Turkey: Doing Business In Turkey

1. Legal framework

1.1 Does your jurisdiction have a civil law system, a common law system or a hybrid system?

Türkiye has a civil law tradition. Thus, it is essentially part of the continental European system, which is characterised by a codified system of laws and clear separation between private and public law. In this respect, Türkiye has a comprehensive system of codes and statutes that govern different areas of law; while judicial decisions are considered auxiliary sources of law.

The Turkish legal system has been heavily influenced by Swiss civil law. For instance, one major reform in the field of civil law was realised in Türkiye with the adoption in 1926 of the Civil Code (4721), which regulates issues such as family law, property, inheritance law and personal rights. (A new Civil Code came into force in 2001.)

Turkish law is based on the following hierarchy of norms:

• the Constitution;
• statutes and international treaties to which Türkiye is a party;
• presidential decrees;
• regulations; and
• other regulatory norms.

In principle, international treaties ratified by the Grand National Assembly have the force of national statutes. However, pursuant to Article 90(5) of the Constitution, in case of any conflict between international treaties and national statutes, the former will prevail.

In addition, the constitutional jurisdiction to be exercised by the Constitutional Court against norms that would result in the violation of fundamental rights and freedoms protected by the Constitution is envisaged.

1.2 Which legislative and regulatory provisions primarily govern the establishment and operation of enterprises in your jurisdiction?

The Commercial Code (6102) is the primary law governing the establishment and operation of enterprises under Turkish law. In general, the Commercial Code regulates commercial enterprises, including:

• company types;
• establishment;
• commercial books;
• management bodies; and
• capital structure.

It also contains rules applicable to merchants.

Additionally, there are secondary laws and regulations that complement and align with the Commercial Code. These secondary instruments provide detailed guidelines on specific aspects of business operations, ensuring conformity with the broader principles established in the Commercial Code. Enterprises must adhere to these secondary instruments in conjunction with the Commercial Code in order to establish and operate their businesses in compliance with Turkish law.

1.3 Which bodies are responsible for drafting and enforcing these provisions? What powers do they have?

The power to enact laws is the exclusive preserve of the Grand National Assembly, according to the Constitution. In this respect, no organ other than the legislature has the power to enact or abolish laws. However, the president may issue presidential decrees on issues relating to executive power under the current presidential government system, which was implemented in Türkiye on 9 July 2018. Additionally, public authorities such as the following are entitled to introduce new regulations through communiqués and agency decisions within the legal limitations set forth by law:

• the Banking Regulation and Supervision Agency;
• the Energy Market Regulatory Authority;
• the Personal Data Protection Authority; and
• the Competition Authority.

These authorities primarily supervise the operations of both legal entities and individuals.

Regulations issued by these authorities may be enforced either by the executive organs or by the judiciary. In principle, the administration which has the executive power is responsible for the enforcement of laws. The administration exercises its power to enforce the law through its authorities in accordance with its organisational structure.

2. Types of business structures

2.1 What are the main types of business structures in your jurisdiction and what are their key features?

Under the Commercial Code, business structures can be set up as:

• capital companies, in the form of:
• • joint stock companies (JSCs);
  • limited liability companies; and
  • limited partnership companies with capital divided into shares; or
• sole proprietorship companies, in the form of collective and limited partnerships.

The main types of business structures in Türkiye are JSCs and limited liability companies (LLCs). There is no required minimum number of shareholders in JSCs and LLCs; thus, both types can be established by a single shareholder, which may be a natural or legal person.

In principle, the liability of shareholders in JSCs and LLCs is limited to the share capital committed by the shareholders. However, where a public debt cannot be collected from an LLC, the shareholders are liable for this debt with their own assets in proportion to their shareholdings.

In practice, JSCs are known for:

• their flexibility;
• the ease with which shares can be transferred; and
• their ability to raise capital through public offerings.

Meanwhile, LLCs offer the advantage of reflecting the parties' commercial understanding. It is possible to include strict share transfer restrictions, drag-along rights, rights of first refusal and more in their articles of association, making them a preferred choice for smaller and medium-sized enterprises.

2.2 What capital requirements apply to these different types of business structures?

The capital requirements for different types of business structures in Türkiye vary depending on the legal entity.

The minimum capital requirement for a JSC is TRY 250,000. However, for non-public JSCs that opt for the registered capital system, the initial capital must be at least TRY 500,000. When establishing a JSC, a crucial requirement is that at least one-quarter of the share capital be paid before registration of the company. The remaining amount can be paid within 24 months of registration. The payment schedule can be specified in the articles of association or determined by the board of directors.

LLCs also have a minimum share capital requirement of TRY 50,000. For LLCs, it is possible to pay the entire capital amount in cash within 24 months of registration. Similar to JSCs, the payment schedule for LLCs can be stipulated in the articles of association or decided on by the appointed managers.

In addition to these general capital requirements, particular sectors may impose additional minimum capital requirements. For instance:

• legal entities applying for a licence to operate a charging network must have a minimum capital of TRY 4,500,000;
• the minimum paid-in capital for a digital bank licence is TRY 1 billion; and
• traditional banks must have a minimum paid-in capital of TRY 2.5 billion.

2.3 What is the process for establishing these different types of business structures? What procedural and substantive requirements apply in this regard? What is the typical timeline for their establishment?

The process of establishing a company in Türkiye involves several essential steps. First, an application should be submitted to the national e-registration system (known as MERSIS) to schedule an appointment with the relevant Trade Registry Directorate. The documents that must be submitted differ depending on:

• whether the incorporator and/or board members/managers are Turkish or foreign; and
• the natural/legal person status of the incorporator and/or board members/managers.

That said, some documents must be submitted in any case – these include:

• the petition letter requesting registration;
• a Chamber of Commerce registration declaration;
• the articles of association; and
• a bank letter evidencing payment of the required minimum share capital.

For foreigners, a Turkish tax identification number must also be obtained. Further, if a legal entity is elected as a member of the board of directors or a manager, a natural person representative must also be appointed. For all documents that are issued or signed abroad, either apostille verification or Turkish consulate verification is necessary.

Typically, the incorporation process proves efficient, taking around one week from the submission of documentation to the Trade Registry Directorate. The establishment of branches and liaison offices, however, requires additional documentation and the establishment process may take longer, as special permission or confirmation from relevant authorities may be required. Notably, the precise timeline may be subject to:

• location-specific nuances; and
• compliance with all regulatory procedures.

2.4 What requirements and restrictions apply to foreign players that wish to establish a business directly in your jurisdiction?

In Türkiye, there are no overarching constraints imposed on foreign investment, ownership or managerial control. A foreign business that intends to operate in Türkiye directly as a foreign investor can:

• incorporate or invest in companies; or
• establish:
• • a liaison office;
  • a branch; or
  • a Turkish subsidiary.

Likewise, foreign individuals can invest in real estate, although certain geographical and military zone limitations apply. Furthermore, foreign investors residing outside Türkiye can conduct transactions involving Turkish securities and other capital markets instruments with ease, facilitated through authorised banks or brokerage houses.

However, there are various restrictions on foreign shareholdings in specific sectors. In such cases, foreign ownership and investments are either:

• explicitly prohibited by law; or
• subject to predefined maximum thresholds.

For instance:

• the aggregate foreign ownership in media service companies is capped at 50%; and
• foreign shareholdings in the maritime sector are restricted to 49%.

Additionally, in select sensitive sectors – including insurance, banking, telecommunications and energy – foreign investors must seek prior approval from the relevant regulatory authority. Reciprocity also plays a role in certain sectors, such as private security services.

2.5 What other opportunities, using people/entities not connected with the main person, are there to do business in your jurisdiction (eg, agency, resale); and what requirements and restrictions apply in this regard?

In Türkiye, there are several opportunities for individuals or entities to engage in business activities that are not directly connected with the primary person or entity. These include agency, resale and franchising arrangements. Each of these options has its own requirements and restrictions while enabling the conduct of commercial activities based on a contractual relationship:

• Agency agreements: A common method is to establish an agency relationship, whereby one party (the agent) represents another (the principal) in commercial activities. This can be a lucrative option, especially for foreign businesses looking to enter the Turkish market. However, agency agreements:
• • should comply with the Commercial Code; and
  • in some cases, may require registration with the relevant Trade Registry Directorate.
• Resale: Reselling products or services of other businesses is another viable option. Resellers can operate as wholesalers, retailers or distributors, depending on their business model. There may be specific licensing and registration requirements, especially in regulated sectors such as pharmaceuticals and food products.
• Franchising: Franchising offers the opportunity to operate a business using an established brand and business model. The parties sign a franchise agreement, which refers to a contractual marketing system. In most cases, this agreement is subject to the agency-related rules of the Commercial Code.

3. Directors and management

3.1 How is management typically organised in the different types of business structures in your jurisdiction?

Joint stock companies (JSCs) and limited liability companies (LLCs) must have two management bodies:

• the general assembly of shareholders; and
• the board of directors in JSCs and the board of managers in LLCs.

There is no hierarchical relationship between the two bodies and the division of their roles and duties is strictly defined by law.

In essence, the general assembly of shareholders consists of company shareholders and may only decide upon matters that are listed under the Commercial Code. The general assemblies of both LLCs and JSCs are exclusively authorised to:

• amend the articles of association;
• appoint and dismiss auditors;
• approve financial statements and annual reports;
• declare dividends and profit shares; and
• dissolve the company.

Non-delegable powers of the general assembly of shareholders in JSCs further include:

• the appointment, discharge and removal of members of the board of directors and determination of their financial rights and remuneration; and
• the sale of a significant amount of company assets.

Similarly, the general assemblies of shareholders of LLCs are authorised to decide upon:

• the appointment, discharge, removal and determination of financial rights of managers;
• applications to court for the expulsion of a shareholder; and
• the approval of acquisitions of the company's own shares.

The board of directors in JSCs and the board of managers in LLCs are appointed by the general assembly of shareholders and are authorised to undertake the management and representation of the company. They are mainly responsible for the day-to-day management and strategic decision-making of the company.

3.2 Is the establishment of specialist committees recommended or mandated for certain types of enterprises? If so, which areas should they cover?

There is no regulation that obliges companies to establish committees, except for publicly held companies. Publicly held companies, in accordance with the Corporate Governance Principles overseen by the Capital Markets Board, are mandated to form five committees to fulfil their corporate responsibilities effectively:

• The audit committee plays a pivotal role in supervising:
• • the accounting system;
  • financial information disclosure;
  • independent auditing; and
  • the efficiency of internal controls and the audit system.
• It oversees the selection of independent audit institutions and monitors their activities at all levels.
• The corporate governance committee ensures compliance with corporate governance principles and addresses non-compliance issues, providing recommendations for improvement.
• The nomination committee focuses on:
• • establishing a transparent system for identifying, evaluating and training suitable candidates for management roles; and
  • formulating relevant policies.
• The risk committee is responsible for identifying and managing risks that could jeopardise the company's existence and development.
• The remuneration committee designs principles and criteria for remunerating board members and executives, considering long-term company goals and performance criteria.

Furthermore, banks must establish an audit committee to assist in audit and oversight activities. While not mandatory under the Commercial Code, the boards of directors of privately held/closed companies may opt to establish committees to enhance internal monitoring, conduct audits or implement specific decisions effectively.

3.3. Is the appointment of corporate directors permitted in your jurisdiction?

Unlike in some other jurisdictions, the Turkish Commercial Code and relevant regulations do not specifically recognise the concept of corporate directors. In Türkiye, companies have a management body comprised of natural or legal persons, which is responsible for the management and decision-making of the company within its authority. The management organ is the board of directors in JSCs and the board of managers in LLCs.

3.4 What requirements and restrictions apply to the appointment of directors, in terms of factors such as number, residence, independence, diversity etc?

The board of directors and board of managers may consist of one or more persons, including legal entities. If a legal entity is appointed as a board member or a manager, a natural person representative must also be appointed and registered with the Trade Registry Directorate. In the case of JSCs, the board members need not be shareholders. Also, a member may be appointed for a maximum of three years, although reappointment is a viable option upon the expiry of this term. However, a more stringent requirement applies to LLCs, mandating that at least one of the managers also be a shareholder.

In publicly held companies, compliance with the Corporate Governance Principles is imperative. These principles provide that the boards of directors of publicly held companies must consist of a minimum of one-third independent members relative to the total number of board members, with the minimum number of board members set at five. Regardless of the overall composition, publicly held companies must always have at least two independent members on their board. Similarly, the boards of directors of banks and insurance companies must have at least five members.

While the law does not impose extensive constraints, companies are granted the flexibility to outline specific qualifications for the appointment of members of their board of directors and board of managers in their articles of association. Additionally, the title of board members or managers can be terminated automatically due to legal circumstances such as:

• a loss of capacity to act;
• bankruptcy; or
• other reasons specified in the law or in the articles of association.

3.5 How are directors selected, appointed and removed? Do any restrictions or recommendations apply to their tenure?

In JSCs and LLCs, all members of the board of directors and board of managers are appointed by the shareholders – this is one of the unassignable duties of the general assembly of shareholders.

During the incorporation of a company, the board of directors is established by unanimous vote of the founders under the articles of association. After incorporation, the board members can be replaced by the shareholders only. However, exceptionally, it is also possible for the members of the board of directors to be elected by the co-option method – that is, by the board itself. Accordingly, in case of a vacancy on the board of directors for any reason, the remaining members may temporarily elect a person who meets the legal requirements to fill that vacancy. The member elected by this method is submitted to the approval of the shareholders at the next meeting of the general assembly of shareholders.

Board membership automatically terminates without any action in the event of:

• the bankruptcy of the member;
• loss of the qualifications stipulated in the articles of association of the company or the law;
• restriction of the member's capacity; or
• the death of the member.

Resignation will also terminate the board membership. In addition, the general assembly of shareholders may dismiss a board member at any time, provided that:

• this is included on the agenda of the general assembly of shareholders; or
• there is a justifiable reason for dismissal.

3.6 What are the directors' primary roles and responsibilities, and how are these exercised?

According to the Commercial Code, the board of directors is authorised to make decisions with regard to all business and transactions that must be conducted within the company's scope of activity, excluding those that are subject to the authority of the general assembly of shareholders by law and the articles of association. The board of directors is responsible for the overall management and decision-making of the company. Although the board of directors can delegate some of its powers and responsibilities to others, some tasks and powers of the board of directors cannot be delegated. Article 375 of the Commercial Code enumerates these non-delegable tasks and powers as follows:

• the top-level management of the company and the provision of instructions in this regard;
• the determination of the company's management organisation;
• the establishment of the necessary financial systems;
• the appointment and dismissal of managers and authorised signatories;
• high-level supervision of whether the persons in charge of management are acting in accordance with:
• • the law;
  • the articles of association;
  • internal regulations; and
  • the written instructions of the board of directors;
• the retention of commercial books, preparation of the annual report and corporate governance disclosure and submission thereof to the general assembly of shareholders, organisation of meetings of the general assembly of shareholders and enforcement of resolutions of the general assembly of shareholders; and
• notification of the court where the company's liabilities exceed its assets.

The board of directors exercises these powers and duties by taking decisions at board of directors' meetings. Participation in meetings and the decision-making process is one of the most important obligations of board members and is thus also a non-delegable duty of the board. In other words, board members cannot be represented at meetings by other members or third parties by proxy.

3.7 Are the roles of individual directors restricted? Is this common in practice?

Board members must not compete with the company as an essential aspect of their duty of loyalty. If a member fails to comply with this non-compete obligation, the company may:

• demand compensation; or
• consider the transaction performed by the member as if it were conducted on behalf of the company.

In addition, the general assembly of shareholders may remove the member from the board. There is no need to prove fault on the part of the concerned member.

Board members are also prohibited from:

• executing related-party transactions; and
• borrowing from the company.

According to Article 395 of the Commercial Code, a board member cannot conduct any transaction with the company in his or her own name, or that of any other person, without permission from the general assembly of shareholders. In case of violation, the company can claim that the transaction is null and void. However, the counterparty cannot make such a claim. In addition:

• members of the board of directors and their relatives cannot become indebted in cash or in kind to the company; and
• the company cannot:
• • provide surety, guarantee or security for these persons;
  • undertake liability; or
  • take over their debts.

Otherwise, the creditors of the company can start execution proceedings directly against these persons for the debt of the company.

3.8 What are the legal duties of individual directors? To whom are these duties owed?

The legal duties of the board of directors can be classified into three main categories:

• the duty of care,
• the duty of loyalty; and
• the duty of obedience.

These duties are owed to the company and the shareholders:

• Duty of care: This refers to the level of competence and business judgement expected from each member of the board of directors. This includes:
• • ensuring that the company is operating in a financially sound manner;
  • supervising the management of the company; and
  • making informed decisions.
• The board of directors must act in accordance with the principle of equal treatment and the business judgement rule.
• Duty of loyalty: This refers to the duty of the board of directors to act in the best interests of the company and its shareholders. This includes:
• • ensuring the transparency and fairness of the company's financial reporting; and
  • ensuring that the articles of association and internal regulations are being followed.
• Accordingly, the board members must protect shareholders' rights and avoid conflicts of interest. The duty of loyalty also includes:
• • a non-compete obligation (see question 3.7);
  • an obligation of confidentiality; and
  • a prohibition on insider trading.
• Duty of obedience: This requires members to:
• • respect the limits of the board of directors' powers; and
  • use those powers to help the company fulfil its objectives, while respecting and obeying the law.
• The duty of obedience includes:
• • a prohibition on related-party transactions; and
  • a prohibition on borrowing from the company.

3.9 To what civil and criminal liabilities are individual directors primarily potentially subject?

According to Article 553 of the Commercial Code, members of the board of directors can be held liable for damages incurred by the company, the shareholders or creditors if they fail to fulfil their duties arising from the law or the articles of association. However, the legal liability of the board of directors is fault based, which means that they cannot be held liable for any loss or damage that occurs beyond their control as a prudent businessperson. The conditions sought for legal liability are:

• damage;
• an unlawful act;
• fault; and
• a causal link.

The criminal liability of members of the board of directors often arises in the exercise of their management and representation duties; however, such liability may also arise as a result of their personal actions. Although the provisions on criminal liability are regulated in detail under Turkish law, they are quite dispersed. Penal sanctions for board members are regulated in more than one statute, although the Commercial Code is the primary one. The sanctions regulated in the Commercial Code are mostly punitive or administrative fines. However, in some cases board members may also face imprisonment – for example, in case of:

• the inaccuracy of statements, as regulated in Article 549 of the Commercial Code; or
• abuse of trust, as regulated in Article 155 of the Penal Code.

4. Shareholders/members

4.1 What requirements and restrictions apply to shareholders/members in your jurisdiction, in terms of factors such as age, bankruptcy status etc?

Under Turkish law, both natural and legal persons can be shareholders. The gender, nationality and marital or bankruptcy status of the shareholder do not constitute limitations to shareholding.

However, in some sectors and under certain conditions, certain restrictions may apply to shareholdings. First, the articles of association of the company may stipulate requirements regarding the qualifications of shareholders. In addition, pursuant to Article 940 of the Commercial Code, in order for a ship to be considered a Turkish ship, a majority of the shares of the company which owns the ship must be held by Turkish shareholders. Similarly, Article 49 of the Civil Aviation Code (2920) sets out a shareholding limitation based on nationality. Also, the Law on Private Security Services (5188) imposes a restriction on shareholdings based on nationality. Accordingly, the right of foreign persons to establish private security companies or provide private security services in Türkiye is subject to the principle of reciprocity.

Special limitations also apply to the shareholders of financial institutions. For instance, Article 8 of the Banking Law (5411) imposes several conditions on the shareholders of a bank, such as the following:

• They must not have been declared bankrupt; and
• They must not have been convicted of offences such as embezzlement, extortion or bribery.

4.2 What rights do shareholders/members enjoy with regard to the company in which they have invested?

Under the Commercial Code, shareholders are entitled to both personal and financial rights. Within the scope of personal rights, shareholders have the right to:

• participate in the meeting of the general assembly of shareholders, either in person or by proxy, regardless of the number of shares they hold;
• express their opinions, propose resolutions and cast votes during the meeting of the general assembly of shareholders. Unless otherwise provided in the articles of association, voting rights are determined based on the rate of participation in the share capital;
• access information about the company in accordance with Article 437 of the Commercial Code, including by:
• • conducting a thorough review prior to the general assembly of shareholders;
  • receiving pertinent information from the board of directors during the general assembly of shareholders; and
  • scrutinising issues after the general assembly of shareholders that have not been adequately addressed; and
• request the appointment of an independent auditor during the general assembly of shareholders where this is deemed essential for them to exercise their shareholders' rights. If such a request is denied, the shareholders retain the right to seek this appointment through a court proceeding.

In accordance with their financial rights, shareholders have the right to receive dividends in proportion to their participation in the share capital, unless the articles of association provide otherwise. Additionally, shareholders enjoy a pre-emption right when it comes to acquiring new shares subsequent to a capital increase. This pre-emption right can be restricted only:

• for justifiable reasons; and
• with the consent of shareholders representing a minimum of 60% of the total capital according to Article 461 of the Commercial Code.

Should a shareholder wish to procure new shares following a capital increase, it will be obliged to pay the value of these shares.

4.3 How do shareholders/members exercise these rights? Do they have a right to call shareholders' meetings and, if so, in what circumstances?

In principle, shareholders have the right to exercise their rights through the general assembly of shareholders, which can be convened as an ordinary or extraordinary meeting. An ordinary must be held annually within three months of the end of the financial period; while an extraordinary meeting can be convened whenever necessary. The calling of a general assembly of shareholders is initiated by the board of directors, which is responsible for publishing a notice in the Trade Registry Gazette and on the company's website at least two weeks before the meeting date.

Additionally, minority shareholders that represent at least 10% of the share capital in privately held/closed companies and 5% of the share capital in publicly held companies have the right to request the board of directors to:

• convene a meeting of the general assembly of shareholders; or
• add an article to the agenda of an upcoming meeting.

If the board refuses this request, the shareholders can ask the competent court to order that a meeting be convened.

4.4 What influence can shareholders/members exert on the appointment and operations of the directors?

The authority to appoint and dismiss members of the board of directors is granted to the shareholders. The shareholders' authority over the board of directors is quite limited and in principle, they may exercise this authority only through the general assembly of shareholders. In this respect, Article 375 of the Commercial Code sets out certain powers and duties of the board of directors as inalienable and indispensable, such as:

• high-level management of the company; and
• determination of the management structure of the company.

Shareholders cannot restrict the board of directors' authority in a way that would contravene these unalienable and indispensable powers and duties. However, certain decisions of the board of directors may be subject to an action for nullity according to Article 391 of the Commercial Code. In particular, shareholders may file suit for the nullification of decisions of the board of directors that:

• do not comply with the basic structure of the joint stock company (JSC);
• do not comply with the principle of capital protection; or
• violate the inalienable rights of the shareholders.

Also, an action may be filed by the shareholders for the liability of board members for damages suffered by the company. In limited liability companies (LLCs), the shareholders may request the court to remove or limit the management rights and representation powers of the managers pursuant to Article 630 of the Commercial Code.

4.5 What are the legal duties/responsibilities and potential liabilities, if any, of shareholders/members?

The shareholders of JSCs are liable to the company only with the capital that they have committed. Once the capital debt has been fulfilled, it is not possible to incur new and additional capital debts without the consent of the shareholders.

In LLCs, on the other hand, the shareholders are directly liable for public debts that cannot be collected from the company in whole or in part, or that are understood to be uncollectible, in proportion to their capital shares.

Moreover, the Commercial Code imposes certain liabilities on the controlling shareholder of a group of companies. As a main principle, the controlling shareholder may not exercise its dominance in a way that causes loss to subsidiaries.

4.6 To what civil and criminal liabilities might individual shareholders/members be subject?

Shareholders in JSCs and LLCs may be subject to civil or criminal liability in very limited circumstances. Accordingly, in the case of a group of companies, the controlling shareholder may be held liable towards other shareholders and creditors with regard to losses that a subsidiary has incurred due to its decisions. The rules governing the liability of the controlling company are set out in Articles 202 and following of the Commercial Code. In such cases, the controlling company may not exercise its dominance in a way that causes losses to a subsidiary – in particular, by:

• reducing or transferring the profits of the subsidiary; or
• restricting its assets with rights in rem or in personam.

In addition, if the controlling company has reached a level of renown that inspires trust in society and consumers, it may be held liable for such trust engendered by its reputation. To establish such liability:

• the controlling company must have earned a genuine sense of trust within society;
• the reputation of the group should have created an expectation in the person concerned regarding the damaging action; and
• the controlling company must have either explicitly or implicitly endorsed the connection between itself and the group.

4.7 Are there rules governing the issuance of further securities in a company? Do rights of pre-emption exist and, if so, how do they operate? Can they be circumvented? If so, how and to what extent?

Shareholders have a pre-emptive right in case of a share capital increase. Pursuant to Article 461 of the Commercial Code, a shareholder has the right to purchase newly issued shares in proportion to its existing shareholding. Also, shareholders may freely transfer their pre-emptive right. However, this pre-emptive right may be limited or cancelled if there is a justified reason, provided that at least 60% of the share capital votes affirmatively. The Commercial Code sets out a non-exhaustive list of justifiable reasons. Accordingly, the pre-emption right may be restricted for the purpose of:

• a public offering;
• a company acquisition; or
• the participation of employees in the company.

Resolutions of the general assembly regarding the limitation or removal of pre-emptive rights in violation of the procedures and principles set by the Commercial Code are voidable. Article 461(3) of the Commercial Code imposes liability on the board of directors with regard to the exercise of the pre-emptive right. If the board of directors breaches its liability in this regard and prevents a shareholder from exercising this right, the shareholder may apply to court for compensation for damages from the board of directors. Additionally, the shareholder may file an action of fulfilment against the company to exercise its pre-emptive right.

4.8 Are there any rules on the public disclosure of levels of shareholding and/or stake building?

Certain shareholder matters resolved at meetings of the general assembly of shareholders are subject to registration with the Trade Registry Directorate and announcement in the Trade Registry Gazette. These matters mainly include:

• structural changes;
• amendments to the articles of association; and
• capital increases or decreases.

Additionally, according to Article 1523 of the Commercial Code, JSCs that are subject to audit must designate a certain part of their website for publication of the requisite disclosures. For publicly held companies, according to the Corporate Governance Principles (Annex I of Corporate Governance Communiqué II-17.1) issued by the Capital Markets Board, the company website must include:

• Trade Registry information;
• up-to-date information about the shareholding and management structure;
• detailed information about privileged shares; and
• the final version of the articles of association.

Also, if a group of companies exists as defined in the Commercial Code and one company acquires or disposes of certain percentages of shares in the capital of the subsidiary, the company must notify that subsidiary and the competent authorities within 10 days of completion of the relevant transactions.

In addition, publicly held companies must comply with the public disclosure rules set out in the Communiqué on Material Events II-15.1.

5. Operations

5.1 What are the main routes for obtaining working capital in your jurisdiction? What are the advantages and disadvantages of each?

In Türkiye, companies have various funding options, such as:

• bank loans;
• acquisition financing, whereby the company obtains capital through different methods to acquire another company or its own shares, whether through debt, equity or other hybrid practices;
• shareholder subscriptions to the company's share capital. When new shares are issued or the share capital is increased, no taxes are imposed on the company or its shareholders to receive the new shares. However, specific rules apply in certain regulated sectors (eg, banking); and
• conditional capital increases, whereby the company's share capital is increased by granting exchange rights or purchase options to qualified creditors or employees in connection with convertible bonds or similar debt instruments in accordance with Article 461 of the Commercial Code.

5.2 What are the main routes for the return of proceeds in your jurisdiction? What are the advantages and disadvantages of each?

The primary method of returning proceeds to shareholders is through the distribution of dividends. If the company makes a profit over the year, 5% of the annual profit must be set aside as a general legal reserve until the company has accumulated 20% of the paid-in capital, according to Article 519 of the Commercial Code. Subsequently, once a dividend of 5% is paid out to shareholders, 10% of the total amount intended for distribution to shareholders and other persons designated in the articles of association to receive a share of the profit must be added to the general legal reserve fund. Decisions on whether to distribute dividends to shareholders and the amount to be distributed are made at the meeting of the general assembly of shareholders.

5.3 What requirements and restrictions apply to foreign direct investment in your jurisdiction?

Foreign direct investment (FDI) in Türkiye is regulated by several regulations, including:

• international treaties;
• the FDI Law (4875); and
• the accompanying Regulation for the Implementation of the FDI Law (31276).

The FDI Law entered into force on 17 July 2003 and introduced significant changes with the aim of making Türkiye a more attractive destination for foreign investors. One of the major improvements introduced by the FDI Law was the elimination of the approval process. Instead, the law established a more open and investor-friendly environment based on the principles of fair treatment and the unrestricted ability to take profit out of the country. Under the FDI Law, foreign investors need only:

• inform the Ministry of Treasury and Finance of their investment activities in Türkiye, whether they involve greenfield investments, share transfers or any other form of investment; and
• specify the amount of foreign capital being invested.

The only exception to this rule concerns the establishment of liaison offices, which requires prior approval from the Ministry of Industry and Technology. The FDI Law also ensures that companies with foreign shareholdings are treated equally to those with domestic shareholdings. Foreign investors have the option either to:

• establish a company with complete ownership; or
• purchase all shares of an existing Turkish company.

Nonetheless, there are restrictions on foreign investment when it comes to acquiring real estate in certain zones in Türkiye, such as military areas or special security zones. Additionally, specific sectors – such as TV broadcasting, maritime and civil aviation – impose restrictions on foreign shareholdings.

5.4 What exchange control requirements apply in your jurisdiction?

Recent developments in Turkish law have introduced significant changes through certain exchange rate regulations and opportunities. One of the major regulations, known as the Foreign Exchange Protected Deposit Accounts Regulation, was introduced on 21 December 2021. This regulation is designed to provide individuals with a secure banking option for foreign currency deposits. It aims to guarantee that individuals do not lose potential gains resulting from the appreciation of foreign currencies. Specifically, if the foreign currency's appreciation rate exceeds the determined Turkish lira interest rate on the maturity date of the deposit, the difference will be compensated. Natural persons and legal entities residing in Türkiye, excluding banks and other financial organisations, may benefit from this instrument until 31 December 2023.

Additionally, Communiqué 2022-32/66 (as amended and supplemented from time to time) introduced a new prohibition regarding foreign currency transactions. Further to this amendment, the agreed price in various contracts must be settled in the local currency. However, the prohibition in question applies exclusively to contracts between Turkish residents. Accordingly, for example, transactions involving the sale of goods between a Turkish resident and a foreign resident can still be conducted in foreign currency.

Under Banking Regulatory and Supervisory Authority Decision 10250 of 24 June 2022 (as amended and supplemented from time to time), Turkish lira borrowing by companies, other than banks and financial institutions, which are subject to independent audits is now subject to a foreign currency asset restriction. In this respect, companies that do not meet the specified conditions outlined in the decision will no longer be eligible to borrow commercial cash loans in Turkish lira.

5.5 What role do stakeholders such as employees, pensioners, creditors, customers, and suppliers play in shaping business operations in your jurisdiction? What other influence can they exert on an enterprise?

As Türkiye is a member of the Organisation for Economic Co-operation and Development (OECD), the 2015 Principles of Corporate Governance constitute precedent for determining the impact of different groups on business operations in the country.

In this regard, the principles suggest some fundamental elements of corporate governance. For instance, they emphasise the importance of providing employees with regular access to accurate information about company operations, including through:

• the freedom to openly communicate with company representatives; and
• the involvement of employees in management and decision-making processes.

Furthermore, Turkish law provides mechanisms for employees to become shareholders. The system that allows employees to become shareholders – referred to as an 'employee stock ownership plan' (ESOP) – is not yet as commonly utilised in Türkiye as it is in other countries. However, since the implementation of the Commercial Code in 2012, ESOPs have become more popular, particularly among startups. The primary ESOP methods utilised in Türkiye include:

• direct ESOPS, in which employees directly hold shares in the company; and
• phantom stock option plans (PSOPs), which provide employees with financial rights or benefits such as dividends without granting them actual ownership of the shares.

5.6 What key concerns and considerations should be borne in mind with regard to general business operations in your jurisdiction?

General business operations in Türkiye are straightforward, provided that mandatory laws and regulations are diligently followed. Key considerations include:

• compliance with tax regulations, including income tax, value-added tax and corporate tax rules;
• strict adherence to anti-money laundering rules to prevent financial misconduct;
• protection of the safety and wellbeing of employees and customers through compliance with workplace safety regulations; and
• proper collection and storage of personal data in accordance with the Data Protection Law (6698).

Moreover, regulated sectors – such as banking, energy, security and pharmaceuticals – are subject to industry-specific rules and licensing requirements. In such sectors, the acquisition of the requisite licences and permits is imperative for legal operation.

6. Accounting reporting

6.1 What primary accounting reporting obligations apply in your jurisdiction?

The primary accounting reporting obligations of entities are mainly regulated in the Commercial Code. The Commercial Code sets out requirements on how entities should maintain their financial records and report their financial information. According to the Commercial Code, entities must:

• keep books;
• conduct regular inventory checks; and
• prepare financial statements throughout the year.

Directors are responsible for:

• ensuring that accurate and timely financial information is provided to shareholders, creditors and other stakeholders as required; and
• fulfilling tax reporting obligations, including corporate income tax returns and other tax filings.

When reporting their income, expenses, financial status and tax liabilities companies must further comply with:

• the Income Tax Law (193);
• the Corporate Tax Code (5520); and
• the Value-Added Tax Law (3065).

Turkish legal entities must follow Turkish Accounting Standards or Turkish Financial Reporting Standards, which are aligned with International Financial Reporting Standards. In addition to these regulations, accounting professionals have certain responsibilities to carry out their work with diligence and loyalty. They must observe the duty of care in their preparation of financial records. They also have a duty to loyalty to clients, which means that they must:

• act in their clients' best interests; and
• keep client information confidential.

These obligations ensure that the financial information is reliable and aligned with professional standards.

6.2 What role do the directors play in this regard?

Under the primary accounting reporting obligations in Turkish law, directors are liable for:

• recording the day-to-day financial transactions of business; and
• organising the accounting records.

Article 514 of the Commercial Code states that the board of directors of a joint stock company is liable for preparing the financial statements and annual reports. In this respect, the board of directors must prepare and submit the annual report together with the financial statements to the general assembly of shareholders within the first three months of the accounting period following the balance-sheet date. Directors are also responsible for fulfilling their tax reporting obligations under tax laws, including corporate tax returns and other tax returns. In publicly held companies, directors are obliged to disclose financial reports, material disclosures and other relevant information to the public through the Public Disclosure Platform (PDP) on a regular basis.

6.3 What role do accountants and auditors play in this regard?

Under Turkish law, the responsibilities relating to accounting reporting are divided into two main categories, each involving distinct roles played by two different types of professionals:

• independent accountant financial advisers (IAFAs); and
• sworn-in certified public accountants (CPAs).

IAFAs are responsible for:

• retaining the accounting records of enterprises;
• preparing their financial statements; and
• generating their financial reports.

These reports indicate the financial status and performance of the entity in question. In addition, IAFAs ensure that entities act in accordance with the tax laws by:

• filing tax returns;
• conducting tax planning services; and
• assisting entities in taking advantage of tax benefits.

CPAs are individuals who have obtained legal authorisation and certification specifically for the purpose of conducting independent audits. Their primary role is to independently audit the financial statements of entities. During these audits, CPAs thoroughly examine the accuracy, integrity and compliance of the financial statements. Their assessments ensure that the financial data of the entity is credible and trustworthy. Following the audit, CPAs prepare an audit report based on their findings. This report serves to confirm whether:

• the entity's financial statements have been subjected to an independent audit; and
• the financial information presented is reliable and truthful.

The reports generated by CPAs are crucial in informing the public about the financial standing of the entity. This transparency ensures that investors and other interested parties can access reliable information. Furthermore, CPAs assess the entity's internal control systems and evaluate its financial risks.

6.4 What key concerns and considerations should be borne in mind with regard to accounting reporting in your jurisdiction?

Under Turkish law, there are several significant rules that entities must address when it comes to accounting and financial reporting. These include the following:

• Financial reports must be prepared in accordance with generally accepted accounting principles, such as Turkish Accounting Standards or Turkish Financial Reporting Standards. These principles serve to standardise accounting practices and ensure clear and comparable reporting.
• If financial reports are incomplete or inaccurate, this can lead to various administrative and criminal penalties under the Code of Tax Procedure (213). Such penalties include:
• • tax loss penalties under Article 344 of the code;
  • penalties for irregularities under Article 351 of the code; and
  • penalties for tax evasion offences under Article 359 of the code.
• It is thus of utmost importance for entities to comply with these requirements in their financial reports to avoid penalties.
• Publicly held companies have specific obligations relating to financial reporting and disclosure. Communiqué on Principles Regarding Financial Reporting in Capital Markets II-14.1 stipulates:
• • the obligation to disclose financial reports and amendments thereto through the PDP within the prescribed timeframe; and
  • certain responsibilities of members of the board of directors within this scope.

7. Executive performance and compensation

7.1 How is executive compensation regulated in your jurisdiction?

In Türkiye, executive compensation is primarily governed by agreements concluded between companies and their executives, as there are no specific regulations on executive compensation. However, it is necessary to comply with the mandatory provisions of the Labour Law (4857) and the Code of Obligations (6098). This means that companies have the flexibility to freely determine the remuneration packages for their executives through mutually agreed contracts. That said, executive compensation in Türkiye is often significantly higher than what other employees receive in the company. Executive compensation typically depends on the performance of the company. When the company's performance improves, such as through an increase in turnover or profitability, this is directly reflected in the remuneration of executives. This performance-based approach incentivises executives to contribute to the company's growth and success.

For publicly held companies, Corporate Governance Communiqué II-17.1, issued by the Capital Markets Board, sets out several rules on executive compensation. Accordingly, publicly held companies must establish a remuneration committee which is responsible for determining the compensation policies for board members and executives who have administrative responsibilities within the company. While the Corporate Governance Communiqué mandates the presence of a remuneration committee in publicly held companies, the precise compensation policies may vary from one company to another. However, executive compensation policies must be in writing and presented to shareholders as a separate item on the agenda during the meeting of the general assembly of shareholders.

7.2 How is executive compensation determined? Do any disclosure requirements apply?

In Türkiye, executive compensation is not specifically regulated and companies have the flexibility to decide on this, often contingent upon company performance. There are no prescribed upper or lower limits for executive compensation. However, the compensation of independent board members in publicly held companies must be at a level that ensures their independence, as stated in Article 4.6.3 of the Corporate Governance Communiqué. Although there is no explicit minimum defined for independent board members, the Corporate Governance Communiqué emphasises the importance of offering substantial compensation.

Furthermore, publicly held companies must disclose their executive compensation policy on their website in accordance with the Corporate Governance Communiqué, Additionally, all remuneration and benefits provided to board members and executives with administrative responsibilities are disclosed to the public through the annual report. Non-public companies, on the other hand, are not required to disclose such information by law.

7.3 How is executive performance monitored and managed?

Evaluating the performance of executives is standard procedure in Turkish companies. Companies often establish specific performance metrics and targets for executives, which are periodically reviewed and assessed. These metrics can range from financial goals to operational and strategic objectives. To incentivise performance, companies often link executive compensation to these metrics, offering performance-based bonuses and incentives. This approach motivates executives to work towards achieving the company's overall objectives.

The board of directors is responsible for overseeing executive performance. They may review performance reports, financial results and relevant data to assess how executives are managing the company.

Additionally, the Corporate Governance Communiqué provides guidelines for corporate governance practices, including the evaluation of executive performance. Publicly held companies are encouraged to establish mechanisms for performance evaluation, with the remuneration committee overseeing this process. As per Article 4.6.1 of the Corporate Governance Communiqué, the board of directors engages in self-assessment and performance evaluations encompassing both board members and executives with administrative responsibilities. Executives, including board members and managers with administrative roles, are either rewarded or subject to dismissal based on the outcomes of these assessments.

7.4 What key concerns and considerations should be borne in mind with regard to executive performance and compensation in your jurisdiction?

A significant aspect relating to executive performance and compensation in the Turkish jurisdiction is the classification of upper-level executives – such as chief executive officers, chief financial officers and general executives – as the employer's representatives under the Labour Law. Although these executives operate under employment agreements, their roles come with heightened responsibilities due to their hierarchical positions in the company.

Despite their status as employer's representatives, these executives still retain certain employee rights and obligations, including those relating to working conditions, compensation and benefits. However, they have limited job security compared to their colleagues. This means that their employment agreements may allow for greater flexibility in termination and fewer legal protections in case of dismissal. Also, executives who are authorised to manage the entire company or who are entitled to manage the relevant workplace and to recruit and terminate employees cannot file a reinstatement lawsuit.

Finally, it is crucial for public companies to comply with the Corporate Governance Principles in terms of executive performance and compensation, such as:

• establishing a remuneration committee;
• disclosing the executive compensation policies on individual basis; and
• conducting regular performance evaluations.

8. Employment

8.1 What is the applicable employment regime in your jurisdiction and what are its key features?

Basic labour relations regulations are contained in the Labour Law. However, special labour relations such as jobs in certain sectors (eg, the press, maritime or sports) are regulated in special laws. In addition, the service contract-related provisions of the Code of Obligations apply in other areas not covered by the Labour Law.

The Labour Law contains special provisions and governs the fundamental rights and responsibilities of the parties to an employment agreement. It also contains provisions regarding the employment agreement itself and regulates important issues related to labour relations, such as collective labour agreements and employment disputes. Provisions on dismissal and termination of employment are also found in the Labour Law.

These regulations are designed to:

• ensure the orderly and fair conduct of business relations; and
• govern the basic operation of the Turkish business world.

8.2 Are trade unions or other types of employee representation recognised in your jurisdiction?

Turkish law recognises that trade unions and employees' representation bodies play an important role in protecting the rights of employees and regulating labour relations. Trade unions and employees' representative offices are regulated by the Code of Trade Unions and Collective Labour Agreement 6356. They:

• are defined as organisations that are established to protect, develop and defend the economic, social and professional interests of employees; and
• have the right to be freely established.

The rights and duties of trade unions are set out in detail in the code and in other supplementary law. The unions are authorised to conclude collective labour agreements with employers, including provisions on the protection of the rights of members of labour associations and unions. In addition, employees' representation offices are institutions established:

• to protect the interests of employees in workplaces; and
• to ensure communication between employers and employees.

Employees' representation bodies are not formed by union members but by representatives elected by all employees in the workplace. Trade unions have:

• the freedom to operate independently; and
• the right to pursue legal actions on behalf of their members, including the ability to organise strikes and lockouts.

8.3 How are dismissals, both individual and collective, governed in your jurisdiction? What is the process for effecting dismissals?

As a general rule, contracts of employment with an indefinite term may be terminated upon serving notice to the other party by the terminating party. Once a termination notice has been served, the employment agreement is terminated at the end of the relevant notice period, which is regulated in Article 17 of the Labour Law. On the other hand, it is also possible for an employer to terminate a contract by pre-paying the employee's wages for the notice period.

Employees with a minimum of six months' seniority who are working under an indefinite term in an enterprise where at least 30 employees are employed are protected by law, in that employers cannot terminate their contract without valid grounds. In such cases, parties may immediately terminate the contract of employment only if they have a reason for rightful termination (eg, actions against good faith and immoral actions).

With regard to collective dismissal processes, the employer must first notify the employees' representatives in writing of the collective dismissal plan. The notice should detail:

• the number of employees to be dismissed;
• the reasons; and
• the process.

Meetings are then organised with the employees' representatives. The employer will:

• explain in detail the reasons for and effects of the collective dismissals; and
• give written warning to employees who will be dismissed collectively.

Prior to the implementation of a collective dismissal plan, the employer must send a warning letter to the employees' representatives, which must include the opinions expressed by the employees' representatives.

Finally, dismissals are implemented at the end of the set period and employees are notified in writing of their dismissal.

8.4 How can specialist talent be attracted from overseas where necessary?

Flexible working models are increasingly common in today's world and the remote working model has gained great popularity, especially after the COVID-19 pandemic. Remote working appeals by offering work opportunities to people living abroad. This trend is especially common in the IT sector and many people living in foreign countries can access remote working opportunities.

However, if a company operates in Türkiye or provides services to someone in Türkiye, remote employees must be registered with the Social Security Institution (SSI). SSI registration is important to protect the rights and obligations of both employees and the employer.

In addition, the SSI has reciprocity arrangements with many countries in Europe, which make it possible for people working abroad to maintain their social security. In this way, employees can maintain their social security while working abroad.

8.5 What key concerns and considerations should be borne in mind with regard to employment in your jurisdiction?

The Labour Law plays a critical role in protecting employees' rights and protecting their security, which is the cornerstone of the business world. The law:

• enshrines fundamental rights of employees; and
• affords legal protections which cannot be derogated from to the disadvantage of employees.

Respecting the fundamental rights of employees, providing legal protections for these rights and protecting fundamental issues such as working hours, wages and leave are all key to a fair and sustainable working environment. In addition:

• processes such as hiring, promotion and compensation based on the principle of equality should be adopted; and
• discrimination based on gender, age, race and religion should be avoided.

Workplace health and safety includes measures to be taken to protect the health and safety of employees from dangerous risks. Moreover, child labour is outlawed and special protective regulations apply to young employees.

Turkish law attaches great importance to these fundamental principles and considerations in the world of work, as they are the cornerstones for:

• protecting the rights of both employers and employees; and
• ensuring sustainable employment.

9. Tax

9.1 What is the applicable tax regime in your jurisdiction and what are its key features?

Under Turkish law, taxes are categorised under three main categories according to the sources from which they are collected:

• income;
• expenditure; and
• wealth.

Income-indexed taxes are income tax and corporate tax, respectively. These are differentiated according to the nature of the persons from whom they are collected. While income tax is collected from natural persons, corporate tax is collected based on corporate earnings.

There are also some indirect taxes collected based on expenditures. As a rule, the value-added tax (VAT) rate in Türkiye is 20%. However, in some special cases, a reduced VAT rate of 10% applies.

In addition, special consumption tax (SCT) is levied in Türkiye on certain luxury consumer goods. The rate of SCT, which is a type of indirect tax, can vary significantly and can be very high for some products.

The last category of tax in terms of source is wealth tax. These taxes aim to ensure social justice as they are based on the financial power of individuals. Some of the more common wealth taxes are:

• real estate tax;
• motor vehicle tax; and
• inheritance and transfer tax.

In the Turkish tax regime, indirect taxes predominate. The impact of direct taxes is more limited in practice compared to other countries. In fact, the predominance of indirect taxes has been criticised in various circles on the grounds that it does not allow for tax justice.

9.2 What taxes apply to capital inflows and outflows?

Türkiye has no special tax regime for capital inflows to companies. There are only certain disclosure requirements for companies during their establishment and operations. Apart from this, most types of securities income – especially stock exchange and bond gains – are taxed through stoppage. At this stage, there are no special disclosure requirements, as the tax is withheld directly by the bank or the intermediary institutions intermediating the transaction.

Another issue to be considered in relation to the taxation of capital flows is the tax regime governing M&A transactions. According to Article 19 of the Corporate Tax Code, specific tax exemptions are granted if certain requirements are met, including the following:

• The legal and business headquarters of both the dissolved corporation and the merged corporation are located in Türkiye; and
• The merged corporation fully assumes the balance-sheet values of the dissolved corporation at the transfer date.

Furthermore, the law specifies that:

• the tax obligations of the dissolved corporation are restricted until the transfer date;
• profits arising from the merger will not be taxed under specific declaration requirements; and
• in order for the profits of the merged corporation to be offset against the losses of the dissolved corporation within the taxation framework, certain operational obligations for specific time periods must be fulfilled.

9.3 What key exemptions and incentives are available to encourage enterprises to do business in your jurisdiction?

Türkiye provides many incentives to attract foreign investors, one of which is the VAT exemption. To qualify for the VAT exemption, investments must:

• be made in Türkiye in certain supported sectors; and
• meet a predetermined investment threshold.

Investors must apply for an investment incentive certificate from the Ministry of Industry and Technology to avail of this benefit. The certificate confirms that no tax is payable for machinery and equipment imported from abroad. The total discounted tax amount is calculated based on the discount rates until it reaches the investment contribution rate. Additionally, the government supports investors by covering the employee and employer shares of social insurance premiums under certain conditions. Furthermore, income tax generated from additional employment opportunities created by the investment is not subject to withholding tax. However, this support is region-specific and thus may apply only to certain designated regions in the country.

Türkiye also provides interest rate support for foreign investors. This covers a portion of the interest/profit share for investment loans with a duration of at least one year, granted within the framework of the incentive certificate for projects that relate to:

• regional incentive practices;
• strategic investments;
• research and development (R&D); and
• environmental investments.

The state covers the portion of the interest/profit share, up to 70% of the fixed investment amount registered in the investment incentive certificate for the first five years of the loan.

In addition to these benefits, Türkiye offers various other advantageous incentive mechanisms such as:

• a land allocation VAT refund; and
• R&D incentives.

9.4 What key concerns and considerations should be borne in mind with regard to tax in your jurisdiction?

Tax is a vital consideration for businesses. Non-compliance with the tax legislation may expose businesses to substantial administrative fines.

Additionally, the Code of Tax Procedure establishes a specific statute of limitations for tax debts. Pursuant to Article 114 of the code, a tax debt becomes time barred if it is not assessed and notified within five years of the beginning of the year following the calendar year in which the tax debt arises.

Another important issue is the implementation of tax amnesties by the Turkish government. While tax amnesties have always been relatively common in Türkiye, in the last two decades, a new tax amnesty has been introduced approximately every 1.5 years. These amnesties usually do not take the form of write-offs of the principal, but rather write-offs of penalties and interest. According to some scholars, the frequency of tax amnesties has become an incentive not to pay taxes on time, as it has created confidence in the market that an amnesty will subsequently be granted. Although tax amnesties do not result in the write-off of principal, the same principal amount may subsequently have diminished in value due to the prevailing inflationary conditions in the Turkish economy.

10. M&A

10.1 What provisions govern mergers and acquisitions in your jurisdiction and what are their key features?

The M&A process in Türkiye is aligned with international practices. Accordingly, an M&A process usually involves the following steps:

• the execution of a non-binding memorandum of understanding between the potential buyer and seller;
• due diligence of the target through a data room;
• the execution of transaction documents;
• the grant of competition clearance (if required) and other necessary permits and approvals; and
• closing.

In Türkiye, the share deal structure is preferred for M&A transactions due to various tax and procedural advantages. In addition, earnout clauses, price adjustment mechanisms and agreements limiting the seller's liability are commonly used.

The Commercial Code establishes a legal framework for the merger and transformation of commercial companies, whereby a resolution on merger or transformation must be:

• adopted by a higher quorum at the general assembly of shareholders; and
• registered and announced in the Trade Registry Gazette.

The Commercial Code also includes several provisions on amendments to the articles of association such as:

• a change in corporate headquarters or object; and
• a capital increase.

The Commercial Code, which was based on the Swiss Code of Obligations, is generally compatible with continental European legal systems.

In principle, under the Foreign Direct Investment Law:

• there are no restrictions on investments by foreign investors; and
• foreign investors are to be treated equally with domestic investors, apart from certain restrictions and the reciprocity principle in particular sectors (see question 2.4).

In M&A deals involving entities in regulated sectors such as banking, insurance, civil aviation, energy, finance, and telecommunications, authorisation or notification requirements to the competent authority will apply.

10.2 How are mergers and acquisitions regulated from a competition perspective in your jurisdiction?

The Law on the Protection of Competition (4054) prohibits mergers and acquisitions that would create a dominant position or strengthen an existing dominant position, resulting in a significant restriction or distortion of competition. Pursuant to competition law, M&A transactions that exceed certain thresholds in terms of turnover are subject to approval by the Competition Board. Pursuant to Article 11(1) of the Competition Law, failure to notify the Competition Board will result in an administrative fine of one-thousandth of the annual gross revenues indicated in Article 16(1) of the Competition Law, as a result of an investigation initiated by the Competition Board upon being informed of the transaction. In addition, if the merger or acquisition results in the creation of a dominant position, it will be invalid. Also, an administrative fine of up to 10% of the annual gross revenues of the undertaking at the end of the previous fiscal year pursuant to Article 16(3) of the Competition Law will be applied by the Competition Board. The Competition Authority may also authorise mergers or acquisitions of undertakings if they make commitments in order to eliminate competition problems that may arise under Article 7 of the Competition Law.

10.3 How are mergers and acquisitions regulated from an employment perspective in your jurisdiction?

Parties are not required to obtain employees' consent to the M&A process. Thus, in case of a share sale, employment agreements will remain in force between the same employer and the employees. In case of a merger by way of acquisition, the employment agreements of the merging entity will be transferred to the acquiring entity, unless an employee objects to the merger. In that case, the employment agreement will terminate at the end of the statutory notice period. Except in certain cases, neither the employer nor the employee may terminate the contract for just cause due to a change in workplace. The merging entity and the acquiring entity are jointly/severally liable to employees for two years from the date of transfer.

10.4 What key concerns and considerations should be borne in mind with regard to M&A activity in your jurisdiction?

Turkish law has no detailed and comprehensive regulations on M&A transactions. Therefore, except for minimal limitations, the parties can contractually agree on matters such as representations, warranties and indemnities as preferred. The parties may also agree that foreign law will apply to the contract if it contains a 'foreign element'. For a merger between capital companies, the Commercial Code stipulates that if the acquirer holds at least 90% of the voting shares of the target, a simplified merger procedure may be applied. This procedure reduces the lengthy and detailed formalities of the merger and accelerates the process.

Under Article 115 of the Code of Obligations, the parties may also agree to waive or limit the seller's liability for defects by concluding a non-liability agreement. It is also common in practice to cap the seller's liability in terms of amount or time through such an agreement. However, in case of the seller's gross negligence through a defective transfer, any non-liability agreement will be considered void.

11. Financial crime

11.1 What provisions govern money laundering and other forms of financial crime in your jurisdiction?

Under Turkish law, the general provisions regulating money laundering and other financial crimes are primarily outlined both in special codes and in the Penal Code. Article 282 of the Penal Code specifically addresses money laundering, defining it as the act of disposing, acquiring, transferring, assigning or establishing any rights over property or rights with the intention of concealing or disguising the source of the criminal proceeds. The basic crime of money laundering is punishable by:

• imprisonment for between three to seven years; and
• a judicial fine of up to 20,000 days.

The Law on the Prevention of Laundering Proceeds of Crime (5549) established the Financial Crimes Investigation Board (MASAK) as a key authority in combating both money laundering and terrorist financing. As Türkiye's financial intelligence unit, MASAK is also authorised and tasked with:

• investigating money laundering and terrorist financing; and
• contributing to the regulation, coordination, training and supervision of obligors.

However, MASAK's mandate is limited to money laundering and terrorist financing. Moreover, MASAK plays an important role in the fight against financial crime in Türkiye.

Specific regulations are also included in other laws, such as the Prevention of Money Laundering Law (4208) and the Banking Law. In this respect, Türkiye actively conducts inspections in relation to crimes such as:

• terrorist financing;
• fraud;
• electronic crime;
• bribery and corruption; and
• tax evasion.

The average length of sentences in Türkiye for these crimes is higher compared to that in other countries.

11.2 What key concerns and considerations should be borne in mind with regard to the prevention of financial crime in your jurisdiction?

Türkiye has reiterated its commitment to combat trafficking as outlined in the Eleventh Development Plan. It is clear that Türkiye will be implementing new and more effective measures to prevent financial crime. It is crucial to keep abreast of relevant legal regulations regarding financial crime in Türkiye. Failure to comply with these regulations can result in significant criminal liabilities. Businesses should:

• meticulously fulfil their tax obligations to avoid crimes such as tax evasion and fraud;
• cooperate with MASAK in case of suspicious financial transactions;
• provide training to, and raise awareness among, employees to help prevent potential risks;
• implement procedures such as the collection and updating of identity and address information to verify customers for the prevention of money laundering; and
• increase the frequency of internal audit and revision processes to help detect potential breaches.

12. Audits and auditors

12.1 When is an audit required in your jurisdiction? What exemptions from the auditing requirements apply?

The companies that are subject to an independent audit requirement are specified in the Decree on the Determination of the Companies Subject to Independent Audit (6434):

• Companies listed in Annex I of the decree, such as banks and asset management companies, are subject to a blanket independent audit requirement; and
• Companies listed in Annex II of the decree must exceed at least two of the following thresholds in two consecutive accounting periods:
• • TRY 30 million in total assets;
  • TRY 40 million in annual net sales revenue; and
  • 50 employees.
• For companies which are deemed publicly held within the scope of the Capital Markets Law, the thresholds are:
• • TRY 30 million in total assets;
  • TRY 40 million in annual net sales revenue; and
  • 50 employees.

Companies that are not publicly held and are not included in the annexes of the decree are subject to an independent audit requirement if they exceed at least two of the following thresholds in two consecutive accounting periods:

• total assets of at least TRY 75 million;
• net annual sales revenue of at least TRY 150 million; and
• 150 employees.

12.2 What rules relate to the appointment, tenure and removal of auditors in your jurisdiction?

According to the Independent Audit Regulations, auditors are appointed by the shareholders at the meeting of the annual general assembly of shareholders. As a rule, auditors are elected for a one-year term, but they can be re-elected for the following year. However, the same auditor cannot be re-elected after serving for seven consecutive years. Auditors may be replaced or dismissed before their term ends, but such a dismissal should be carried out by a decision of the general assembly of shareholders with a just cause. Audit firms and auditors are prohibited from providing consultancy or other services to the relevant entity, other than tax consultancy and tax audit services.

12.3 Are there any rules or recommendations that limit the scope of services as regards the provision of non-audit services by an auditor?

In Türkiye, some limitations and regulations apply to the provision of non-audit services by auditors. In this respect, auditors must:

• act in accordance with the principles of independence and objectivity; and
• avoid conflicts of interest that may affect their audit work.

Similar principles should be followed in the provision of non-audit services. Apart from the Turkish Standards on Auditing, international auditing standards also set out the rules and ethical principles that auditors and public accountants should follow when providing non-audit services. Auditors and audit firms are prohibited from providing any other consultancy or services to the entities that they audit, other than tax consultancy and tax audit services.

12.4 Are there any rules or recommendations which cap the remuneration of an auditor as regards payment for the provision of non-audit services?

Under Turkish law, there are specific regulations governing the remuneration of auditors to prevent conflicts of interest and maintain independence. These rules aim to:

• prevent conflicts of interest during the provision of non-audit services;
• protect audit independence; and
• enhance reliability.

The Ministry of Treasury and Finance annually publishes a minimum fee tariff. As a rule, auditors are prohibited from offering non-audit services to the entities that they audit. However, as an exception, auditors may provide tax advisory and attestation services to such entities according to Article 22(5) of the Independent Audit Regulations.

13. Termination of activities

13.1 What are the main routes for terminating business activities in your jurisdiction? What are the advantages and disadvantages of each?

Under Turkish law, the activities of a business may be terminated in various ways. First, pursuant to Article 529 of the Commercial Code, a company may dissolve on its own in circumstances such as:

• the expiration of the term stipulated in the articles of association; or
• the realisation of any reason for termination stipulated in the articles of association.

There are also other circumstances under which a company can be terminated. The voluntary termination of the company is governed by Article 529 of the Commercial Code, where a resolution of the general assembly of shareholders is adopted by shareholders representing 75% of the shares. The company then enters into the liquidation process. Initially, the phrase 'in liquidation' will be added to the title of the company by application to the Trade Registry Directorate. Liquidators – who may be members of the board of directors or third parties – are appointed and their names are announced in the Trade Registry Gazette. Creditors with known identities are notified by registered letter; while those with unknown identities are notified through an announcement made in the Trade Registry Gazette and on the company website. The remaining assets cannot be distributed until six months have elapsed from the date of the third call to creditors. If the company's debts are equal to or less than its assets, these debts are settled by the liquidators. However, if the debts exceed the assets, this must be reported to the first-instance commercial court at the place where the company's headquarters is located; the court will then decide whether to initiate bankruptcy proceedings. As may be understood from these explanations, termination of the company's activity is a straightforward process under Turkish law and the parties involved have limited discretion to shape the process.

13.2 What key concerns and considerations should be borne in mind with regard to the termination of business activities in your jurisdiction?

The liquidation process is regulated in detail under Turkish law and should be followed step by step. One critical aspect is that the company's assets must be sufficient to cover its debts All claims, especially labour-related claims, arising from the company's activities must be satisfied. Failure to satisfy these claims may prevent the company from terminating its operations through liquidation. Likewise, if the creditors are not properly identified and their claims are not satisfied by notice, it is possible to revive the company through additional liquidation, even if the business activities have been terminated through liquidation. Furthermore, if members of the board of directors and liquidators breach their obligations during the liquidation process, they will be held liable for the damages they cause. Additionally, there are certain tax declaration obligations on the commencement and conclusion of the liquidation process. Failure to fulfil these obligations may result in both administrative and criminal liabilities.

14. Trends and predictions

14.1 How would you describe the current landscape for doing business and prevailing trends in your jurisdiction? Are any new developments anticipated in the next 12 months, including any proposed legislative reforms?

In recent years, Türkiye has implemented various revisions to its fiscal policies, leading to a market environment marked by frequent interventions. The depreciation of the Turkish lira against other currencies has resulted in significant market inflation. The Treasury and Finance Minister Mehmet Şimşek reported in an interview dated 11 September 2023 that the current high credit volume will not suffice to control inflation and the current deficit; it is anticipated that new regulations on loans and credit cards may follow. Şimşek's statements also imply that the market interventions and foreign exchange-protected deposits will be gradually lifted.

Meanwhile, Türkiye's fintech ecosystem has developed substantially since the introduction of the Regulation on the Working Principles of Digital Banks and Service Model Banking (31704) on 1 January 2022. According to the regulation, digital banks are permitted to engage in activities carried out by credit institutions, as long as they comply with the activity restrictions set out in the regulation and other banking laws. Another development is the introduction of service model banking in the Turkish legal system. This model enables service banks to offer banking services through interface providers, which are normally non-bank platforms such as fintech companies and e-commerce service providers. This move is a significant milestone in the development of the service finance sector and the country's overall fintech ecosystem.

15. Tips and traps

15.1 What are your top tips for doing business smoothly in your jurisdiction and what potential sticking points would you highlight?

The business operations of companies are under the broad discretionary control of regulatory and supervisory public institutions in Türkiye. Pharmaceuticals, energy and banking are some of the main sectors in which strict rules apply. Therefore, it is necessary for companies to familiarise themselves with the applicable legal requirements and the procedures followed by relevant regulatory and supervisory institutions in order to conduct business operations in Türkiye.

In addition, compliance with the personal data protection legislation is crucial to minimise any potential obstacles in commercial activities. As stated in the Eleventh Development Plan, Türkiye will soon reform its legislation within the scope of the EU General Data Protection Regulation (GDPR). Therefore, carrying out data processing activities in accordance with the GDPR will facilitate compliance with Turkish legislation.

The Paris Climate Agreement entered into force on 7 October 2021 in Türkiye, with the following reservation: "on the basis of equity, common but differentiated responsibilities and respective capabilities." Following ratification, the Turkish Industry and Business Association stated that the public and private sectors should work together to achieve the Paris Agreement targets. A Green Bulletin has also been launched on the Istanbul Chamber of Industry's website, in which details of activities carried out within the scope of the green transformation in the industrial sector will be shared with the public on a regular basis. In this respect, within the scope of harmonisation with the Paris Agreement, it is vital to follow the regulations to help Türkiye become a net-zero country – especially in the industrial sector, where carbon emission rates are high.

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.