Policies and practices

1. What, in general terms, are your government's policies and practices regarding oversight and review of foreign investment?

Turkey's policy is to encourage foreign investment as much as possible for the benefit of the Turkish market. Therefore, the government is taking steps to ease the entrance of foreign investment into Turkey. While adopting this approach, Turkey has privatised many state-owned entities and engaged in infrastructure and construction projects with foreign investors, regardless of the origin of the investor.

In general, Turkish law adopts an approach based on the equality of foreign and local investors. As per this equal treatment principle, companies established in Turkey are considered as Turkish companies regardless of the nationality of the shareholders of the company. Therefore, companies that are established in Turkey and shares of which are (directly or indirectly) held by foreign shareholders will be treated as equal with companies established in Turkey, the shares of which are held by local shareholders.

In most sectors, in principle, there are no restrictions on the shareholding ratio that can be owned by foreign investors in a Turkish company.

However, there are still some limitations on the shareholding of foreign investors in specific sectors such as broadcasting and aviation. Also, Turkish law provides restrictions regarding real estate owner- ship of foreign investors.

Although the Turkish government's general policy is to encourage foreign investment Turkish law provides a currency control system with amendments made to Decree No. 32 on the Protection of the Value of the Turkish Currency, which entered into force recently to refrain from the damages that may be caused because of the fluctuations in the foreign currency. With the amendments made to Decree No. 32, the foreign currency use of the Turkish companies and citizens are restricted.

Main laws

2. What are the main laws that directly or indirectly regulate acquisitions and investments by foreign nationals and investors on the basis of the national interest?

The main legislation on foreign investment is Foreign Direct Investment Law No. 4875 and the Regulation on Implementation of Foreign Direct Investment Law. The Foreign Direct Investment Law aims to encourage foreign direct investment and ensure that the rights of foreign investors comply with international standards.

Also, Turkish Civil Aviation Law No. 2920, the Law on Establishment and Broadcasting Services of Radio and Television Institutions No. 6112, Land Registry Law No. 2644, Insurance Law No. 5684, Turkish Petroleum Law No. 6491, Electricity Market Law No. 6446, Natural Gas Market Law No. 4646, Law on Protection of Competition No. 4054 and Banking Law No. 5411 must be considered along with their secondary legislation.

Foreign Direct Investment Law has been amended in 2003 to reflect Turkey's positive approach regarding foreign investments. Within this concept, the restrictions stipulated in the old version have been abolished and the preapproval system adopted in the old version has been changed to informing system.

In general, Turkish law does not set out restrictions based on national interest; however, there are certain sector-specific conditions that may include minimum Turkish shareholding requirement etc.

Scope of application

3. Outline the scope of application of these laws, including what kinds of investments or transactions are caught. Are minority interests caught? Are there specific sectors over which the authorities have a power to oversee and prevent foreign investment or sectors that are the subject of special scrutiny?

There are still some restrictions provided by Turkish law, regarding foreign investments and acquisition in some sectors such as media and aviation. Also, Turkish law provides restrictions regarding the real estate ownership of foreign real or legal persons.

In the sectors that limit foreign investment, the share ownership of the foreign investors is limited by certain thresholds. In this regard, approval of the relevant institution is necessary when establishing the company or conducting a share transfer. For instance, according to Law on Establishment and Broadcasting Services of Radio and Television Institutions, total foreign direct shareholding in a media service provider cannot exceed 50 per cent of the total share capital.

Similar restrictions are also provided for civil aviation. The majority of those authorised to manage and represent the company must be Turkish citizens and, according to the company's articles of association, the majority of the votes must be held by Turkish share- holders for certain ground handling companies.

These restrictions are generally for preventing the control of foreign investments in sensitive sectors. Therefore, the minority interests and share transfers that are under a certain threshold are not restricted unless the foreign investor will be in control of the company as a result of the transaction.

In addition to the regulations regarding foreign investors, the Turkish law also provides a merger control mechanism in energy, banking and insurance sectors concerning both the local and the foreign investors. Also, both the foreign and local investments are monitored by the Competition Board as per the merger control rules stipulated under the Law on Protection of Competition.


4. How is a foreign investor or foreign investment defined in the applicable law?

Foreign real persons, Turkish citizens residing in foreign states, foreign legal persons and the international institutions established as per international treaties, who invest in Turkey directly are considered as foreign investors by the Foreign Direct Investment Law.

Also, there are specific definitions of foreign investors under relevant sector-specific legislation.

The definition of foreign investment is comprehensive including establishment of a company, acquisition of shares in an existing company, registration and use of a foreign industrial or intellectual property right, etc.

Special rules for SOEs and SWFs

5. Are there special rules for investments made by foreign state-owned enterprises (SOEs) and sovereign wealth funds (SWFs)? How is an SOE or SWF defined?

There are no special rules for investments made by foreign state- owned enterprises and sovereign wealth funds, as a result of which private foreign investors, SOEs and SWFs are subject to the same legislation.

Relevant authorities

6. Which officials or bodies are the competent authorities to review mergers or acquisitions on national interest grounds?

In Turkey, certain criteria are generally stipulated under the relevant law for merger control. Therefore, the institutions that are authorised to review mergers or acquisitions can only review the transaction within the scope provided with the relevant legislation. National interest on the other hand is not provided as a criterion that the relevant institution can examine in most of the legislations that provide merger control.

The Radio and Television Supreme Council and the General Directorate of Civil Aviation are the bodies competent to review mergers or acquisitions in terms of the restrictions regarding the foreign investors. Although it is not directly made during a merger or acquisition transaction, the General Directorate of Civil Aviation can evaluate the request on national interest grounds when granting approval and a licence to a civil aviation company for engaging in civil aviation in Turkey.

Also, the Energy Market Regulatory Authority, the Competition Board and the Banking Regulation and Supervision Agency can review the mergers and acquisitions regardless of the nationality of the investor.

7. Notwithstanding the above-mentioned laws and policies, how much discretion do the authorities have to approve or reject transactions on national interest grounds?

As the requirements for a transaction to be conducted are generally provided by the relevant legislation, the authorities do not have much discretion when reviewing mergers and acquisitions. In addition, national interest grounds are not provided for most of the authorities in Turkey.

However, the Competition Board can diverge from the other authorities in terms of discretions. Although the basic principles of the Competition Board's review are also set forth by legislation, the Competition Board has discretion on deciding whether the transaction will monopolise the market or not. Although it is not directly stipulated as national interest, the interest of the Turkish markets and consumers is the main concern that will be considered by the Competition Board while reviewing the transaction.


Jurisdictional thresholds

8. What jurisdictional thresholds trigger a review or application of the law? Is filing mandatory?

The jurisdictional thresholds and the principles of merger control vary depending on the sectors.

The control mechanism of the Radio and Television Supreme Council in the media sector can be divided into two categories as notification and approval. The share transfers of a company that has a broadcasting licence must be notified to the Radio and Television Supreme Council regardless of the ratio of the transaction. For transferring the company as a whole, or merger the approval of the Radio and Television Supreme Council must be taken; also, a notification must be made following completion of the transaction.

In the aviation sector, any of the current shareholders of the civil aviation companies that have the pre-authorisation or business licence must obtain permission from the General Directorate of Aviation before transferring all or part of their shares. In addition, the ground handling companies with certain licences are also obliged to obtain permission from the General Directorate of Civil Aviation before any share transfer. Energy market regulations, on the other hand, provide that the transactions that may cause a change of control in the company in question are subject to the approval of the Energy Market Regulatory Authority.

The mergers and acquisitions regarding banks are subject to the approval of the Banking Regulation and Supervision Agency.

The Competition Board, on the other hand, reviews the mergers and acquisitions if:

  • the parties' total turnover in Turkey exceeds 100 million Turkish lira and at least two of the parties' turnover in Turkey exceeds 30 million lira separately; or
  • Turkish turnover of the target or one of the parties to the merger exceeds 30 million lira, while at least one of the other parties' world turnover exceeds 500 million lira.

The application to these institutions is mandatory and in the case of the lack of approval by these institutions, administrative fines will be imposed on the parties to the transaction. In addition, the transaction subject to the review of the institutions above can be deemed invalid while the licences of the company subject to transactions may be cancelled.

National interest clearance

9. What is the procedure for obtaining national interest clearance of transactions and other investments? Are there any filing fees? Is filing mandatory?

There is no general national interest clearance procedure under Turkish law since the Foreign Direct Investment Law stipulates that foreign and local investors must be treated equally.

10. Which party is responsible for securing approval?

In principle, the acquiring party must file an application for the approval of the relevant institutions. However, in some cases, the relevant institution may ask for additional documents or information from the target company or other shareholders of the target company.

Review process

11. How long does the review process take? What factors determine the timelines for clearance? Are there any exemptions, or any expedited or 'fast-track' options?

Certain time frames are not set forth for sector-specific merger reviews such as media, aviation, banking or energy. The length of the review process depends on the transaction in question and extending such procedures are at the discretion of the relevant authorities. In addition, the procedures can also take more time than expected in some situations where extra documents or information are requested by the relevant authority, mostly in complex transactions.

However, a timeline has been stipulated for the merger control by the Competition Board. Accordingly, the Competition Board must conduct an initial examination within 15 days of the notification of the transaction. Subject to the result of the initial examination, the Competition Board decides whether the transaction will be approved or a final examination will be conducted. The final examination process can take six months to one year approximately.

12. Must the review be completed before the parties can close the transaction? What are the penalties or other consequences if the parties implement the transaction before clearance is obtained?

The review of the authorities is mandatory in the regulated sectors if the relevant law stipulates it. Therefore, the approval of such authorities is needed to close such transactions. If the transaction will be completed without such approval, in addition to administrative fines, such a transaction will be deemed null.

Involvement of authorities

13. Can formal or informal guidance from the authorities be obtained prior to a filing being made? Do the authorities expect pre-filing dialogue or meetings?

In Turkey, formal prior guidance of the official authorities is not common. There is no pre-filing or opinion request provided under Turkish law. Parties can contact the institutions and obtain information about the procedure, relevant documents, etc. However, this assistance cannot be considered as formal guidance and will not constitute an official opinion of the relevant institution on the subject.

14. When are government relations, public affairs, lobbying or other specialists made use of to support the review of a transaction by the authorities? Are there any other lawful informal procedures to facilitate or expedite clearance?

Lobbying in Turkey is only allowed during the enactment or amendment of the laws. Chambers of industry and commerce can contact the politicians for a change in the legislation. Although this is not an official procedure, having the opinion of the business community allows the legislation to comply with the necessities of commercial life.

Lobbying for a certain transaction to be concluded, however, is not allowed under Turkish law and can be interpreted as manipulation.

15. What post-closing or retroactive powers do the authorities have to review, challenge or unwind a transaction that was not otherwise subject to pre-merger review?

The authorities do not have post-closing or retroactive powers to review, challenge or unwind a transaction that was not subject to pre- merger review.

However, regulatory bodies supervising regulated sectors have wide authority to control entities active in regulated sectors. If a merger is conducted without the approval of the relevant authority that does not comply with the relevant thresholds stipulated by law, the relevant authority can revoke their licences mandatory for them to operate in the relevant sector. Also, the Competition Board can always oversee the operations and implement remedies in the case of a breach of competition rules, including structural remedies such as division or dissolution of a company.


Substantive test

16. What is the substantive test for clearance and on whom is the onus for showing the transaction does or does not satisfy the test?

Turkish law does not provide a general substantive test for clearance. However, regulated sectors such as media, aviation, energy and banking provide rules regarding merger clearance. In general, the merger approval rules provided for the regulated sectors concern the change in the target company's control.

The authorities request the relevant documents required for the examination from the acquirer and the target. Also, the authorities can collect additional documents from other public authorities, if necessary, for the examination. In principle, the authorities conduct an inquisitorial examination and decide whether to approve the transaction.

17. To what extent will the authorities consult or cooperate with officials in other countries during the substantive assessment?

Though there is no legal barrier, it is not common for the authorities to consult or cooperate with officials of other countries since merger and acquisition evaluations are mainly focused on the change of the control of the target company instead of national security concerns.

However, as per Turkish law, it is forbidden to collect funds, provide funds or to enter into any relationship with the persons and organisations stated in the resolutions of the United Nations Security Council or with the persons or organisations acting on behalf of or controlled by these persons and organisations or for their benefit. Therefore, the authorities monitor the resolutions of the United Nations Security Council and do not approve transactions involving such persons or organisations.

Also, transactions that these persons or organisations are a party to are void even if these transactions are not subject to the approval of any authority.

Other relevant parties

18. What other parties may become involved in the review process? What rights and standing do complainants have?

In principle, other parties are not entitled to become involved in the review process. However, any person who has information about the transaction that can affect the result of the examination can submit such documents and information to the relevant authorities. The authorities may decide ex officio to consider such documents or information during the examination.

Prohibition and objections to transaction

19. What powers do the authorities have to prohibit or otherwise interfere with a transaction?

The authorities in the regulated sectors such as media, aviation, banking and energy are entitled to approve a merger or acquisition as provided by relevant law. In such sectors, mergers or acquisitions cannot be closed without the prior approval of the relevant authority. Also, the Competition Board has the authority to approve mergers and acquisitions if it falls with the scope provided by law.

Also, the authorities can revoke the licences of the companies that are necessary for operating in the regulated sectors. Within this context, the authorities can revoke the licences of the target companies whose shareholding structure is contrary to law.

20. Is it possible to remedy or avoid the authorities' objections to a transaction, for example, by giving undertakings or agreeing to other mitigation arrangements?

Since the merger and acquisition examination in the regulated sectors are generally about the change of control in the target company and certain thresholds are provided for a transaction to be approved, giving undertakings or mitigating will not affect the approval of the transactions.

However, a commitment mechanism is provided under Law on Protection of Competition, which enables the undertakings and companies subject to examination of the Competition Board to make a commitment to protect competition following the transaction in question.

Challenge and appeal

21. Can a negative decision be challenged or appealed?

The decisions of the authorities regarding the approval of a merger or acquisition are considered as administrative transactions as per Turkish law, and, therefore, can be challenged before the administrative courts of first instance within the term provided by the relevant law.

The decisions of administrative courts of first instance can also be appealed. Turkish law provides a two-tiered appeal system, which consists of regional administrative courts and the Council of State. In principle, the decisions of the administrative courts of first instance can be appealed to the regional administrative courts provided that the subject of the appeal is worth more than 7,000 lira. The decisions of regional administrative courts on the other hand are subject to the review of the Council of State if the appealed amount is worth more than 192,000 lira.

Confidential information

22. What safeguards are in place to protect confidential information from being disseminated and what are the consequences if confidentiality is breached?

In principle, the examinations conducted by the administrative authorities are open to the public and any person who has an interest in the administrative process can obtain information about the process by using his or her right to information. Also, the administrative authorities publish their decisions for the general public, as well as periodical reports about their practices and operations.

However, as per the general confidentiality principles provided by Turkish law, the administrative authorities cannot disclose information and documents that are deemed confidential, including the documents and information regarding the privacy of the persons, trade secrets, state secrets and internal order of the administration.

The person or the entity whose confidential information is disclosed can claim compensation from the administration if there is any damage suffered due to the disclosure of such information or documents. In addition, disclosing confidential information to the public or third persons by the authorities constitutes a crime.


Relevant recent case law

23. Discuss in detail up to three recent cases that reflect how the foregoing laws and policies were applied and the outcome, including, where possible, examples of rejections.

Since the examination and approval of the mergers or acquisitions including foreign investment are subject to specific rules and thresholds, foreign investors and target companies carefully organise the corporate structure of the target company in compliance with these rules and thresholds to avoid rejection. Therefore, the rejection of such mergers or acquisitions is rare.

However, recently digital platform companies that provide services from online platforms to Turkish users have been having some trouble in Turkey due to tax issues and unfair competition.

For instance, and uber are among the companies that had to cease their services in Turkey for a significant period as a result of the decisions of Turkish courts. The main reason behind these decisions was that the providers of these services were not paying tax to Turkish authorities since they can provide their services without establishing a company in Turkey. Also, the Turkish courts are of the opinion that this situation causes unfair competition, since companies providing similar services and established in Turkey are obliged to pay taxes.


Key developments of the past year

24. Are there any developments, emerging trends or hot topics in foreign investment review regulation in your jurisdiction? Are there any current proposed changes in the law or policy that will have an impact on foreign investment and national interest review?

The latest change made on the merger control mechanisms of Turkey is the 24 June 2020 dated amendment to the Law on Protection of Competition. With the amendment, the Significant Impediment to Effective Competition Test has been enacted to be used on the mergers and acquisitions, as has already been used in the European Union. This test will evaluate whether the transaction in question will restrict the competition significantly along with whether a dominant position will be established or strengthened as a result of the transaction. Within this context, transactions where competition is significantly restricted can also be prevented by the Competition Board with the implementation of the test.

Another development on the foreign investment in Turkey is the post-Brexit Free Trade Agreement signed between Turkey and the United Kingdom, which will make it easier for investors from the United Kingdom to invest in Turkey.


25. What emergency legislation, relief programmes and other initiatives specific to your practice area has your state implemented to address the pandemic? Have any existing government programmes, laws or regulations been amended to address these concerns? What best practices are advisable for clients?

With the covid-19 pandemic, the Turkish government enacted some measures for relieving the financial bottleneck the companies and employers have faced due to the pandemic.

First of all, the Turkish government introduced employment law remedies to protect employees and employers.

Accordingly, an article was added to the Employment Law and termination of employment contracts has been restricted unless:

  • the employee has violated the moral rules and goodwill;
  • employment contract of definite duration expired;
  • the workplace is closed; or
  • the work employee assigned for is over.

While the additional article protects the employees from termination of their contract it also allows employers to unilaterally give unpaid leave to their employees for a maximum term of three months.

With this amendment, the potentially detrimental effects of the pandemic on employment in Turkey are prevented while the financial situation of employers is also considered.

Also, the businesses can apply to the Turkish Employment Agency for short-time working allowance during the pandemic, provided that their business operations are decreased due to the pandemic.

Another emergency measure has been taken regarding the restriction of dividend distribution of the companies, according to which Turkish companies were allowed to distribute only 25 per cent of their dividends earned in 2019.

This article was first published on Lexology GTDT in February 2021.

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.