Damalion Turkey desk

Doing Business in Turkey

Turkey is an ideal spot to start a business since it boasts one of the world’s fastest-growing economies. It has improved its laws to attract multinational corporations by creating favorable social and economic conditions. The country attracts foreign investors from all over the world due to its flourishing economy, geopolitical location, good development potential, hardworking business community, and young population. Efficacious Economic policies, growth-friendly fiscal policies, the new Turkish commercial framework, incentive programs, and a strong industry have all enhanced Turkey‘s economic prospects in recent years.

Turkey‘s younger population, dynamic market economy, and good performance over the past few years, as well as future development potential, presents substantial commercial opportunities for global businesses in a variety of areas.

Turkey is an emerging economic giant with favorable economic outlook. Turkey is hospitable to entrepreneurs, enterprises, and investors, with a population of 84.1 million people, a per capita income of $9626, and a GDP of $810 billion. Agricultural products, textiles, automobiles and their components, transportation equipment, building materials, consumer electronics, and home appliances are only a few of the main exports.

Ranked at 8th among 37 upper middle-income group economies, Turkey is promising destination for investors. In terms of tourism, Turkey is ranked at 15th place and is continuously improving its status with wonderful beaches, historical places and multi-dimensional cultures. Several top tourist attractions are located in heart of Turkey which attract millions of tourists every year with giving boom to business.

Investors and entrepreneurs consider the legal viewpoint, economic prognosis, social viability, and political certainty when launching a business. Modern Turkey has loosened restrictions, taken a more liberal approach to interpreting statutes, and approved pro-business legislation. The political stability has resulted in increased social sustainability and sustainable economic prosperity. As a result, Turkey is a potential paradise for investors looking to earn dividends from their investments throughout the next economic years.

Following considerations make Turkey an exponential nation for investors:

• Historical and Architectural Spots for Booming Tourism
• Upper Middle Class Population
• Strategic Location between Europe and Asia
• Trained Workforce
• 32d Position in Ease of doing Business Reflecting Business friendly approach from government and society
• 61st Position in Global Competitiveness Index.

ADVANTAGES FOR DOING BUSINESS IN TURKEY

Turkey offers following advantages and incentives for its business community and investors.

• Low Operating Costs
• Strong Consumer Spending
• Local Manufacturers
• Incentives granted from Turkish Government like VAT and custom duty exemptions, social security support etc.
• Flexible Immigrations Polices
• Low taxes and economical rental charges
• Incorporating a foreign business in Turkey is quick, easy and simple
• Foreign Businesses are exempted from taxes
• Part of European Union and Ideal Geo-Strategic Situation
• Turkey is part of NATO, enjoys support from America and Europe.

LEGAL SYSTEM OF TURKEY

Historically, Turkey has witnessed myriad of legal systems. However, the past century saw an arbitrary system with ultimate powers vested in hands of Armed Forces. However, the constitutional amendments from 1980 onwards, paved way for democratic reforms and balanced approach.

The liberal amendments in 2004 and onwards further paved way for democratic system. The Turkish legal system has been modified on various counts to bring it in conformity with European standards to make way for Turkey being part of permanent member of European Union.

Turkish legal system is amalgamated form of Germany, Italy and Switzerland. The legal system is based on civil laws in codified form. The three branches of government i-e, legislature, executive and judiciary work separately. The recent constitutional amendments have given preference to International enactments on issues pertaining to Human Rights and Public freedoms.

The executive branch is headed by President is most powerful among others. Though, the election process is democratic in shape of Turkish Grand National assembly, yet President enjoys greater powers. After dawn of 21st century, the liberal modifications of the legal discourse which has yielded dividends in shape of progressive economy and sustainable growth.

Primarily, with regards to Foreign Investment, Turkish Legal system has enacted Foreign Direct Investment Law. The purpose of which is to encourage foreign direct investments; to protect the rights of foreign investors; to define investment in line with international standards; to establish a notification-based system for foreign direct investments rather than screening and approval; and to increase foreign direct investments through established policies.

Foreign Investment in Turkey can be made in one or all of following ways:

• Opening a New Company in Turkey
• Opening a Branch of already existing Company in Turkey
• Anything brought through Currency
• Through Industry and Intellectual Property Rights
• Stocks and Bonds of Foreign Companies
• Rights for Exploration and Extraction of Natural resources

Following protections are accorded to foreign investors by Turkish Legal system.

• International investors are free to make foreign direct investments in Turkey, and Foreign and domestic investors are treated the same way.
• Foreign direct investments may not be privatized or nationalized unless there is a compelling public interest and compensation is provided in line with due process.
• Net profits, dividends, proceeds from the sale or liquidation of all or part of an investment, compensation payments, amounts arising from license, management, and similar agreements, and reimbursements and interest payments arising from foreign loans through banks or special financial institutions are all freely transferable abroad by foreign investors.
• Foreign investors can seek resolution of disputes arising from private law investment agreements and investment disputes arising from public service concession contracts and conditions concluded with foreign investors through authorised local courts, national or international arbitration, or other means of dispute settlement, provided that the relevant regulations are met and the parties agree.
• Work permits are issued by the 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.

BANKING SYSTEM

In terms of numbers, Turkey houses as many as 57 banks (35 are deposit banks – 3 of them under the control of the Savings Deposit Insurance Fund of Turkey, 16 are development and investment banks, and 6 participation banks). Whereas, 28 banks are designated as foreign banks for attracting foreign investments.

Turkish Banking Sector is supported through legislation and backed by executive. To strengthen the banking system, several regulatory and structural reforms were introduced, enacted and implemented after early 2000’s. Consequently, the system has shown its strength and proved to be resilient against external shocks. Owing to these successful reforms, Turkish banking system became one of the most preferred sector for FDI between 2002 and 2021 attracting 24% of the foreign investment.

Between 2002 and 2021, the banking sector maintained double-digit profitability (CAGR: 19%) and asset size growth (CAGR: 21%), all while keeping capital ratios within regulatory limitations.

TAXES REGIME IN TURKEY

The Turkish direct tax system separates personal and corporate income taxes, which are controlled by Income Tax Law No. 193 and Corporate Income Tax Law No. 5520, respectively.

Corporation tax is imposed on global revenue by firms with their legal or commercial headquarters in Turkey; these businesses are referred to as “full responsibility taxpayers” in the legislation. Taxpayers having legal and commercial headquarters outside of Turkey are only taxed on income earned in Turkey.

The recent Corporate Income tax stands CIT rate for the year 2021 is 25% (with government commitment to reduce it to 23% for 2022. The tax exemptions are accorded to Companies (other than banks, financial institutions, insurance companies, and pension funds) offering at least 20% of their shares via their first initial public offering (IPO) on the Istanbul stock exchange in shape of 2% (i.e. 23% instead of 25% for 2021) for five years starting from the year of formation of IPO.

The taxable income of a company is computed based on its net accounting profits after adjustment for exemptions and deductions and including prior-year losses carried forward, to a limited extent.

In addition, a 15% withholding tax is applied to profits, a 20% withholding tax is applied to professional services, and a 20% withholding tax is applied to royalty payments to non-residents. Turkey has a broad network of double taxation treaties (DTTs) in place that would reduce the country’s withholding tax rate on such revenue. Turkey has also ratified the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting.

The Turkish tax system includes indirect taxes such as value added tax, special consumption tax, banking and insurance transactions tax, special communication tax, stamp tax, customs charges, and fees.

Foreign businesses doing business in Turkey are categorised as restricted taxpayers under Turkey’s real estate tax policy for foreign investors. The proportion of withholding was estimated to be 20%.

TYPES OF COMPANIES IN TURKEY

There are different types of companies that can be operated in Turkey.

1. Limited Liability Company

A limited liability company can be founded in Turkey with at least one shareholder, and there are no nationality restrictions as long as the operations are conducted in accordance with the Turkish Commercial Code. International investors prefer the limited liability company because of the fundamental steps required in the registration procedure in Turkey and its viability as a small or midsize enterprise. A limited liability corporation (LLC) in Turkey can be formed with a minimum share capital of TRY 10,000.

2. Joint Stock Company

Many investors who wish to start a big company in Turkey choose to do it through a joint stock company. For this type of corporation, the minimum share capital is about 50,000 TRY (EUR 14,176) and must be provided by at least 5 investors or enterprises. The Turkish Commercial Code and the Turkish Capital Market Board govern joint stock corporations.

3. Partnerships

Commercial partnerships in Turkey, also known as Komandit Sirket or Kollektif Sirket, are legal entities that are divided into limited or general partnerships, with the business partners being accountable for the partnerships’ responsibilities as well as debts. When it comes to debts, it’s helpful to know that the partners can only be held accountable for the amount invested in the firm.

IMMIGRATION POLICIES

Turkish Passport ranks 52d in the world and provides visa free access to 111 countries including most of developed nations around the globe. There are over dozen categories of visas ranging from visitor visa to residence permits offered by Turkey. The Visa fees are affordable and flights to Turkey are cheap. Turkey has High Visa ratios.

Foreign Investors can make personal or corporate level investments, setup Turkish Companies and establish businesses. To ease the process, Turkish government over last few years has liberalized the Turkish Immigration Policies. Particularly, for foreign investors there are various options of naturalization.

Foreign Investors willing to immigrate are eligible for Turkish citizenship through Turkish Citizenship program through investment of capital starting from $250,000 and above. For those, who are reluctant to obtain citizenship, after eight years of stay on short term residence permit, are eligible for Long-term permanent residence permit, which offers infinitive work permit.

INTELLECTUAL PROPERTY RIGHTS IN TURKEY

With growing e-businesses, there is more need than ever to have strong Intellectual Property framework for protection of IP rights of physical and online businesses. Consequently, Turkey has developed its framework for protection of IP rights in eloquent manner. In Turkey, IP rights must be registered and enforced in under local laws. For example, your U.S. trademark or patent registrations will not be enforceable in Turkey without applying for such rights. However, as Turkey is also signatory to various international enactments, therefore, IP rights registered in foreign jurisdictions would have preference. Other international registration procedures, such as the Patent Cooperation Treaty for patents or the Madrid Protocol for trademarks, can help you protect your intellectual property in many countries across the world, including Turkey.

The Turkish Patent and Trademark Office (TURKPATENT), which is part of the Ministry of Industry and Technology, can grant a patent to an innovation by filing a patent application. Turkey is a “first-to-file” nation, which implies that the title holder is the first person or entity to register the patent. A trademark or design registration can be secured by filing an application with TURKPATENT. Similarly, the majority of trademark and design rights are granted based on the first-to-file approach.

EMPLOYMENT AND LABOUR IN TURKEY

Turkey has put in place comprehensive labour and employment framework aimed at improving working conditions. The labour and employment regulations apply to both Turkish and non-Turkish citizens (foreign investors).

Employment contracts in Turkey are divided into types. Continuous and non-continuous work contracts.

Following are categories of workers and labour force:

• Full-time and part-time positions
• Contracts of employment for teams.
• Contracts with or without trial periods.
• Contracts of employment that are only temporary.

Furthermore, there are unique laws that govern the employment and residency permits of foreign nationals who wish to work in Turkey.

The following are the primary sections of employment-related law that apply to both Turkish and international nationals:

• Turkish Labor Code (No. 4857), numbered 25134
• The Turkish Code of Obligations (No. 6098)
• The Social Insurance and General Health Insurance Code (No. 5510)
• Code of Work Permits for Foreigners (No. 4817), numbered 25040
• The Code on Trade Unions and Collective Bargaining (No. 6536), numbered 28460
• Workplace Health and Safety Code (No. 6331), numbered 28339

Employees have specific rights under the Turkish Labour Code, which can’t be taken away in most of the cases in accordance with due process of law. The following are the statutory rights, which are not discriminated depending on employment categories:

1. The right to be compensated. Each employee has the right to seek payment for the work they do without any prejudice. Nonetheless, an employee’s income cannot be less than the state’s minimum wage, which is set by the state and revised twice a year.
2. Pay for overtime. The Turkish Labour Code stipulates that an employee’s weekly working hours cannot exceed 45 hours. If an employee works overtime, the company is required to compensate them.
3. Annual vacation. Employees who have worked at the same location for at least a year are eligible to yearly paid leave. The length of the yearly leave is determined by the period of employment.
4. Weekends and public holidays. Employees are entitled to public holidays each year, during which they are not required to work and the duration of which is not deducted from their pay. Employees who work on public holidays are entitled to extra pay for each day they labour.
5. Each person who works in the employer’s workplace for whom the company will be paying social security premiums must be reported to the Social Security Institution (SSI). Each employee is covered by social security under the legislation.
6. Severance payment. In case of termination of contract, employees are entitled to a severance payment subject to employee completing at least one year of continuous employment.
7. The notice for laying off or termination must be given. The following are the minimum notice durations stipulated under the Turkish Labour Code:

• You must provide two weeks’ notice if you have been hired for less than six months, and four weeks’ notice if you have been worked for six to 18 months.
• If you’ve been working for 18 months to three years, you’ll be given six weeks’ notice.
• If you’ve worked for more than three years, you’ll need to provide eight weeks’ notice.

If an employer ends an employee’s employment contract for a legal cause, the Turkish Labour Code requires the employer to notify the employee. If the employee does not get the previous notice, he or she is entitled to a notice payment equivalent to the amount of salary that would have been paid had the employee received the previous notice.