This is the Fourth Quarter 2008 edition of our email news service – The Turkish Update. This edition provides concise summaries of sector specific legal developments in Turkey through October, November and December 2008 and includes brief articles on current "Hot Topics" in Turkish law.
PART 1 - LEGAL DEVELOPMENTS
Banking And Finance
Legal measures for encouraging foreign savings/ investments to be brought into Turkey: The relevant law was published on 22 November 2008, and a Communiqué implementing the law was published on 6 December 2008. The law and the Communiqué:
- set up procedures to enable real persons and legal entities to bring cash, foreign exchange, gold, securities and other capital market instruments held abroad into Turkey; and
- make certain income and corporate tax exemptions on certain revenues generated abroad.
International bank account number (IBAN): According to a Communiqué (Serial No: 2008/6) published on 10 October 2008, all banks operating in Turkey must:
- create an IBAN number for bank accounts/cash transfers; and
- act in conformity with the procedural requirements on IBAN in their future transactions.
Corporate And Commercial
The draft Turkish Commercial Code (TCC) is still being discussed in the Turkish Parliament: Discussions have been interrupted by the passing of 2009 Budget Law. The TCC is still on the Parliamentary agenda but, even if it is enacted in the next few months, it will not immediately come into force (and is not expected to be in force before the beginning of 2010). We will continue to note developments on this important legislative change in future editions of The Turkish Update.
Communiqué (Serial No 2009/1) Increasing Minimum Administrative Fine: The Turkish Competition Authority (TCA) published a Communiqué increasing the minimum amount of administrative fine under the Competition Act. This fine applies to persons:
- providing misleading information to the Turkish Competition Board (TCB) with a merger/individual exemption filings and specific requests of the TCB; or
- carrying out a merger/acquisition before obtaining consent of the TCB; or
- making conducting down-raids difficult to the competition experts of the TCA.
Under the Communiqué, the minimum amount of the administrative fine for the period between:
- 8 February and 31 December 2008 is YTL 10,000; and
- 1 January and 31 December 2009 is YTL 11,200.
1.2 Recent Formal Investigations Of The TCB
- In the telecommunications market: On 9 October 2008, the TCB launched a formal investigation upon Turkcell Iletisim Hizmetleri A.S., a gsm operator company. The TCB will investigate whether Turkcell has abused its dominant position through applying exclusive practices in relation to the infrastructure facilities required for the mobile phone operating services.
- In the glasswool isolation systems market: On 23 November 2008, the TCB decided to launch a formal investigation of Izocam Ticaret ve Sanayi A.Ş. The TCB will examine whether Izocam abused its dominant position by applying exclusionary prices to eliminate its competitors in the market.
- In the medical devices market: On 4 December 2008, the TCB decided to launch a formal investigation on Siemens Sanayi ve Ticaret A.Ş. The TCB will examine whether Siemens has been infringing competition rules in the medical devices market when supplying raw materials and technical services to its customers.
1.3 Recent Administrative Fines By The TCB
- In telecommunications market: On 19 November 2008, the TCB completed its investigation of Turk Telekomunikasyon A.S. (Turk Telekom) and TTNet A.S. (TTNet), which are the same group companies, and decided that Turk Telekom (dominant in the market of wholesale) and TTNet (dominant in the market of retail broadband internet access) have abused their dominant position by "price-margin squeeze" practices. Such practice has resulted in foreclosing of the retail broadband internet access market to other market players. Therefore the TCB imposed a fine on both Turk Telekom and TTNet, amounting to TL 12.394.781,16.
- In the medical devices and laboratory services market: On 25 December 2008, the TCB completed its investigation of various companies in the medical devices and laboratory services market. The TCB concluded that some of the alleged companies infringed the competition rules (e.g. Art. 4) and therefore decided to impose fines of between 0.5 per cent and 4 per cent of the latest turnover of the relevant offender companies. The maximum amount of the fine under this formal investigation is YTL190,384.79.
1.4. TCB Opinion To The Turkish Pharmacies Association (TPA)
The TCB announced on its website on 17 December 2008 that an opinion has been sent to the TPA in accordance with the TCB decision of 27 November 2008. In its opinion, the TCB states that the practices of allocation of prescriptions between pharmacies shall be stopped by the TPA. The decision states that, since the legislation allowing the pharmacies to supply certain types of medicines to specific patients on a rotation basis has been abolished, such practices, which result in customer sharing between pharmacies, no longer have a legal ground and are, in fact, in breach of the Competition Act No.4054.
1.5 TCB Long-Form Opinion On The Fuel Oil Distribution Market
On 4 November 2008, the TCB issued its long-form opinion on the fuel-oil distribution market (including detailed reasoning and analysis). Under the opinion the TCB noted some evidence of price fixing, but decided not to launch a formal investigation at this stage (as there are certain structural market defects in the relevant market which the Energy Market Regulatory Authority (EMRA) should first address). Despite the opinion, the TCB still has discretion to launch an investigation at any time.
3G licences awarded: The Turkish Government held 3G telecommunications licence auctions on 28 November 2008 and received a total of EUR822 million. Turkcell, Turkey's largest mobile operator by subscribers, won the A type licence after bidding EUR358 million. Vodafone won the B type licence with a bid of EUR250 million, and Avea won the C type licence with a bid of EUR214 million. Due to lack of participants, the auction for the D type licence was cancelled.
Electronic Communication Law of 10 November 2008: This law introduces groundbreaking changes into the Turkish telecom market as it supersedes important preexisting laws such as the Wireless Law and the Telegraph and Telephone Law. It will come into effect on 10 November 2008. The most important feature of the law is that it sets out only two types of authorisation under which operators can provide electronic communication services: by notification of the relevant regulatory authority and by obtaining a usage right. The law also contains rules related to operators' duties, tariffs for telecommunication services, access and interconnection, right of way, spectrum management, consumer rights and market surveillance. For further information please see the Hot Topic article below entitled "Groundbreaking telecom law to come into effect in May 2009".
Energy And Infrastructure
1.1 New Regulations And Amendments To Existing Regulations
The Regulation on Design Principles for the Safety of Nuclear Power Stations and the Regulation on Special Principles for the Safety of Nuclear Power Stations: Published on 17 October 2008.
The Regulation on Technical Analysis of Licence Applications Based on Wind Energy: Published on 9 November 2008. This Regulation aims to outline principles/ procedures for the determination and use of source areas so as to enable to efficient use of wind energy.
Amendment to the Electricity Market Licence Regulation: Published on 12 November 2008. The main amendments to the Regulation are as follows:
- Licences of legal entities that could not carry out their generation facility investment within the time period mentioned in the relevant regulation will be cancelled. Any entities/persons who have their licences cancelled cannot (in person or by being a shareholder) apply for a licence for three years.
- The total installed power owned by a real person/ private legal entity cannot be more than 20 per cent of the total installed power in Turkey (for the previous year as published by the relevant regulator).
- Autoproducers or autoproducer groups (i.e. individuals or groups who produce energy largely for their own needs) are allowed to sell to the market 20 per cent of their average electricity generation/year.
Amendment to the Electricity Market Licence Regulation: Published on 7 December 2008. Amendments include comments on what analysis EMRA will make if an entity applies for more than one Electricity Market Licence.
Amendment to the Electricity Market Free Consumer Regulation: Published on 12 November 2008. Amendments are on suppliers meeting the energy demand of "free consumers" (i.e. consumers who consume a large amount of electricity and are therefore allowed to buy it from a number of different suppliers in Turkey).
The Electricity Market Distribution Regulation; Electricity Market Network Regulation; and Oil Market Licence Regulation were also amended during this period but there are no particularly noteworthy changes. However, please do not hesitate to contact us if you want further information on the specific amendments to these Regulations.
1.2 Tenders And News
Privatisation of IGDAS (the natural gas distributor in Istanbul): Several foreign companies including Russia's Gazprom, French Gaz de France, Shell and BP have shown interest in privatisation of IGDAS. Local companies like Koc, Sabanci, Alarko, Calik and Zorlu are also interested in the privatisation. The Metropolitan Municipality of Istanbul has not yet announced a timetable for the privatisation.
The second nuclear power tender: According to the Energy Minister of Turkey, the Government plans to launch the second nuclear power tender by the end of 2008. The second plant will be established in Sinop on the Black Sea coast.
Natural gas distribution licence: On 16 October 2008 the Government published a tender announcement for natural gas distribution licences in the Pamukova, Geyve, and Ali Fuat Pasa districts of Sakarya. According to the announcement, the winning company will hold a 30-year distribution licence.
Natural gas agreement between Turkey and Iran; The Governments of Turkey and Iran signed a natural gas agreement outlining supporting energy cooperation.
Privatisation of the power distribution companies Meram Elektrik Dagitim (Meram) and Aras Elektrik Dagitim (Aras): The Competition Board approved the privatisation of Meram and Aras. Alsim-Alarko placed the best bid of US$440 million for Meram, and Kiler Group offered the best bid of US$128.5 million for Aras.
Approval of the specifications of the first nuclear power plant: The consortium of Russian companies Atomstroyexport, Inter Rao UES and local Park Teknik proposed the specifications for the first nuclear power plant in Turkey. The Turkish Atomic Energy Institution (TAEK) approved these specifications as they are in line with TAEK's technical criteria.
Natural gas: BOTAS increased the price of natural gas from 1 October 2008 by 4.55 per cent and by 4.69 per cent for residential and industrial users respectively. Further increases of 22 per cent for industrial users and 22.3 per cent for residential consumers followed such increases. The new price scheme took effect on 1 November 2008.
Electricity: TETAS (the state electricity provider) with the approval of EMRA (the Turkish Energy Market Regulation Authority) decreased electricity prices from 1 January 2009 by 12.3 per cent.
Regulation on Property Acquisitions by Turkish Companies with A Foreign Shareholding. Published on 12 November 2008: Mainly sets out application/approval procedures for real property (or limited right-in-rem) acquisitions in Turkey by Turkish companies with a foreign shareholding. Although the regulation provides certain relief to the concerned parties, there are still certain issues which it does not sufficiently clarify. For example, it does not clarify the maximum period of time in which the relevant authorities should respond to an approval application. For further information please see the Hot Topic article below entitled "Acquisitions of real property in Turkey by a Turkish company with a foreign shareholding".
Circular Simplifying the Procedures for Establishing a Mortgage: On 2 December 2008 the General Directorate of Land Registries and Cadastre issued a circular. This circular simplifies the procedures at Land Registry Offices for establishing a mortgage in favour of companies (including Turkish banks and other financial institutions) who have a foreign shareholding. For further information please see the Hot Topic article below entitled "Acquisitions of real property in Turkey by a Turkish company with a foreign shareholding".
Communiqué (Serial No. 268) re: Rental Payments: From 1 November 2008 landlords leasing
- any residence with a monthly rental equal to or exceeding TL500; or
- any work place (without a threshold)
should provide the relevant tax office with receipts documenting the rentals paid through a bank transfer or post office remittance. Also introduces monetary fines for those who fail to comply with this obligation.
Regulation on Payments of Salary, Bonus and Other Remuneration Via Banks: Published on 18 November 2008 and effective from 1 January 2009. Under this Regulation salaries, bonuses, and other remuneration of employees, journalists and sea workers shall be paid via banks.
Foreign insurers can provide insurance covering Turkish-registered ships and yachts: From 19 December 2008, foreign insurers can provide insurance covering ships and yachts registered in the Turkish International Marine Registry.
Amendments to the Regulation on Registry of Intellectual and Artistic Works: Published on 28 October 2008. Make it necessary to register computer games as in intellectual property right and detail the principles and procedures (i.e. required documents) for the registration application.
Regulations on Evaluation and Classification of Cinema Films: These Regulations, published on 8, 11 and 13 November 2008 respectively, amend the Regulation on Evaluating and Classifying Cinema Films and introduce extra symbols which classify cinema films according to their contents. They also set out administrative penalties if these symbols are not used or used inappropriately.
Mining And Environment
Amendment to the Regulation on the Control of Packaging Waste: Published on 6 November 2008. Provides that package producers have a duty to notify (by submission of an electronic application form) the Ministry of Environment and Forestry of any packaging waste which arises through this process.
Regulation on Materials depleting the Ozone Layer: Published on 12 November 2008. Ensures compliance with the terms of the Montreal Protocol and sets out the general principles on restricted use of the materials named therein.
Regulation on Environmental Auditing: Published on 21 November 2008. Specifies terms and conditions of environmental auditing and the requirements and duties of the persons/entities responsible for such auditing.
Regulation on Preparing and Distributing Information on Dangerous Materials and Products: Published on 26 December 2008. Sets forth technical principles on the information that must be provided in relation to materials and products classified as "dangerous".
Regulation on the Classification, Packaging and Labelling of Certain Dangerous Materials and Products: Published on 26 December 2008. States the general principles on the classification, packaging and labelling of certain dangerous materials and products to control their possible negative effects on the human health and the environment.
Regulation on Approving Responsible Manager at Mining Production Facilities: Published on 3 October 2008. Sets out principles of the responsible manager certificate for managers who are on duty at mining production facilities.
Amendment to the Regulation on Packaging and Labelling of Pharmaceuticals: Published on 6 December 2008. Pharmaceutical product licence owners should comply with newly-introduced packaging requirements by 1 June 2009. The amendment also introduces new requirements related to logos and lot numbers of pharmaceutical products.
PART 2 - "HOT TOPICS"
Privatisation Opportunities In Turkey In 2009
Opportunity By Sector
Energy And Infrastructure
Electricity distribution companies
Baskent Elektrik Dagitim A.S., Sakarya Elektrik Dagitim A.S., Meram Elektrik A.S. and Aras Elektrik A.S. have been privatised. Following the completion of these transactions, new tenders will be held for the remaining 16 companies in the portfolio of the Privatisation Administration.
Toll rights on motorways/bridges
There is a draft law before the Parliament to be enacted in order to enable the privatisation of motorways/bridges. It is currently planned that tenders will be held in the second half of 2009.
IGDAS, the natural gas distributor in Istanbul
It is currently planned that tenders will be held after the March 2009 local elections.
IDO, the sea bus company of Istanbul
It is currently planned that tenders will be held after the March 2009 local elections.
Currently postponed (until global markets recover).
Secondary Public Offering of Turkish Airlines (49.12% public stake
This is on the agenda but the timetable of the privatisation is not yet determined.
Privatisation of the Turkish Airlines Technical Services subsidiary
This is on the agenda but the timetable of the privatisation is not yet determined
Various state-owned sugar plants
Likely be completed by the end of 2009.
National Lottery (Milli Piyango)
The tender will take place in April 2009.
3rd Bosphorus Bridge
The tenders for this BOT project will be held in May or June 2009.
The tenders for this BOT project will be held in April 2009.
the Turkish Pipeline Corporation (BOTAS), Turkish Coal Enterprises (TKI) and Chemical Industry Corporation (MKEK)
According to the recent statements of the Privatisation Administration President Mr Metin Kilci, BOTAS, TKI and MKEK will be included in the privatisation portfolio.
1. Note: these 2009 timetables should not be seen as definitive. They are based on the most recent statements by either the Turkish Finance Minister or the Privatisation Authority.
Groundbreaking Telecom Law To Come Into Effect In May 2009
A groundbreaking new telecommunications law, the Electronic Communication Law No. 5809 (the Law), was published in the Official Gazette on 10 November 2008. The Law largely supersedes fundamental laws like Wireless Law No. 2813 and Telegraph and Telephone Law No. 406 under which the overwhelming majority of the telecom services in Turkey had previously been provided. Its key features are as follows:
- Creation of the Information Technologies and Communication Authority: The Telecommunications Authority (the regulatory body for the Turkish telecommunications market) has been renamed the Information Technologies and Communication Authority (ITCA).
- Broader scope of "Electronic Communication" services covered: The Law sets out a broad definition of "Electronic Communication": "the transmission, sending and reception of any sign, symbol, sound, image and data convertible to electrical signs by cable, wireless, optics, electric, magnetic, electromagnetic, electrochemical, electro-mechanic and other transmission systems". Therefore the Law governs a broader scope of electronic communication services than before including GSM mobile phones, satellite telecommunication, internet, data transmission over landlines, cable platform and infrastructure operation.
- Change to types of regulatory authorisation for electronic communication service providers: The previous legislation contained a number of different authorisation types (such as concession agreement, telecom licence and general permit) but the Law only requires there to be two types of authorisation by the ITCA: by notification or by obtaining a usage right:
- Notification: under the Law, companies contemplating offering electronic communication services and/or setting up and operating network or infrastructure for such services have to make a notification to the ITCA before they commence activities. The ITCA will set out the principles of such a notification.
- Usage right: the Law requires a usage right to be obtained if an electronic communication service to be provided by the operator needs the ITCA to allocate a specific resource in order for it to operate, such as a number, frequency or satellite position.
- For example, a usage right is not a requirement for a company wishing to provide telephone services over landlines since it is possible for it to lease the infrastructure (i.e. the landlines) from another service provider which has such a usage right. However, a GSM operator will need a usage right because it has to be awarded a special three-digit number in order to operate GSM services.
- Other provisions: The Law also contains provisions on operators' obligations, tariffs about telecommunication services, access and interconnection, right of way, spectrum management, consumer rights and market surveillance.
As the Law introduces a substantial number of changes, implementation will take some time. Therefore the legislator has envisaged a transition period. For example, the Law's provisions about authorisation shall not apply before 10 May 2009 (and the existing authorisation regime will apply until then). Furthermore, please note that operators which were previously awarded authorisations (such as telecom licence or general permit) shall be deemed to have duly acquired the necessary usage right or to have made the necessary notification in line with the Law.
In addition, the changes contemplated by the Law will also require a number of pieces of secondary legislation to be drafted by the ITCA. According to the information obtained from an ITCA official, 49 new regulations on electronic communication are under way. Therefore 2009 will be a time of great change in the legal and regulatory regime for Turkish telecommunications - so watch this space!
Acquisition Of A Real Property In Turkey By A Turkish Company With A Foreign Shareholding
1 Introduction: Background And Amending Law
The acquisition of a real property in Turkey by a Turkish company with a foreign shareholding (a Foreign-Owned Company) became confusing by a decision of the Turkish Constitutional Court on 11 March 2008. This decision repealed Article 3(d) of the Foreign Direct Investments Law No. 4875 (FDIL), which allowed a Foreign-Owned Company to buy real property in Turkey on the same basis as Turkish companies with a Turkish shareholding. The decision became effective on 16 October 2008.
Following this decision, on 3 July 2008 Turkish Parliament passed Law No. 5782 (the Amending Law). The Amending Law amends Article 36 of the Title Deed Law No. 2644 (the Title Deed Law) and sets forth the principles under which a Foreign-Owned Company can buy real property in Turkey. It became effective on 15 July 2008.
Article 36 of the Title Deed Law (as amended by the Amending Law) sets out the following general principles:
1.1 Limit On Use Of Property By A Foreign-Owned Company
- A Foreign-Owned Company may buy real property in Turkey only in accordance with the scope of business set out in its articles of association. The same principle applies if a foreign individual/entity buys a share in a Turkish company which holds real property.
- If the relevant government authorities decide that a Foreign-Owned Company has breached this principle, this company must sell the relevant real property within a period of time determined by the Ministry of Finance.
1.2 Military/Security Zoning Approvals
- The Amending Law sets out certain checks/procedures if a real property to be acquired by a Foreign-Owned Company is located in a "military forbidden zone", "security zone", "strategic zone" or "special security zone".
- If a Foreign-Owned Company wants to buy a property in a "special security zone", this is subject to the approval of commissions to be set up in provincial governorships.
- If a Foreign-Owned Company wants to buy a property in a "military forbidden zone", "military security zone" or a "strategic zone" (each a Military Zone), this is subject to the approval of Turkish General Staff or any other commissioned military command (the Military Authorities).
The Amending Law also states that government will introduce a regulation setting out how authorities can carry out these principles.
On 17 July 2008, the General Directorate of Land Registry and Cadastre issued a circular, a small part of which relates to article 36 of the Title Deed Law. The circular states that provincial governorships will set up commissions to assess/ approve ownership of Turkish real property by Foreign- Owned Companies. It also confirms the statement in the Amending Law that a future regulation will set out the details of the procedures and clarify other uncertain issues in Article 36.
2 Regulation Clarifying The Amending Law
On 12 November 2008 the regulation referred to in the Amending Law and the circular was published in the Official Gazette and came into force on the same day (the Regulation). The Regulation covers the topics mentioned in 2.1 to 2.5 below.
2.1 Application And Decision-Making Process For A Foreign-Owned Company To Buy Real Property In Turkey
The diagram at the end of this note illustrates the application and decision-making processes for the "Acquisition of a real property by a Foreign-Owned Company". This is also verbally described in paragraphs 2.1.1 to 2.1.3 below.
2.1.1 Application To Provincial Governorship
If a Foreign-Owned Company wants to buy real property in Turkey, it must apply to the Provincial Planning and Co-ordination Directorate of the relevant provincial governorship and present certain information/documents mentioned in the Regulation (e.g. letter of application; the names, identification documents and addresses of the Foreign-Owned Company's managers etc.)
2.1.2 Processing Of Application By Provincial Governorship
Following the application, the relevant provincial governorship shall liaise (as necessary) with:
- the Provisional Directorate of Industry and Commerce;
- the Military Authorities; and
- the General Directorate of Security.
2.1.3 Decision-Making Process
Following (a) and (b), the table below sets out the potential scenarios and decision-making process as follows:
Military Authorities decide the property is not located in a Military Zone.
Made by the governorship.
Military Authorities decide the property is located in a Military Zone but allow the acquisition.
Military Authorities assess the application from the perspective of national security and tell the governorship of their opinion. If Military Authorities approve the acquisition then the governorship finalises the process.
General Directorate of Security decides the real property is located in a "special security zone".
A Commission set up by the governorship (for further information see paragraph 3 below) will decide whether the acquisition is permissible.
2.2 Investigation On Foreign Acquisition Of Shares Under Turkish Law If:
- a 100 per cent Turkish-owned company becomes a Foreign-Owned Company (due to the acquisition of shares by a foreign individual/entity); or
- a new foreign individual/entity buys shares in a Foreign- Owned Company,
the relevant company must report this to the Undersecretariat of Treasury within one month following the date of the change in shareholding.
Following this notification, the Undersecretariat of Treasury will report this to the General Directorate of Land Registry. The General Directorate of Land Registry will liaise with the relevant provincial governorship to decide whether the Foreign-Owned Company can continue to hold its real property.
The relevant provincial governorship will make this determination by following the processes described in 2.1.2 and 2.1.3 above.
2.3 Commissions And Their Continuing Investigative Powers
Under the Regulation, the governorships will set up commissions (each a Commission) to assess/approve ownership of Turkish real property by Foreign-Owned Companies. Article 36 of the Title Deed Law (as amended by the Amending Law) and the circular also mentions this. The Regulation provides that a Commission will:
- decide whether an acquisition that is located in a "special security zone" is permissible (see paragraph 2.1.3 above); and
- carry out further investigations on Foreign-Owned Companies to check that they are using the properties in accordance with their scope of business (see paragraph 2.3.2 below).
The representatives from several institutions (including the Army, Directorate of Cadastre, etc.) will compose a Commission.
2.3.2 Continuing Investigations By A Commission
As mentioned above, a Commission can carry out further investigations on Foreign-Owned Companies to check whether they are using their real properties in Turkey in accordance with the scope of business set out in their articles of association. A Commission may begin such an investigation upon an application or on its own initiative (through the powers granted to it).
A Commission will tell a Foreign-Owned Company if it believes that this company is not using its real property in accordance with the scope of business set out in its articles of association. If, following a continuing investigation, a Commission decides the use of the real property is in breach of the laws, then paragraph 2.4 will apply.
If the authorities decide a Foreign-Owned Company acquired a property, breaching the principles set out in Article 36 of the Title Deed Law (as amended by the Amending Law) and the Regulation, it must sell the property within six months. The Ministry of Finance may extend this period once by up to another six months.
The Ministry may also sell the property on behalf of the Foreign-Owned Company if this company does not sell the property within the relevant time period. It will deposit the earnings less the expenses in an account of the relevant company.
2.5 Application And Decision Making-Process For A Foreign-Owned Company To Acquire A Limited Right In Rem
The Regulation specifies a relatively simple application procedure and a decision making-process for limited rights in rem (such as easements, mortgages, occupation rights, construction rights and "usufruct rights"). To acquire a limited right in rem, a Foreign-Owned Company must first apply to the Provincial Planning and Co-ordination Directorate of the relevant provincial governorship and present the following information/documents:
- letter of application showing the purpose of the application and information concerning the relevant real property;
- certificate of authorisation clarifying the Company is permitted to acquire real property and appointing the Company's representative;
- information on the Company's registered tax number and the tax office at which the Company is registered; and
- document, issued by the relevant trade registry within the last one month preceding the application, that shows the scope of activities, the names or titles of its shareholders, their nationalities and shareholding structure in the Company's articles of association
Following an application, the relevant governorship seeks clearance from the Provincial Directorate of Industry and Commerce whether the application for the real property acquisition complies with the scope of activities of the Company (reply to be given within seven days). On receiving the Provincial Directorate of Industry and Commerce's response, the governorship will give its definite decision on the permissibility of the acquisition. Once the governorship has approved the acquisition (by providing an approval document) the acquirer of the right in rem can then finalise the acquisition at the relevant Land Registry.
2.6 Exemption For Establishment Of Mortgage In Favour Of A Foreign-Owned Company
On 2 December 2008 the General Directorate of Land Registries and Cadastre issued a circular in relation to the acquisition of mortgage rights in rem by companies subject to the FDIL (including banks and other financial institutions). The aim of this circular is to simplify the approval process for Foreign-Owned Companies which will need to establish a number of mortgage rights at the same Land Registry.
The circular provides that companies subject to the FDIL need only go through the governorship application process once in relation to a relevant Land Registry. For example, if an international bank wishes to obtain a mortgage right at the Besiktas Land Registry, the bank will only need to obtain one appoval document from the relevant governorship (which will be addressed to the Besiktas Land Registry). When that bank wishes to obtain another mortgage right at the same Land Registry it only has to provide a certified copy of the approval document that it originally obtained from the relevant governorship.
3 Conclusion: Remaining Confusions
In our view, there are still the following confusions in Article 36 of the Title Deed Law (as amended by the Amending Law) and the Regulation:
- Indirect ownership
It is not clear whether Turkish companies that are indirectly owned by foreign investors (i.e. Turkish companies that have foreign shareholders) are subject to the restrictions in Article 36 (as amended).
- Listed companies/companies with bearer share
It is not clear how the Land Registry Offices will deal with companies that are listed on the stock exchanges or other Turkish companies which have bearer share certificates or bearer temporary share certificates.
- Timing of application/investigation process
It is not clear how long the entire process for an application for acquisition of real property by a Foreign-Owned Company will take (even though the Regulation refers to certain time limits). It is also not clear how long a Commission investigation will take.
We expect the principles and procedures on the acquisition of real property in Turkey to become clearer when the Regulation is digested and applied in practice by the Land Registry Offices. What is clear, however, is that Foreign- Owned Companies must draft the scope of business section of their articles of association carefully to allow for or anticipate the acquisition of real property in Turkey.
Acquisition Of A Turkish Real Property By A Foreign-Owned Company
1. If the acquirer wishes to acquire a limited right in rem (such as easements, mortgages, occupation rights, construction rights and "usufruct rights") it does not have to provide the information/documents in sections (e), (f) and (g) and the relevant governorship will not request clearance from the Military Authorities and General Directorate of Security. Please also note the exemption in relation to multiple acquisitions of a mortgage right in rem as set out in paragraph 2.6 above.
2. We recommend that any acquirer expressly discloses to the Land Registry that it is a Foreign-Owned Company (FOC) to avoid any future compulsory sale risk. If the Land Registry has no evidence from the documents provided to it that the acquirer is a FOC, it will require the acquirer to sign a statement to the effect that: "the company acquiring the real estate below is not a FOC. It is aware that if it were in fact a FOC the real estate shall be subject to a compulsory sale under Article 36 of the Title Deed Law". This statement is recorded in the relevant official title transfer documents and signed by both the acquirer and the seller.
Guner Law Office was established in 1996 and has since grown into one of the major corporate, M&A, banking, litigation, energy and TMT practices in Turkey. Guner Law Office is headed by Ece Guner and works with international law firm Denton Wilde Sapte.
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.