermediary institutions authorized by the Capital Market Legislation without any need for further permission from GDFI.

2. Indirect Investments

Enterprises with foreign capital operating in turkey may participate in existing companies or those to be established , provided that they receive the necessary permits. Application for the permits shall be made to GDFI, together with balance sheets and profit/loss tables of the previous year, Turkish Trade Registry Gazette in which the final version of the Articles of Association is published, the capacity report and a copy of the incentive certificate of the company, if any.

In case there is an alteration in capital participation ratios of the partner company, the information will be submitted to the GDFI within a month following the date of alteration in capital share amounts (Except for the portfolio investments).

The foreign loans, BOT, BO models, special legal provisions set forth for touristic investments, financial leasing, mining operations, energy projects, and Petroleum Law are not included in this summary.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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