Turkey: Foreign Direct Investment In Turkey

Last Updated: 11 January 2007

Article by Burcu Modanli

As expressed by Robert C. Feenstra, a well-known expert on Foreign Direct Investment (FDI), "FDI combines aspects of both international trade in goods and international financial flows, and it is a phenomenon more complex than either of these."

In contrast with investments that enter and leave countries easily when at risk, FDI contributes to economical growth, employment, technological development and exportation-centered production of the host country (where investments are made) by also developing relationships even among distant countries. Considering the advantages for their economy, host countries wish to attract and provide legal safeguards for this kind of investment. Accordingly, international treaties and national investment regulations in general are intended to protect and incite FDI.

In line with this idea, the "Foreign Direct Investment Law No. 4875" ("FDI Law"), which emphasizes the opening of the investment environment in Turkey, was enacted. This law was enacted with a view to eliminate a variety of problems relating to the foreign investors concerned about their ownership rights in host countries and to the worries of host countries’ public with regard to the probable decrease in employment and loss of independence and ineffectiveness of the former existing Foreign Investment Promotion Law No. 6224 (the "Old Law"). The FDI Law also appropriately deals with foreign investors’ rights by current international standards. The main objective of the FDI Law is to reduce the bureaucratic barriers that foreign investors face when doing business in Turkey. The FDI Law reflects Turkey’s liberal approach to international investments and makes FDI easier to implement than the Old Law.

Under the FDI Law, the term "foreign investor" means real persons who possess foreign nationality, Turkish nationals resident abroad, legal entities established under the laws of foreign countries and international institutions, who make foreign direct investment in Turkey. The term "foreign direct investment" means establishment of a new company or branch of a foreign company by a foreign investor, or share acquisition of an existing company (any percentage of shares acquired outside the stock exchange or ten percent or more of the shares/voting power of a company acquired through the stock exchange) by means of, but not limited to, the following economic assets:

a) Assets acquired from abroad by foreign investor:

- capital in cash in the form of convertible currency bought and sold by the Central Bank of Turkey,

- securities of foreign companies (excluding government bonds),

- machinery and equipment,

- industrial and intellectual property rights;

b) Assets acquired from Turkey by foreign investor:

- reinvested earnings, revenues, financial claims, or any other investment-related rights of financial value,

- rights for the exploration and extraction of natural resources.

Following these definitions, we would like to determine the conveniences provided to foreign direct investors by the FDI Law No. 4875:

1. Abolition of the Preliminary Authorization:

The Preliminary Authorization of the General Directorate of Foreign Capital – that was obligatory under the Old Law - for foreign investors to establish foreign capital companies is no longer required under the FDI Law No. 4875.

2. Equal Treatment:

The fundamental principle of today’s investment regulations is the principle of "equal treatment" between foreign investments and domestic investments. Accordingly, this principle stipulated by the Old Law is kept under FDI Law No. 4875 and in Turkey foreign investors and domestic investors are subject to the same rights and obligations unless a contrary legal provision does exist in international conventions or special laws.

In order to make this principle effective, administrative hurdles that related to foreign capital inflow and were in contradiction with the equal treatment principle, have been removed by the FDI Law No. 4875.

Foreign capital companies are fully considered as a Turkish company and consequently their establishment process is identical as domestic capital companies and they have the same rights and obligations as Turkish companies do under Turkish Commercial Code.

A notice to be made to the Turkish Treasury for statistical purposes only is considered to be sufficient FDI Law No. 4875. Statistical information concerning investments to be notified to the Turkish Treasury may not be used as evidence.

3. Transfer Liberty:

The FDI Law No. 4875 also determines the transferable assets (including but not limited to profits and capital) and procures foreign investors guarantees for transfer out of the country again. In this respect foreign investors may repatriate abroad, without any restriction or limitation, their net profit, dividends, costs of sale, liquidation and indemnities, amounts to pay against license, management, and any such agreements and capital and interest payments of foreign loans occurred by their activities and transactions in Turkey via banks or private finance institutions.

4. Acquisition of Real Estate:

As mentioned above, companies established under Turkish Laws or participated in by foreign investors and having their administrative office in Turkey, are deemed as Turkish companies. In this respect the Turkish Commercial Code, allows commercial companies to acquire all rights and assume all obligations provided they remain within the object of the undertaking as indicated in their articles of association. Companies owned by foreign investors may acquire real estate in any place where Turkish citizens have right to acquire. However, the principle of reciprocity continues to apply to the acquisition of real estate by foreign real persons in Turkey.

5. Dispute Resolution:

International commercial relationships as a matter of their nature could entail the desire to go to arbitration procedures instead of state jurisdiction. Any uncertainty of foreign investors regarding dispute resolution has been overcome. Foreign investors are free to go to any amicable / alternative dispute resolutions such as mediation, conciliation and national or international arbitration besides state jurisdiction of the host country.

6. Employment of Foreigners:

Considering the importance of employing foreign personnel for foreign investors, the question of employment of foreign personnel who are subject to labor legislation regarding the work permit is defined under FDI Law No. 4875. In this respect, the Ministry of Labor and Social Security will issue proper work permits to the personnel to be employed by companies, branches and establishments which are set up according to FDI Law No. 4875. Details of such employment and related work permit are defined in the "Regulation Concerning Employment of Foreign Personnel in Foreign Direct Investments".

7. Protection against Expropriation and Violation of Property Rights:

Some of the most important menaces that still remain for FDI are expropriation of such investments without any justifiable ground and violation of property rights. Therefore, the principles mentioned in the Constitution and Expropriation Code are adapted in accordance with the existing bilateral investment conventions and other international convention texts with respect to expropriation. According to duly accepted international standards, FDI can be expropriated or nationalized only if such legislation requires and if public interest necessitates, provided the requirements stipulated under these mentioned regulations are fulfilled and their effective compensation is paid.

Before enactment of the FDI Law No. 4875, FDI inflow has been very low in Turkey (around 1% of the GDP) comparing to the other countries. According to the provisional figures declared by the Central Bank of Turkey, following the FDI Law No. 4875, FDI’s share in the GDP is increasing rapidly (around US$ 1 billion during the period of 1993-2002, US$ 9.7 billion in 2005 and US$ 12.4 billion in August 2006). Furthermore, the considerable increase in the number of companies with foreign capital determined since the FDI Law No. 4875 is in force, shows that the ease procured to foreign investors in Turkey largely achieved its goal. Besides this aforementioned improved legal framework to increase FDI attraction, the government’s structural reforms and endeavors to lower tax rates and create free trade zones, the reduction in inflation and the macroeconomic and political stability have also a very important role in this remarkable increase.

To conclude we would also like to emphasize that Turkey has been considerably through with its macroeconomic volatility especially following the structural changes ant policies in the economy (the fiscal consolidation and lower inflation rates) and become the fastest-growing country among the other OECD countries which makes Turkey day by day more favorable and attractive for FDI.

If you are planning to setup a legal business structure in Turkey or to participate in such an entity, then do not hesitate to draw upon our large experience in such matters.

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.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:
  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.
  • Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.
    If you do not want us to provide your name and email address you may opt out by clicking here
    If you do not wish to receive any future announcements of products and services offered by Mondaq you may opt out by clicking here

    Terms & Conditions and Privacy Statement

    Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

    Use of www.mondaq.com

    You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


    Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

    The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


    Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

    • To allow you to personalize the Mondaq websites you are visiting.
    • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
    • To produce demographic feedback for our information providers who provide information free for your use.

    Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

    Information Collection and Use

    We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

    We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

    Mondaq News Alerts

    In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


    A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

    Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

    Log Files

    We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


    This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

    Surveys & Contests

    From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


    If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


    From time to time Mondaq may send you emails promoting Mondaq services including new services. You may opt out of receiving such emails by clicking below.

    *** If you do not wish to receive any future announcements of services offered by Mondaq you may opt out by clicking here .


    This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

    Correcting/Updating Personal Information

    If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

    Notification of Changes

    If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

    How to contact Mondaq

    You can contact us with comments or queries at enquiries@mondaq.com.

    If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.

    By clicking Register you state you have read and agree to our Terms and Conditions