The 2023 edition of Doing Business in Türkiye is your simple but comprehensive guide to understanding the current investment climate and the most important laws regulating investments and commercial activities in Türkiye.

The guide features various topics, including the legal landscape, taxation and VAT, customs duties, commercial contracts, competition law, data protection, intellectual property, foreign investment models, real estate ownership and leasehold, and employment.

Turkish Judicial System

  • The Turkish legal system is similar to the legal systems of Continental Europ
  • The most common methods for resolution of disputes in Türkiye are through litigation or arbitration
  • In terms of litigation, the courts in Türkiye are separated in three main branches with regard to their competence, which are (i) civil law, (ii) criminal law and (iii) administrative law. All disputes arising from private law are resolved by civil courts. Courts that are established under these three branches are also divided by their specialization such as Labor Courts, Commercial Courts or Tax Courts
  • Türkiye has a three-staged court proceedings system. Accordingly, in principle, the lawsuits are filed before courts of first instance and although there are some exceptions, are subject to two appeal stages namely (i) appeal before Regional Court of Appeals and (ii) appeal before the Court of Cassation or appeal before the Council of State depending on nature of case.
  • Certain kinds of disputes are subject to mandatory mediation, which is a precondition for filing a lawsuit arising therefrom. These are mainly commercial claims that have a monetary nature and monetary claims arising from employment law.
  • Apart from mandatory mediation, the parties to a dispute can also apply to voluntary mediation before referring their dispute to a court or arbitration.
  • Türkiye is a party to the Singapore Convention on Mediation, which facilitates international trade and commerce by enabling disputing parties to easily enforce and invoke settlement agreements across borders.
  • While litigation can be considered as the usual and most common mechanism of dispute resolution in Türkiye, arbitration is also broadly preferred as the method for resolving complex commercial disputes, especially arising from cross-border contracts.
  • Although there are many arbitration institutions in Türkiye, parties doing business in Türkiye regularly refer their disputes to International Chamber of Commerce International Court of Arbitration ("ICC"), Istanbul Arbitration Centre ("ISTAC") and Istanbul Chamber of Commerce Arbitration and Mediation Centre ("ITOTAM"), and the Union of Chambers and Commodity Exchanges of Türkiye ("TOBB") Arbitration Council. ICC is often preferred, especially for cross-border transactions. ISTAC is one of the most prominent arbitral institutions in Türkiye for domestic and international arbitrations.
  • Foreign arbitral awards can be enforced in Türkiye if the country where the award was issued is a party to the New York Convention or there is de facto reciprocity between Türkiye and that country for the recognition or enforcement of arbitral awards. In recognition and enforcement lawsuits, Turkish courts are not authorized to re-examine the merits of the dispute if the decision does not violate Turkish public policy or relate to a matter within the exclusive jurisdiction of Turkish courts.

Foreign Investments

  • Generally, Turkish law provides that foreign investors be treated equally to Turkish investors.
  • There is no restriction on foreign shareholding except in a few specific sectors such as media, education and aviation.
  • Foreign investors may choose foreign laws and courts to have jurisdiction over their contracts.
  • Agreements between two Turkish parties (regardless of whether they have foreign shareholders) must be in the Turkish language and any non-Turkish versions will not be enforceable.

Establishing a Legal Presence in Türkiye

  • Establishing Company. Most foreign investment requiring a permanent legal presence in Türkiye proceeds through a locally established company. Local legislation allows several forms of company; however, considering overall advantages and disadvantages, foreign investment generally opts to incorporate either a joint stock company (JSC) or a limited liability company (LLC). Foreign investment's choice between these two forms depends on a detailed comparison between JSC and LLC, as below:
  • In practice, US companies mostly prefer establishing LLCs because of the check-the-box legislation rules in the US.
  • In terms of scope of activity, JSCs may be established for any type of activity, which is not prohibited by law, whereas LLCs may not engage in banking, insurance, financial leasing and other activities limited by law.
  • In terms of minimum capital requirement, it is TRY 50,000 for JSCs whereas it is TRY 10,000 for LLCs.
  • In terms of shareholding, local legislation allows single-shareholder JSC and LLC.
  • In terms of payment requirement of initial capital, unless otherwise specifically stated in the relevant regulatory legislation which the company operating in a regulated industry is subjected to, at least 25% of the initial capital of a JSC must be paid prior to incorporation and the remaining 75% must be paid within 24 months following the incorporation date; whereas there is no requirement for the LLCs to pay a certain amount prior to the incorporation and the entire share capital amount can be paid within 24 months following the incorporation date.
  • In terms of liability, shareholders are liable to the extent of their capital subscription undertakings, and executives are personally liable for the unpaid public debts (e.g., unpaid taxes or social security premiums) in JSCs. On the other hand, liability regime is slightly different in LLCs: as a general rule, shareholders are liable to the extent of their capital subscription undertakings with an exception stating that shareholders may be liable for unpaid public debts on a pro rata basis to their capital contribution whereas liability regime of executives is similar to JSCs.
  • In terms of general assembly, general assembly of a company is composed of its shareholders and the meetings of general assembly are structured in a same way for both JSCs and LLCs. Accordingly, ordinary general assembly meeting must be held each year within three months following the end of the company's fiscal year, during which the shareholders review relevant financial statements, resolve on profit distribution and release the directors. Extraordinary general assembly meetings can be held as necessitated by the operations of the company.
  • In terms of board, the board of directors for JSCs and the board of managers for LLCs are entitled to represent and manage the company and it is a mandatory corporate organ for both companies. Local legislation allows single-member boards. In JSCs, members of the board of directors are not obliged to be a shareholder of the company, whereas in LLCs, at least one of the members of the board of managers must be a shareholder of the company. Neither the members of board of directors in JSCs nor the members of board of managers in LLCs are required to be Turkish citizens or residents in Türkiye, unless otherwise specifically stated in local legislation which the company operating in a regulated industry is subjected to.
  • The incorporation procedure in Türkiye is almost the same for both JSCs and LLCs; and involves relatively significant paperwork and intense communication with the authorities, and also requires integrated cooperation with institutions such as banks. In addition, incorporation of companies that will engage in activities specified in the legislation (e.g. banking, financial leasing, factoring) will require authorization from the Ministry of Trade and/or the relevant regulatory authority. Preparation of documents is usually the most time consuming and crucial stage. It should also be noted that certain incorporation documents executed abroad must be apostilled or legalized by the Turkish Consulate in the relevant jurisdiction.
  • Establishing Branch Office. In addition to establishing a company in Türkiye, foreign investors may also consider establishing a branch office in Türkiye. Branch offices are entirely different structures compared to companies, as below:
  • In terms of scope of activity, branch offices can only engage in activities of its parent company. It cannot provide goods and/or services or engage in any commercial activity, which is not within the scope of services of the parent company.
  • In terms of capital, branch offices have autonomous capital and accounting to carry out commercial transactions with third parties. While there is no minimum capital requirement for a branch, in recent practice, the Trade Registry requires the branch offices to allocate a minimum of TRY 10,000 as capital. It is also important to note that it is required that the branch office maintains capital sufficient for its day-to-day operations in practice.
  • In terms of representation and management, it is mandatory to appoint at least one branch manager resident in Türkiye. There is no nationality requirement for the branch managers. The branch manager has full power and authority to represent the branch.
  • In terms of dependency to the parent company, although branch offices are registered with the relevant Trade Registry as separate legal entities, they are not totally independent from their parent companies. Branch offices are dependent to the parent company in terms of internal management and it is deemed that they act on behalf of its parent company. Thus, the loss and/or profit arising from the transactions of the branch office belong to the parent company. Parent company assumes the rights and obligations arising from the acts of the branch office. Accordingly, parent company may be the addressee for any claim to be directed to the branch office.
  • Establishing a Liaison Office. If the foreign investor is not planning to perform any commercial activity in Türkiye, establishing a liaison office that does not have a separate legal personality, can also be considered. In terms of scope of activity, liaison offices are not allowed to directly engage in any profit generating business. However, it is permitted to carry out activities such as gathering information, conducting market researches, promotion of the products and services of the foreign company, representation and hosting, control and inspection of the suppliers in Türkiye with respect to quality and standards and procurement of local suppliers, technical support visiting clients and describing the aspects of the parent company, arranging transfer of documents between the clients and the parent company, and entering into contacts to expand the business opportunities of its parent company, acting as regional management headquarters since these are not considered as commercial activities.
  • Establishment of a liaison office is subject to permission of the General Directorate of Incentive Implementation and Foreign Investment and the establishment is not registered with the Trade Registry. The General Directorate grants permission of activity for a limited time period. The activity permit may be extended by the General Directorate based on application in case the General Directorate is convinced on the merits of the application.
  • Liaison offices are required to prepare and submit annual submissions to the General Directorate in scope of their activities each year in May.

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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.