In case of insufficient domestic resources, states turn to foreign investment instruments. Foreign investors, on the other hand, invest in order to make a profit, not to contribute to the economy of the host country.1 For this reason, states that want to attract foreign investors try to become an attraction center with their reliability in legal, political, and economic fields. The removal of bureaucratic obstacles is just as important as legal liberalism and political stability.2
The relevant regulations related to foreign investments in Turkey have been included in the Foreign Direct Investments Law and a regulation has also been issued to determine the procedures and principles to be applied.3 This law has been enacted as the basic law for direct investments and envisaged mainly as a "legal guide" that reflects Turkey's egalitarian and liberal approach to international investments and "gives clear and understandable messages to the investor" and shows the rights and obligations that the investors have.4
1 Foreign Investor and Investment Concepts
a. Foreign Investors
The concept of foreign investors is defined in Article 2(a) of the FDIL differently for real persons and legal entities. Accordingly, "Real persons having foreign citizenship and Turkish citizens residing abroad" are foreign investors. Accordingly, Turkish workers residing abroad have also been accepted as foreign investors in terms of investments they will make in Turkey.5 In the same way, Law No. 4112 stipulates that Turkish citizens who have become citizens of another country by obtaining permission from the Council of Ministers should be considered foreign investors if they invest in Turkey.6
In terms of legal entities, the FDIL defines foreign investors as legal entities established in accordance with the laws of foreign countries and international organizations. Despite the term legal entities is used here, it will be appropriate to assume that it refers to commercial partnership, since it is not possible for associations and foundations to engage in investment activities due to their nature.7 Enabling international investments to have investment opportunities is one of the most important developments. However, it has been criticized in the doctrine for not clearly naming the types of international organizations that would benefit from this regulation.8
b. Foreign Direct Investor
The FDIL adopts the foreign direct investment expression and determines what will be the investment value in this scope under Art. 2 (b). Accordingly, incorporating a new company or opening a branch, or becoming a partner in an existing company by a foreign investor through using economic assets brought from abroad or provided domestically is considered within the scope of foreign direct investment.9
Therefore, foreign investors can incorporate a new company in Turkey through the economic assets specified in the FDIL. There is neither a restriction on the citizenship status of the partners of the company to be incorporated in Turkey, nor is there any obstacle to a company incorporation of which partners are only foreigners.10 Foreign investors can also open branches of their companies based in a foreign country. In addition, a foreign investor can also become a partner in an existing company through the acquisition of shares. It is also possible for a foreign investor to become a partner in an existing company through acquisitions from the stock exchanges that provide at least a 10% share or voting rights at the same percentage . Finally, a foreign investor can also invest in Turkey by establishing a liaison office.
2 The Opportunities Provided to Foreign Investors in Turkish Law
a. Yatirim Serbestîsi ve Milli Muamele (Freedom of Investment and National Implementation)
Unless stipulated by international conventions and the provisions of other special laws otherwise, according to Art. 3/a of the FDIL, foreign direct investment is allowed in Turkey and foreign investors are subject to equal treatment with domestic investors. Accordingly, all kinds of sectoral restrictions and permits related to foreign investments have been abolished.11 Legal regulations introduced on the grounds of public order, public health, public safety, and public interest are reserved. In other words, the framework of restrictions in this matter is determined by international conventions and the provisions of other special laws.
b. Protection Against Expropriation and Nationalization
Article 3/b of the FDIL stipulates that as per the applicable law foreign direct investments shall not be expropriated or nationalized, unless it is required due to public interest and a compensation is granted. Although there are different definitions of expropriation in international investment law, their common point is that expropriation is carried out due to the public interest, compensation is paid and it is a one time specific measure.12 In terms of movable property, these qualities are considered seizure expropriation.13 According to the ICSID, to which Turkey is also a party, not only in disputes arising from investment contracts but also because of the torts of the host state, it is possible to apply for the ICSID arbitration, since the illegal expropriation or nationalization of the host state constituting a tort can also be presented to the ICSID arbitration. However, if a foreign investor has established a company in Turkey or has become a partner in a company incorporated in Turkey, this company cannot apply to the ICSID arbitration, since this company is considered a Turkish company. The only exception to this case is regulated in Article 25 of the Convention. Accordingly, even if a legal entity has the citizenship of the state in which it has a dispute, it will be able to benefit from this exceptional provision if it is treated as a citizen of another state due to the fact that it is under foreign control.
c. Possibility of Transfer Abroad
It is stipulated in article 3/c of the FDIL that foreign investors can freely transfer abroad their net profits, dividends, proceeds from the sale or liquidation and compensation payments, amounts arising from licence, management, and similar agreements, and reimbursements and interest payments arising from foreign loans through banks or special financial institutions. With this freedom, which is also included in the previous regulation, it was reiterated once again that investors can transfer any amount paid to them abroad without encountering any obstacles. No restrictions have been imposed on the freedom of transfer to ensure that at least some of the values produced in Turkey remain here.
d. Right to Acquire Real Estate
It was regulated in Article 3/d of the FDIL that companies with legal entities established or participated by foreign investors in Turkey were free to acquire real estate property or limited real rights in areas open to the acquisition of Turkish citizens, this provision has been annulled by the Constitutional Court. For this reason, the acquisition of real estate or limited real rights of foreign natural persons and legal entities in Turkey is subject to the limitations of Article 35 and Article 36 of the Land Registry Law.
e. Right to Appy for Arbitration
It is regulated in Article 3/e of the FDIL that for the settlement of disputes arising from investment agreements subject to private law and investment disputes arising from public service concessions contracts and conditions which are concluded with foreign investors, foreign investors can apply either to national or international arbitration or other means of dispute settlement. In the Law on the Principles to be Followed in case of Application for International Arbitration in Disputes arising from the Concession Conditions and Contracts Related to Public Services No. 4501, it is regulated that the disputes arising from concession contracts that have a foreign element can be settled by arbitration. In relation to investment disputes, an international center for the settlement of investment disputes has been established within the framework of the ICSID, to which Turkey is also a party. However, in order to apply for this arbitration, there must be a written agreement between the parties.
f. Valuation of Non-Cash Capital
It is regulated in Article 3/f of the FDIL that non-cash capital shall be valued within the framework of the provisions of the Turkish Commercial Law. In addition, it is stated that if stocks and bonds of companies established abroad are used as an investment instrument, the values determined by the relevant authorities in the home country, or by the experts designated by the courts of the home country, or any other international institutions performing valuations will be accepted and thus foreign investors are reassured.14
g. Opening Liaison Offices
It is regulated in Article 3/f of the FDIL that the Undersecretariat is authorized to permit foreign companies established under the laws of foreign countries to open liaison offices, provided that they do not engage in commercial activities in Turkey. Accordingly, foreign companies can open liaison offices with permission from the Undersecretariat in order to carry out market research, quality control of exported products, and similar activities. It is also stipulated that the permissions of the liaison offices that act contrary to the legislation will be revoked by the Undersecretariat.
1. Aysel Çelikel/Günseli Gelgel, Yabancilar Hukuku (Law of Foreigners), Istanbul 2000, p. 126-127
2. Sibel Özel, "Dogrudan Yabanci Yatirimlar Kanunu Üzerine Bir Degerlendirme", MHB (Gülören Tekinalp'e Armagan) ("An Assessment on the Foreign Direct Investments Law", MHB (In memory of Gülören Tekinalp)) 2003, Year 23, Issue 1-2, p. 599
3. The Foreign Direct Investments Law No. 4875, adopted on 06.06.2003; the Regulation on the Implementation of the Foreign Direct Investments Law (the "FDIL"), Official Gazette, 20.08.2003-25205
5. See the preamble of Article 2
6. See the preamble of Article 2
7. Özel, p. 603
8. Gülören Tekinalp, Türk Yabancilar Hukuku (Turkish Law of Foreigners), Issue 8, Istanbul 2003, p. 152, Cemile Demir Gökyayla/ Ceyda Süral, "4875 sayili Dogrudan Yabanci Yatirimlar Kanunu ve Getirdigi Yenilikler" ("The Foreign Direct Investments Law No. 4875 and the Novelties Introduced"), Dokuz Eylül University, Journal of Law School, Volume 6, Issue 2, p. 136
9. The details of the elements of foreign direct investment are described in Art. 2 of the FDIL.
10. Gökyayla/Süral, p. 138
11. Özel, p. 604, Tekinalp, p. 153, Çelikel/Gelgel, p. 133
12. Gökyayla/Süral, p. 142
13. Tiryakioglu, p. 188
14. Özel, p. 614
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