In this article, we shall focus on Investment in Turkey by presenting you a step-by-step business guide. Turkey is an attractive destination for many good investors all around the world due to her; its large population, convenient geographical location, considerably affordable workforce, and many more advantages, it offers great opportunities for foreign investments. From a legal perspective, Turkey has a modern system of legislation that protects and promotes foreign investment.

Turkey also provides incentives such as tax breaks and subsidies to attract foreign investors. On the financial side, Turkey has a well-developed banking and finance system, with the Turkish Lira (TRY) as well as other currencies. With its strong economic fundamentals and attractive investment climate, Spanish investors may find great opportunities for their investments in Turkey.

II. Investment in Turkey:From Legal Point of View

A. Investment Types in Turkey

Investors have a variety of options when it comes to investing in Turkey. Such as;

• Purchasing shares in already established companies,
• Founding your own companies within Turkey and doing business,
• Intellectual Property Investments in Turkey  such as patenting products or purchasing any other type of already registered intellectual property,
• Real Estate investments in Turkey, real estate projects, venture capital funds and so on and so forth.

All these investments can bring attractive returns with minimal risk. The necessary licenses and permits are considered to be easy in Turkey, making it an excellent choice for foreign investors. 

B. Foreign Investment Regulations

The Turkish administrative system and law is highly influenced by the French administrative system and law. Because of our civil law system, every rule and obligation has been set by law. Therefore it gives an advantage to those who have liable financial and legal counsel.

With the FDI Law, which entered into force in Turkey on 17 July 2003, has brought extensive changes in favour of foreign investors and liberated the foreign investment climate by, in particular, abolishing the approval system and introducing equal treatment and the free expatriation of proceeds to foreign investors.

There are also bilateral agreements between Spain and Turkey which gives advantage to Spanish Investors in Turkey. These are;

• Mutual Promotion and Protection of Investments Agreement (01.12.1997)
• Prevention of Double Taxation Agreement (18.12.2003)

Especially Mutual Promotion and Protection of Investment Agreement is significant because it allows;

• Fair and Equal Treatment: The agreement guarantees fair and equal treatment to investors of both parties. Spanish investors have the right to conduct business under the same conditions as Turkish investors.
• Protection and Security: Both parties have the obligation to protect Investment in Turkey made by the other party in their respective countries. Spanish investors can operate and protect their investments in Turkey without unjust or discriminatory measures.
• Most Favored Nation Treatment: Spanish investors will receive treatment in Turkey for their investments that is no less favorable than that afforded to investors of any other nation. This allows Spanish investors to gain a competitive advantage in the Turkish market.
• Protection of Investment in Turkey: The agreement stipulates that the expropriation or nationalization of investments cannot be carried out without providing immediate and adequate compensation to the investor. Spanish investors are assured the security of their investments and protection of their property rights.
• Free Transfer of Funds: The agreement allows Spanish investors to freely and promptly transfer funds related to their investments. This ensures seamless transfer of income, including profits, interest, dividends, as well as capital, gains, and other payments to Spain.

Except for some exemptions, and these mentioned regulations, all foreign and Spanish investors shall be entitled to privileges of financial and legal protection such as the Turkish Citizens.

C. Company Formation and Structuring

Our Law Firm provides any company formation, structuring, before and after purchase and formation procedure as well as corporate legal counsel.

First of all I would like to brief you the latest numbers from Turkish Chamber of Commercial Entities. By 2022 there were;

• Almost 180k Joint Stock Companies and 1.2 million Limited Liability Companies in Turkey. 
• Just in 2022 142.214 business entities were founded and 122.409 of these was LLC.
• And 35% of the newly established companies are based in İstanbul/Turkey.

Company Formation is a non-obligatory a must when establishing a company. Because the benefits of owning a company and performing business transaction via Business Entity has the best legal protection possible.

• Are not personally liable from debts of the Legal Entity
• Are not personally liable from Court orders, criminal provisional measures or even bankruptcy of the Legal Entity,
• Exempt from the insurance payments to Social Security Institution or Tax Debts of the Government, any type of debt to banks, institutions, real persons or other companies shall also be solely liability of the Legal Entity not the founder or the shareholder.

C.1. Company Capital in Turkey

Company capital refers to the financial resources contributed by the shareholders of a company. In Turkey, the minimum capital requirements vary depending on the type of business structure.

• For an LLC, the minimum capital requirement is 50,000 Turkish Lira (TRY). It can be paid within 24 months after the company is established.
• For a JSC, the minimum capital requirement is 250,000 TRY, and it must be fully paid up before the establishment of the company.

C.2. The Requirements for Company Formation

• Personal information: regarding one or more founders, as well as appointed directors of the company. 
• Company Name Approval: The proposed trade name of the company must be approved by the Trade Registry Office.
• Legal Address: A physical address in Turkey is required for company registration. This can be a rented office space or a virtual office.
• Bank Account:  A bank account in Turkey is required for the capital contribution and future business transactions.
• Passport
• Biometric Picture
• Turkish Potential Tax ID
• Passport Translation
• Power of Attorney regarding Establishment of Company
• Company Establishment Biolaw
• Signature Circulars(After Established)

C.3. Step-by-Step Company Establishment in Turkey

The process of company establishment in Turkey involves several steps and can be completed within a few weeks. The main steps include:

1. Trade Name Reservation: The first step is to reserve the trade name of the company with the Trade Registry Office. The proposed trade name should not be identical or similar to any existing company names.
2. Preparation of Documents: Once the trade name is reserved, the necessary documents such as the Articles of Association, passport copies, and other required documents must be prepared.
3. Notarization and Translation: The prepared documents must be notarized and translated into Turkish by a sworn translator.
4. Company Registration: The notarized and translated documents, along with the application form, must be submitted to the Trade Registry Office for company registration.
5. Tax Registration: After the company is registered, it must obtain a tax identification number and register with the tax authorities.
6. Social Security Registration: The company must also register with the Social Security Institution (SSI) to fulfill its social security obligations.
7. Acquiring Licenses and Permits: Depending on the nature of the business, certain licenses and permits may be required from relevant authorities.
8. Setting Up a Bank Account: A bank account must be opened in the name of the company and the capital contribution must be deposited.

C.4. FaQ Section

FAQ: Is buying an already established company an Option?

Yes, it is. But there are certain risks. Purchasing an already-established company presents risks to the new owner. Such as;

• Legal Liability of unpaid taxes,
• Financial Lability of unpaid insurance of former employees,
• Legal and financial liability to whom the former directors are debtor to. In conclusion, We do not suggest buying an already established firm except %100 trust established with the previous owner.

FAQ: Is it necessary to own a Residence Permit or Turkish Citizenship to Establish a Company?

• No, it is not necessary. We can establish a company without the owner ever entering to Turkey. But after it is establish, company directors needs to make signature circulars at the any notary in Turkey to authenticate their signature as director.

FAQ: Is it necessary to rent an actual office instead of virtual office?

• No, it is not. Virtual office is legally sufficient. But legal postal service is very important in Turkey. If the company is fined by tax office or receive a official document or lawsuit is filed against them, you must be notified and respond within certain given time. Unless so, the company shall loses it’s right to object the given content.

D. Intellectual Property Protection

In Turkey, trademark, design, utility model, and patent registrations are carried out at the Turkish Patent and Trademark Office (TPTO). Non-residents in Turkey can also have the right to register trademarks, designs, utility models, and patents in Turkey.

D.1. Power of Attorney Without Notary Approve

Applications to the TPTO are made through a trademark-patent attorney in Turkey, with the submission of a power of attorney. Notarization of the power of attorney is not required (unless there is a special circumstance), and a signed and stamped power of attorney along with a signature circular is sufficient. However, a notarized power of attorney is necessary during the litigation stage.

D.2. Why Trademark or Patent in Turkey?

Trademark, design, utility model, and patent registrations obtained in Turkey are valid within the country. Registrations obtained in other countries do not automatically extend their validity to Turkey.

D.3. Duration of Intellectual Property Registrations

The approximate duration for trademark and design registrations in Turkey is 8-15 months. Utility model registration takes about 1-2 years, while patent registration takes approximately 2-3 years. The TPTO subjects patent and utility model applications to worldwide novelty searches.

Regarding intellectual property rights in the field of literature, art, cinema, music, and fine arts, registrations are made under the auspices of the Ministry of Culture.

E. Turkish Contract Law and Turkish Employment Law

Turkish Contract Law has the principle of freedom of contract. Within the limitations of the law, all the parties can sign, amend or alter a contract.

But what is must be known about Turkish Employment Law is that it is highly favorable for the employee and employer always must protect itself via good and solid employments contracts, NDA, Non-Compete clauses which are in the boundaries of the Turkish Law. Unless so, the NDA or the non-compete clauses shall be considered invalid and ‘’it may cause a huge disaster for the confidential information of the employer’’. 

That is why, we suggest our clients to never use international NDA and non-compete agreements or any type of agreements in Turkey. If your agreements are invalid according to Turkish Law, legally it will be at your disadvantage because all the invalid clauses shall be considered invalid and all the valid clauses shall be partially accepted ‘’by Turkish Law’’. 

• Your agreements must be reviewed by a Turkish Lawyer.

F. Dispute Resolution

Court procedures in Turkey take a long time to settle. The average duration of a lawsuit is between 2-3 years. We suggest our clients try alternative dispute resolutions before going the court. 

• Mediation is highly common in Turkey. Department of Justice Certificated Mediators can settle the dispute and the signed agreement shall be accepted as a judiciary decision in the eyes of the law.
• Arbitration is also a rising resolution method in Turkey. We suggest arbitration for complex and international agreements since the arbitrator shall be more experienced and expert on the matter at hand of legal dispute.

Overall, if alternative dispute resolutions can’t be followed through, our law firm shall provide you with the best legal defense at the courts in Turkey.

III. Financial Point of View for Investment in Turkey

A. General Overview of Tax and Financial Regulations

Turkish tax system is mainly focusing on VAT( Value Added Tax) and other tax regulations. There we must know how VAT works as well as other taxes. VATis levied on various commercial, industrial, agricultural and independent professional activities carried out within Turkey’s borders, as well as on goods or services imported into the country. Understanding VAT and its regulations is essential for both businesses and individuals operating in Turkey.

B. Taxation and Incentives for Investment in Turkey

The Turkish tax system operates on a credit mechanism basis, where the VAT liability of an entity is calculated based on the difference between the VAT liability on their sales (output VAT) and the amount of VAT already paid on their purchases (input VAT). This system ensures that the actual burden of VAT is borne by the final consumer.

B.1. VAT Taxpayers

VAT taxpayers, according to Turkish VAT Law, encompass entities engaging in taxable transactions, irrespective of their legal nature or status. This includes those supplying goods and services, those importing goods or services, and those required to complete customs formalities in case of transit of goods through Turkey.

B.2. Taxable Transactions

The VAT Law categorizes taxable transactions into the supply of goods and services, importation of goods and services, and other activities. These transactions, carried out within Turkey, are subject to VAT. This includes supply of goods and services associated with commercial, industrial, agricultural, or independent professional activities, among others.

C. Accountant Services and Tax Statement Obligations

Entities engaging in taxable transactions must register with the local tax office relevant to their place of business. This registration is crucial for maintaining accurate records and ensuring tax compliance. Therefor hiring an accountant or contracting an accountant is a must.

C.1. VAT Registration

Entities must notify the local tax office where their place of business is located. If an entity has more than one place of business, registration takes place at the tax office authorized in respect to individual or corporate income tax.

C.2. Tax Statements, Invoices and Records

Taxpayers are obligated to maintain records in a manner that allows for the computation and verification of VAT. Invoices issued should include specific information such as invoice number, date of supply, name, address and tax registration numbers of both the company receiving the supply and the supplier, description of goods or services supplied, quantity and price, and date of delivery of goods.

D. Taxes in Turkey and Taxable Services

Various transactions carried out within Turkey are subject to VAT. For instance, the importation of goods and services is a taxable transaction regardless of whether the importation is made with a business purpose. On the other hand, export transactions are exempt from VAT, and a credit and refund are available for input VAT for export goods.

D.1. Importation of Goods and Services

Importation of goods or services into Turkey is a taxable transaction irrespective of the importer’s status or the transaction’s nature. VAT on importation is imposed at the same rates applicable to the domestic supply of goods and services.

D.2. Exportation of Goods

Export deliveries of goods and services related to such deliveries are exempt from VAT. This exemption operates under the name ‘exemption with credit for previously paid VAT’ and is issued principally for exports.

E. Tax Rates

The general VAT in Turkey rate has recently been increased to 20% from 18% for each taxable transaction. 

E.1. Special Rates

 There are also special rates of 1% and 8% for specific goods and services. These include basic food products like meat, fish, tea, coffee, cheese, sugar, milk, water, fruit, nuts, which attract a VAT rate of 1%. On the other hand, detergent, soap, toilet paper, napkins, baby diapers, and food and beverage sector services attract a VAT rate of 20%.

F. Tax exemptions for Investment in Turkey

There are two primary forms of exemption under the Turkish VAT Law. These are ‘exemption without credit for previously paid VAT’ and ‘exemption with credit for previously paid VAT’.

F.1. Exemption without Credit for Previously Paid VAT

The ‘exemption without credit for previously paid VAT’ applies to the supply of goods and services for cultural, educational, recreational, scientific, social, and military objectives, among other categories. This includes goods and services supplied by national and local public institutions, universities, political parties, trade unions, non-profit organizations, agricultural and co-operative societies, social security institutions, and other officially qualifying organizations.

F.2. Exemption with Credit for Previously Paid VAT

The ‘exemption with credit for previously paid VAT’ operates mainly for exports. Under this mechanism, certain transactions are not taxable, and the taxpayer has the right to claim a credit and a refund.

Understanding VAT and its various aspects can be complex. However, with professional guidance and assistance, navigating this tax type and ensuring compliance with its regulations can be much more manageable.

FaQ: Is Turkish Lira Currency a must to use in business transactions in Turkey?

In Turkey, residents and citizens and Turkish companies are mostly obligated to make invoices and payments in Turkish Lira except for exemptions. 

But there are too many exemptions to this. To know whether or not your choice of goods or services is exempt from Turkish Lira currency, please contact us. 

VII. Conclusion

A. Summary

We have also discussed the straightforward process of company formation in Turkey. Easy, fast and cost-efficient via step-by-step procedures. Owning a company in Turkey offers legal protection and liability benefits.

In terms of finance, we have touched upon tax and financial regulations, particularly the value-added tax (VAT) system. Emphasizing the importance of tax compliance, we encourage maintaining accurate records and seeking professional assistance.

In summary, With proper Legal and Financial guidance, we believe the advantages of investing in Turkey far more than the disadvantages. Legal protection in Turkey is valuable. The shield of a Legal Entity protects your personal assets.

Rest assured, these aspects in Turkey are manageable and not perceived as obstacles. The country provides an investor-friendly environment with clear procedures for company formation, intellectual property protection, and tax compliance.

In conclusion, we strongly encourage you to consider the vast opportunities that await you in Turkey, with the proper legal and financial guidance we have provided. The legal protection and benefits of establishing a legal entity in Turkey can be instrumental in your investment success. Should you require further assistance, our law firm is ready to support you in all your legal and financial matters related to investments in Turkey.