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FOREIGN DIRECT INVESTMENT
The liberalization and structural reform efforts and the rapid growth of the economy made Turkey an attractive market for foreign investors. To invest in Turkey means also, to rely on laws protecting foreign capital, working in a totally liberalized environment, being able to recruit qualified labor force and enjoying convertible Turkish currency and free profit and capital repatriation.
The cumulative investment in 1980 - 2002 period was realized as 16.2 billion USD. Amount of foreign direct investment in Turkey floated around 1 billion USD annually during 1990s. In 2001, there was an increase to 3.3 billion USD level. As of end of 2004, the number of foreign companies operating in Turkey reached to 9,585 along with anothe 1289 company's representative offices. After the new Foreign Direct Investment Law enacted in June 2003, 2376 foreign capital firms are established, 85 new representative offices are opened and 634 cases of foreign capital participation in Turkish firms are realized. |
GOOD REASONS TO INVEST IN TURKEY
Turkey enjoys a very special location where Europe and Asia continents come together. Locating at the junction of the East and the West as well as the proximity to the new emerging markets in the Middle East, Central Asia and Northern Africa induce unique business opportunities for the investors.
Turkey is at the core of a new economic and political area known as “Eurasia”, where Europe, Central Asia and Middle East meet. This area constitutes a potential market of around 1 billion people; beside, including the future energy reserves of the world.
Turkey is the leading investor in Caucasian and Central Asian Republics. Due to her strong cultural and historic ties, Turkey provides privileged access and a perfect base to develop business with these countries.
The experience of more than 9,500 existing foreign capital establishments verifies Turkey as a predominant investment location.
The relatively higher growth rate in comparison to many OECD member countries implies a dynamic and growing economy for the future. WTO outputs state that Turkey is among the most dynamic countries in the world trade.
Continuous enhancement in population and consumer purchasing power provides investors a large and dynamic domestic market in Turkey.
The Turkish labor force is well-known with its skills and learning capacity, and competitive labor rates offer cutting edge for industries.
A more quality conscious attitude in both manufacturing and service sectors ensures high quality levels. Turkish companies have proven their high quality levels by winning the European Quality Award in several categories. (1996 - Brisa (award winner), Netas (prize winner); 1997 - Beksa (SME category award winner), Netas (prize winner); 1998 - Netas (prize winner), Beko (SME category award winner); 2000 - Arcelik (prize winner), Eczacibasi Vitra (prize winner); 2002 - Bosch Turkey (prize winner); 2003 - Bosch Turkey (award winner), Kocaeli Chamber of Industry (Public Sector category prize winner))
Turkey has a relatively "young" telecommunications network with the latest technology, which can easily compete with the developed countries.
Turkey is committed and likely to be the full-member of the European Union by 2010. |
FDI INFLOWS TO TURKEY
All types of FDI permits issued by General Directorate of Foreign Investment are abolished by Foreign Direct Investment Law No.4875 enacted on June 17, 2003. Therefore any statistics on base of permits are not published officially from this date on.According to Central Bank data, 546 million USD of FDI inflow has been realized 2003. In 2004, FDI inflows enhanced to 1.06 billion USD.
In terms of the number of companies, EU companies have the largest share. As of end of 2004, the leading country is Germany (1,630), followed by the Netherlands (749), UK (659) and France (415), while there are 581 USA firms operating in Turkey. In terms of the amount of foreign capital inflow to Turkey, the Netherlands is leading country followed by Germany, UK, USA and France. 59% of the foreign capital companies in Turkey operate in the manufacturing sector and 30% in the services sector as of June 2003.
Sectoral Breakdown of Foreign Investments 
Source: Undersecretariat of Treasury |
FOREIGN DIRECT INVESTMENT ENVIRONMENT
Legislative framework for foreign direct investments in Turkey has been shaped by a law enacted in 1954, liberal and flexible foreign investment policies of 1980s and a number of upgrading decrees in 1990s. International arbitration system was adopted in 1999 paving the way for further enhancement of foreign investment in Turkey. Law 6224 on Encouragement of Foreign Capital was a quite liberal law compared with the legislations of some OECD countries of those times. However, notions, definitions and applications concerning foreign direct investments have changed so deeply that in June 2003, a new Law on Foreign Direct Investments, amending a number of other laws related to the rights of foreign investors has been passed by the Parliament. Initiatives by the Improvement of the Investment Environment Coordination Board for further betterment continue in the forms of works for the establishment of an Investment Promotion Agency and for other changes in the laws and practices affecting the business environment. |
THE MAIN PRINCIPLES OF THE FOREIGN INVESTMENT POLICY IN TURKEY
Freedom to Invest and National Treatment: Unless stipulated by international agreements and other special laws, foreign investors are free to make foreign direct investments and shall be subject to equal treatment with domestic investors.
Expropriation and Nationalisation: Foreign direct investments shall not be expropriated or nationalised, except for a public purpose and upon compensation in accordance with due process of law.
Transfers: Foreign investors can freely transfer profits, dividends, proceeds from the sale or liquidation of all or any part of an investment, amounts arising from license, management and similar agreements, and reimbursements and interest payments arising from foreign loans through banks or special financial institutions.
Access to Real Estate: Companies may freely acquire real estate or limited rights of them through a legal entity in Turkey.
Dispute Settlement: For the settlement of disputes, foreign investors can apply either to the authorised local courts, or to national or international arbitration or other means of dispute settlement.
Valuation of Non-cash Capital: Non-cash capital is valued within the regulations of Turkish Commercial Law. However, stocks and bonds of companies residing abroad will be accepted as foreign capital share of foreign investors and the values determined by the courts of the home country, or other relevant authorities in the home country or any other international institutions performing valuations will be accepted.
Employment of Expatriates: Foreign personnel working permits are issued by Ministry of Labour and Social Security for foreign personnel to be employed in the companies, branches and entities established within the scope of this Law.
Liaison Offices: The Undersecretariat is authorised 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. |
KEY FEATURES OF THE NEW FOREIGN DIRECT INVESTMENT LAW*
Freedom to invest by dropping all former FDI-related screening, approval, share transfer and minimum capital requirements :
Investors are now exempted from previous permits granted by the General Directorate of Foreign Investment of Treasury and also the minimum capital requirement of 50,000 USD has been abolished.
Reassurance of existing guarantees to foreign investors of their rights in one transparent and stable document:
The new law guarantees national treatment and comprehensive investor rights. All companies established with a foreign capital contribution and under the rules of the Turkish Commercial Code (existing and newly established foreign companies) are regarded as a Turkish company. Therefore equal treatment both in rights and responsibilities as stated in the Constitution and other laws is applicable to all such companies (including national treatment, a guarantee against expropriation without compensation, transfer of proceeds, access to real estate and to expatriate personnel, and international arbitration or any other means of dispute settlement).
Upgrading to accepted international standards for definitions of ‘foreign investor’ and ‘foreign direct investment’:
Definition of ‘foreign investor’ is broadened to include Turkish national residents abroad and international organizations and definition of ‘foreign direct investment’ is broadened to include all possible types of assets.
A policy shift from ex-ante control to a promotion and facilitation approach with minimal ex-post monitoring to continuously improve an investor-friendly climate for growth and development, protecting the acquired rights:
All companies with foreign capital established under former legislation are subject to the new Law, with their previously-granted rights grandfathered. Therefore they will no longer require any approvals from GDFI, though they will now have to send yearly information forms (just like newly-established foreign companies) based on procedures to be determined by new regulations. |
COMPANY FORMATION PROCEDURES
What the new law brings in terms of company formation:
Entry conditions are the same as for comparable local Turkish companies.
There is no minimum amount of capital required for foreign investments. It is no longer obligatory to bring a minimum of 50,000 USD in share capital.(There is no longer a minimum capital requirement for foreign investments but forming certain types of companies require a minimum capital. The minimum capital amount is 5,000 TRY (New Turkish Lira) (around 3,700 USD / 2,900 Euro with the current exchange rate level in April 2005) for limited companies and 50,000 TRY (similarly around 37,000 USD / 29,000 Euro with the current exchange rate level in April 2005) for joint stock companies.
Any form of company included in the Turkish Commercial Code is acceptable. It is no longer obligatory to establish either a limited liability company or joint stock company.
Additional improvements in bureaucratic procedures:
Legal changes decreasing the number of bureaucratic steps in company formation has been approved by the Parliament in June 2003. The changes make company formation possible within a day and from a single authority. With these adjustments, the number of steps in company formation is decreased from 19 to 3 and the approval by the Ministry of Industry and Commerce has been removed. The number of documents required for the registration of a joint-stock company has dropped from 56 to 8.
The 3 steps can be summarized as follows:
Preparation of the draft Articles of Association and its notarization
Depositing 0.04% of capital as Competition Authority contribution (As of 01.01.2005, only a fee of 0.04% of capital is applied for company registration and other than that there are some notary charges and translation fees but these are quite insignificant. So the cost of establishment of a company in Turkey is only the 0.04% of the paid-in capital of the company.)
Application at the Commercial Registry Office (under the related local chamber) for registry
(*) This section is based on brochures of Undersecretariat of Treasury about the new law. |
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FOREIGN DIRECT INVESTMENT
