Investing In... 2024 Comparisons

The Turkish legal system is primarily based on written laws and codes, reflecting the civil law tradition and Continental law system, and decisions are based on statutes rather than precedents.

The legal system is divided into two primary branches: public law and private law. Private law governs the relationships between private individuals and entities (eg, the Turkish Civil Code, the Turkish Commercial Code (TCC) and the Turkish Code of Obligations), while public law governs the relationships between the state and individuals or entities, as well as the organisation and functioning of government institutions. Key areas of public law in Türkiye include constitutional law, administrative law, criminal law, and other legal aspects that involve the state’s authority and public interests.

Judicial Structure

Türkiye has the following three-tiered court system: (i) the first instance courts; (ii) the regional courts of appeal (bölge idare/adliye mahkemeleri) and the Supreme Court of Appeal (Yargıtay). 

For judicial disputes, the first instance courts are divided into civil courts and criminal courts. The civil courts also have specialised courts (eg, family, commercial, labour and consumer courts).

For administrative disputes, the courts are categorised as administrative courts and tax courts.

Alternative dispute resolution methods, especially arbitration, are on the rise. Some civil disputes are subject to mandatory mediation such as certain employment matters and commercial receivables above certain thresholds before they can be taken to state courts. Domestic and international arbitration is up and coming. There are codified rules for both domestic and international arbitration based on the UNCITRAL Model Law. With the establishment of the Istanbul Arbitration Centre (ISTAC) as a reliable, fast and cost-efficient arbitration centre, not only locally but also regionally, arbitration has become very popular and is increasingly preferred by corporates for both their standard contracts as well as for major project or transaction documents. Procedural rules on the enforcement of ISTAC, combined with the fact that Türkiye is a party to the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards, ensures the enforcement of arbitral awards and very few awards are set aside by the courts.

Regulatory and Supervisory Bodies

Various regulatory and supervisory bodies oversee specific industries, including banking, energy, mining, competition, capital markets, and other regulated sectors. Some examples of these bodies are as follows:

• the Banking Regulation and Supervision Agency (BRSA);
• the Capital Markets Board (CMB);
• the Directorate General for Mining and Petroleum Affairs;
• the Energy Market Regulatory Authority (EMRA);
• the Competition Authority;
• the Information and Communication Technologies Authority (ICTA); and        
• the Radio and Television Supreme Council (“RTÜK”).

Pursuant to the Foreign Direct Investment Law (“Foreign Investment Law”), foreign investors are afforded parity of treatment with Turkish investors and are subject to the same requirements as Turkish investors except in certain business sectors (eg, broadcasting, aviation, maritime transportation, mining and real estate).

A foreign investor may utilise all types of legal entities regulated under Turkish Law. Other than liaison offices and some special types of joint stock companies (eg, banks, financial leasing companies, factoring and insurance companies), no prior approval from the Ministry of Industry and Technology or the Ministry of Trade is required for foreign investors when incorporating a Turkish company or branch. 

While Turkish law does not require foreign investors to obtain approval from any authority, it does mandate an ex-post notification requirement. Companies and branches with foreign investments must be notified to the General Directorate of Incentive Implementation and Foreign Investment of the Ministry of Industry and Technology of the Republic of Türkiye (“General Directorate of Foreign Investment”), and they must register themselves on an online system called the Electronic Incentive Implementation and Foreign Investment Information System (“E-TUYS”) in order to carry out transactions electronically before the General Directorate of Foreign Investment.

Incentives

Since 2012, an incentive scheme has been in place to boost business development in Türkiye. In order to benefit from the incentives, foreign investors need to obtain an Investment Incentive Certificate (IIC). Since 2018, the Ministry of Trade has had oversight of the investment incentives system. The Investment Office, which is under the Turkish presidency, provides various types of incentives to companies under different incentives schemes (eg, general, regional, priority, and strategic investment incentives schemes).

In an effort to boost investment, Türkiye offers employment support, development agency support and support for R&D and design centres, as well as techno park projects aiming to develop value-added technologies. Overall, the Turkish incentives regime provides equal treatment for foreign and domestic investors within the framework of government efforts designed to support foreign investments.

Bilateral Investment Treaties (BITs)

Türkiye has signed certain BITs to follow global investment law trends. The main principles of BITs are as follows:

• to provide a level playing field for foreign investors and “national and most favoured nation” treatment;
• to promote foreign direct investments between contracting states;
• to guarantee “full protection and security” and “fair and equitable treatment”;
• to protect against expropriation of foreign investments and losses due to internal disturbances; and
• to guarantee free transfer of returns and profits, and settlement of investment disputes between foreign investors and the host state through international dispute settlement mechanisms.

Challenges in 2023

Reflecting on the year 2023, the Turkish market encountered notable challenges influenced by a series of local and global events. These included a devastating earthquake in the southeast, a highly anticipated presidential election, and the broader impact of the Russian-Ukrainian war. These factors emerged as crucial elements affecting the market’s stability. According to the Türkiye Statistics Institute (“TÜİK”), the consumer price index surged to 61.98% annually as of November 2023 and reached approximately 65% by year-end. The economic landscape faced challenges, marked by high inflation, significant Turkish lira fluctuations, and escalating borrowing costs, posing challenges for Turkish companies and investors in this jurisdiction.

Restrictions on borrowing

In recent years, Türkiye imposed restrictions on borrowing in foreign currency and local currency from Turkish banks for companies holding foreign currency on their balance sheets. Consequently, Turkish companies turned to local debt issuances, as these regulations did not impose restrictions on bonds and bills issued domestically. This trend persisted in 2023 but reversed post the May 2023 elections when Türkiye embraced a more conventional economic management approach, leading to increased interest rates to tackle inflation.

M&A down, FDI still coming

M&A activity experienced a slowdown, prompting investors to turn to capital markets for exits through initial public offerings (IPOs). The Turkish market displayed resilience by continuing to attract FDI, especially in the technology, gaming and energy sectors.

Outlook for 2024

In 2024, expectations include the implementation of income inclusion rules, tax base broadening, and compliance enhancement. Regulatory changes, such as crypto-asset legislation, are anticipated. The rise of start-ups, particularly in digital and fintech, is expected to continue, and minimum capital requirements for companies have been increased.

Most Common Transaction Structures

Foreign investors may invest in Turkish companies in a variety of ways, including:

• acquiring shares of the Turkish company;
• obtaining the assets of the Turkish company;
• subscribing to the Turkish company through a share capital increase;
• establishing local companies (including those with 100% foreign capital ownership) or creating branches or liaison offices;
• mergers or demergers; or
• incorporating a joint venture.

Foreign shareholders of Turkish private companies may also participate in IPOs of such companies as selling shareholders, and may sell all or a part of their shares in the company to the public. However, the number of shares sold by any shareholder is subject to the CMB’s approval.

Preferred Transaction Structure

Foreign investors usually prefer to establish a Turkish company, often referred to as a special purpose vehicle (SPV), in order to acquire shares in another Turkish company. This preference arises from the advantageous tax benefits associated with a share transfer transaction compared to purchasing the assets of the company. After the SPV is established, provided that certain conditions are met, a business can be acquired through a tax-free partial spin-off, a full spin-off or a tax-free merger, all of which are preferred tools, due to the tax benefits, such as being exempted from VAT over the business’s assets. Alternatively, foreign investors also tend to invest in a Turkish company though an SPV established in Luxembourg or the Netherlands, mainly because these jurisdictions usually offer tax advantages.

Depending on the transaction selected, foreign investors frequently choose to formalise management rights and the governance structure of the Turkish company by entering into shareholders’ agreements, share purchase agreements and asset sale agreements, in addition to the mandatory articles of association.

Transaction Structure for Public Companies

The above-mentioned transaction structures are applicable for investment in public companies. There are specific additional requirements under the Capital Markets Law numbered 6362 (“Capital Markets Law”) and secondary legislation based on such law for certain transactions. For example, pursuant to Tender Offer Communiqué numbered II-26.1, if a shareholder or a group of shareholders collectively acquire control over a public company (either through acquiring the majority of the voting rights in general assemblies and/or through acquiring the power to appoint more than half of the members of the board of directors of the said company), such shareholder(s) must launch a mandatory tender offer to all remaining shareholders of the public company (subject to certain exemptions). Another example is that the merger, demerger and capital increase of public companies are subject to the CMB’s pre-approval.

Foreign investors are generally afforded parity with domestic investors. Specific M&A transactions within certain sectors may necessitate approval or notification to the relevant authorities. Additionally, while not mandatory for the validity of a particular transaction, specific notifications should be submitted to the relevant trade registry for transparency and informational purposes. The outlined notification requirements are detailed below.

Notification to the Trade Registry

Pursuant to the TCC, if a company’s shareholding changes at certain thresholds (ie, 5%, 10%, 20%, 25%, 33%, 50%, 67% or 100% of the share capital of a company is acquired or the shareholding of a shareholder falls under such percentages), notification must be submitted to the relevant trade registry and such notification is subject to announcement in the Turkish Trade Registry Gazette. If such notification is not made within the ten-day period following completion of the share transfer, the transferee (ie, the new shareholder) will be prevented from exercising its shareholding rights (including voting rights) attached to the relevant shares.

The transfer of shares in joint stock companies (JSCs) is not subject to registration. The transfer of shares in limited liability companies (LLCs), is required to be registered before the trade registry and announced in the Trade Registry Gazette once it is approved by the general assembly. See 4.1 Corporate Governance Framework for more details about JSCs and LLCs.

The validity of transactions involving the merger, demerger and incorporation of a company is conditional to their registration with the relevant trade registry.

Notification to the General Directorate of Foreign Investment

Companies and branches with foreign investments must be notified to the General Directorate of Foreign Investment and they must register themselves with E-TUYS to carry out transactions before the General Directorate of Foreign Investment. In this context, such company is required to update the relevant sections of E-TUYS in cases of (i) an increase or decrease in the capital amount; (ii) payments made with respect to capital increase or share transfer, or (iii) share transfers among current domestic or foreign shareholders or those made to third parties, within one month following such actions at the latest.

Competition Board Approval

Pursuant to Act No 4054 on the Protection of Competition (the “Competition Act”), certain types of mergers and acquisitions must be notified to the Turkish Competition Board (the “Competition Board”) and clearance must be obtained in order for them to be legally valid. See 6. Antitrust/Competition for more details.

Capital Markets Board Approval

Pursuant to the Capital Markets Law and secondary legislation based on this law, certain transactions involving public companies require the pre-approval of the CMB. These include transactions that change the company’s capital structure, such as mergers, demergers and capital increases.

Legal Entity Forms

A foreign investor may utilise all types of legal entities regulated under Turkish Law. JSCs and LLCs are the preferred legal entities through which to conduct commercial activities in Türkiye. They are both limited liability companies and the liability of shareholders is limited to their capital commitment, except for certain obligations of an LLC vis-à-vis the government.

The JSC is specifically preferred where shareholders with potentially conflicting interests come together, such as in a joint venture. A JSC is the only plausible option where participation in public tenders, or regulation by certain semi-autonomic regulators, or a public offering of securities is anticipated. The LLC is a simpler structure, which takes the same amount of time as a JSC to incorporate but may in the long run be easier to administer. While the JSC is the more common choice, the LLC may be preferable when the sole objective is to establish a fully owned subsidiary with minimum capitalisation and administration requirements. Nevertheless, the LLC shareholders, unlike the JSC shareholders, may be liable for amounts owed by the LLC to government authorities for taxes, duties and charges pro rata to their shareholding percentage in the LLC, if the company cannot make the required payments (ie, their liability in this respect is unlimited and not limited to their capital contribution only).

Corporate Governance in General

The corporate governance framework in Türkiye relies on board structure, shareholder rights, transparency, and risk management. There has been a recognisable shift in the business landscape, indicating a growing tendency towards environmental, social and governance (ESG) principles. Moreover, there is a noticeable increase in the inclination towards green funding and environmentally friendly initiatives as businesses seek to align with global trends and investor preferences. The integration of ESG considerations into corporate strategies is becoming more common, reflecting a broader commitment to long-term value creation and ethical business conduct in Türkiye’s corporate sector.

Corporate Governance in Public Companies

Public companies must comply with certain corporate governance principles. Public companies are divided into three categories depending on certain factors such as market value and the percentage of free-floating shares. The groups are determined and announced by the CMB at the beginning of each year. The corporate governance obligations of companies that are in group one are stricter that those of companies in group two, while companies in group three have the least strict corporate governance obligations. However, all public companies, regardless of their group, have the following important common corporate governance obligations:

• having a specific number of independent board members;
• forming the mandatory committees;
• forming an investor relations unit managed by an investor relations manager who has the necessary CMB licences; and
• gaining approval of certain related party transactions from independent directors.

Minority Rights

According to Turkish law, mere ownership of one share is sufficient for an individual to be recognised as a shareholder and to benefit from basic shareholder rights such as the right to receive dividends and liquidation proceeds, a pre-emption right to newly issued shares, the right to receive free shares in capital increases from internal sources, the right to attend general assembly meetings and to vote, the right to request information at general meetings, the right to request a special audit and the right to file a cancellation lawsuit against general assembly resolutions.

In addition to basic shareholding rights, the TCC extends supplementary protection to “minority shareholders”, defined as those who individually or collectively hold a minimum of 10% of the shares, as set out below:

• the right to call for a general assembly meeting and/or to add items to the general assembly’s agenda;
• the right to ask for a postponement of deliberations on financial statements;
• the right to override the general assembly’s rejection of a request for a special audit;
• the right to request the dissolution of the company (which would of course be granted only in extreme cases); and
• the right to ask for the dismissal of the independent auditor.

Minority Rights in Public Companies

In public companies, a shareholder or shareholders who hold 5% or more of a public company’s shares are considered “minority shareholders” and are entitled to all rights against the company that are foreseen under the TCC for “minority shareholders”.

Furthermore, all shareholders, regardless of their shareholding percentage in the company, are entitled to sell their shares to the company and exit, subject to certain conditions. Pursuant to Communiqué numbered II-23.3 on Material Events and Exit Rights, certain transactions made by a public company, such as mergers, demergers, sale of a significant portion of the company’s assets (subject to the calculation method set out in the communiqué) or providing such assets as collateral (subject to certain exemptions), are considered “material events”. Pursuant to the communiqué, material events must be approved by the general assembly of the company. Shareholders who have attended this general assembly, voted against the decision and annotated their dissent to the general assembly minutes may exercise their exit rights and sell their shares to the public company. The public company must engage an intermediary institution to enable the dissenting shareholders to exercise their exit rights. The price per share at which the exit right will be exercised is calculated based on the calculation method stipulated under the communiqué.

See 3.2 Regulation of Domestic M&A Transactions for details on reporting requirements to the General Directorate of Foreign Investment.

Public Companies

Pursuant to the Special Events Communiqué numbered II-15.1 issued by the CMB, public companies have to disclose all sensitive information and new developments which could affect the share price of the public company and/or affect the investment decisions of investors (ie, insider information). Some examples of insider information include large transactions, tenders, important lawsuits and/or government investigations. Insider information must be disclosed on the Public Disclosure Platform (Kamuyu Aydınlatma Platformu), which is the official website for making such disclosures.

Public companies and their relevant shareholders must also disclose certain information such as company details, board of managers and upper management and shareholding information, including indirect shareholders that own, individually or collectively, 5% or more shares in the company. Upon reaching or falling below certain other thresholds, namely, 5%, 10%, 15%, 20%, 25%, 33%, 50%, 67% or 95%, additional disclosures also have to be made. In the case of a single person or entity crossing these thresholds, the announcement is made by the Central Securities Depository. However, where multiple persons acting together cross these thresholds or the thresholds are crossed indirectly, such persons must make these disclosures.

Private Issuers

Private issuers are also subject to disclosure requirements on the Public Disclosure Platform, but these are less strict than public companies’ disclosure obligations. Private companies that have issued securities other than shares, such as bonds and bills, also have to disclose certain information relating to major corporate events and important developments that might affect the repayment ability of the company. However, this disclosure obligation is less extensive than that foreseen for public companies. Similarly, funds also have to disclose certain information on the Public Disclosure Platform.

Inclusions and Exceptions

Pursuant to the Communiqué numbered II-14.1 on Principles of Financial Reporting in Capital Markets issued by the CMB, public companies and private companies that have issued securities such as bonds and bills, as well as other capital markets institutions such as asset management companies, must disclose their financial statements each quarter. However, there are certain exceptions to this rule. For example, companies that have issued securities to professional investors that trade only between professional investors do not have to disclose their financial statements relating to the first and third quarters.

Overview of Legislation

Turkish capital markets legislation underwent a major overhaul in 2012 and 2013 following the enactment of the Capital Markets Law numbered 6362. The CMB issued various secondary pieces of legislation, mostly in the form of communiqués but also through announcements and principle decisions, which aim to regulate all aspects of Turkish capital markets and bring them in line with accepted global capital markets practices. As such, the legislative framework for Turkish capital markets is mostly in parallel with EU regulations and can be considered well developed.

Sources of Funding

That being said, bank loans remain the main source of funding for Turkish companies, especially SMEs. The Turkish banking system is also very well developed and Turkish companies have historically turned to banks for their borrowing needs. Other financial institutions, such as financing firms, factoring firms and financial leasing firms are also well developed and are commonly used by Turkish companies. Lastly, supranational institutions such as the European Bank for Reconstruction and Development and the International Finance Corporation are also active in the Turkish market, providing funding through both equity and loans to large Turkish companies as well as SMEs, although the number of these activities reduced in 2023.

In recent years, a large number of companies have expressed interest in going public and raising funds this way. This is attributed to the economic policies followed by the government as well as high inflation, which has resulted in a decrease in foreign interest in lending to Turkish companies. Furthermore, Türkiye has imposed certain restrictions on Turkish companies borrowing in foreign currencies. This has resulted in increased interest on the part of Turkish companies in the issuance of debt securities, which was usually done by public firms in the past.

Trusts and Funds

Lastly, real estate investment trusts and funds, as well as venture capital trusts and funds have attracted a great deal of interest in the past few years as they have been granted many tax benefits. This is expected to continue in the coming years as an incentive mechanism to improve investments in these areas.

Capital Markets Legislation

The main legislation governing both equity and debt capital markets is the Capital Markets Law. The CMB, which is established under this law, is the regulatory authority overseeing the Turkish capital markets. The CMB enacts secondary legislation in the form of communiqués, principle decisions, decisions, guides and announcements to regulate the market. The CMB also publishes a weekly bulletin where various news items, such as new principle decisions and debt and equity issuance approvals are announced.

Key Institutions in the Turkish Capital Markets

In addition to the CMB, other key institutions in the Turkish capital markets are Borsa Istanbul, the Central Securities Depository, Istanbul Settlement and Custody Bank (Takasbank), and the Turkish Capital Markets Association. These institutions also enact their own secondary regulations, which govern the conduct of their respective activities and the activities of the relevant capital markets participants. Borsa Istanbul issues directives and announcements to establish exchange-specific regulations, such as listing requirements and trading procedures. Borsa Istanbul also includes a dispute committee authorised to resolve disputes regarding transactions on the exchange. The Central Securities Depository establishes rules and guides regarding the securitisation and digitisation of capital markets instruments. Istanbul Settlement and Custody Bank operates the clearing and settlements system. The Turkish Capital Markets Association establishes professional rules and regulations for capital markets institutions, conducts research and organises events.

Main Rules and Regulations

Some of the main rules and regulations that are applicable to companies acting under Turkish capital markets are disclosure requirements, corporate governance, material events, and fines and punishments for interfering with the proper functioning of the capital markets, such as failing to disclose certain information, market manipulation and insider trading. Various secondary legislation also covers the issuance of securities, such as going public and the issuance of debt securities including bonds, bills and sukuk, as well as structured products. Lastly, a set of communiqués regulate the incorporation and activities of various capital markets institutions, such as brokerage firms, asset management companies, funds, real estate investment trusts and venture capital investment trusts.

See 4.3 Disclosure and Reporting Obligations for more information on disclosure requirements. Public companies must also comply with corporate governance principles, which have been described in detail under 4.1 Corporate Governance Framework.

Foreign investors may freely invest in Turkish securities by opening accounts in a brokerage firm that has obtained the necessary licences from the CMB. Transferring money from to and from abroad to Türkiye is permitted. However, all such transfers must be made through Turkish banks.

Foreign funds may invest freely in Türkiye, as would any other foreign company. However, should the foreign fund wish to raise capital in Türkiye, certain restrictions and prohibitions apply. Most notably, foreign funds may not promote their fund to Turkish residents (regardless of targeting professional or retail investors), unless they receive the relevant approvals from the CMB. Certain actions, such as having a Turkish website or engaging a Turkish firm or representative to promote the fund, are prohibited. Should a foreign fund wish to offer securities to Turkish investors, it must apply to the CMB and receive its approval before doing so. The application documents and requirements differ depending on certain criteria, such as whether the fund will be offered to retail investors.

Relevant Authority for Merger Control

The primary legislation governing merger control is the Competition Act. Article 7 of the Competition Act authorises the Competition Board to determine the types of mergers and acquisitions which have to be notified to the Competition Board and for which permission has to be obtained, in order for them to become legally valid. Accordingly, the Board has implemented Communiqué No 2010/4 Concerning the Mergers and Acquisitions Calling for the Authorisation of the Competition Board (“Communiqué No 2010/4”), which sets the turnover thresholds determining the notification requirement of transactions.

General Overview of the Requirements

A mandatory filing will be required if, as a result of a transaction:

• there is a permanent change of control; and
• the turnover thresholds are exceeded.

Control, in this sense, is defined as the ability to exercise decisive influence on an undertaking. This can be exerted either by having the majority of the company’s shares or, by holding more than half of the voting rights, or by appointing more than half of the board members. On the other hand, veto rights on decisions such as the budget, business plan, major investments, or the appointment of senior management are all means that give control over a company.

The turnover thresholds for M&A which are subject to mandatory merger control filing before the TCA are as follows:

• the aggregate Turkish turnover of the transaction parties exceeds TRY750 million, and the Turkish turnovers of at least two transaction parties each exceed TRY250 million; or
• the turnover in Türkiye for the acquired asset or operation in acquisition transactions, exceeds TRY250 million and the global turnover of at least one of the other parties to the transaction exceeds TRY3 billion; or
• in mergers, the Turkish turnover of any party exceeds TRY250 million and the worldwide turnover of at least one of the other parties exceeds TRY3 billion.

However, the TRY250 million threshold is not applicable to transactions concerning the acquisition of technology undertakings (operating in the fields of digital platforms, software and game software, financial technologies, biotechnology, pharmacology, agrochemicals and health technologies or their related assets) which:

• operate in the geographical market “Türkiye”; or
• have R&D operations; or
• provide services to users in Türkiye.

Timeline for Notification and Review process

The parties are required to obtain clearance before closing the transaction (ie, before the control change is completed). The parties may file with the executed version of the share purchase agreement as well as a near-final (non-executed) version.

The Competition Authority must render its final decision in 30 days. However, the case handler team has full discretion in issuing an official request for additional information (“RFI”). Any RFI resets the review period, starting from Day 1, following the day the response petition to the TCA’s RFI is submitted. The review process may also differ depending on the severity of competition law concerns. That said, the clearance decision is notified in approximately five to six weeks after the submission of the filing for a no-issue transaction (ie, no risk of creating or strengthening a dominant position or significantly impeding effective competition).

If the case handlers decide that the transaction has the potential to (i) create or strengthen a dominant position, or (ii) significantly impede the effective competition in a relevant market, it might suggest that the Board take the case into a Phase II investigation which is an in-depth review procedure modelled on the EU Merger Regulation. However, Phase II reviews are extremely rare in practice.

There is a set of rules and considerations the Competition Board uses to make sure that the transaction at hand does not harm the competition. The Competition Board looks closely at the market involved – how it is structured, who the players are, and whether there is sufficient competition, both from local and international companies. The Competition Board also dives into the undertakings themselves, examining their status in the market, financial strength, and how they interact with suppliers and customers.

Other factors are also taken into account such as entry barriers, the balance of supply and demand, and consumer welfare. If a prospective transaction will result in a significant reduction in effective competition, creation of a dominant position or strengthening of an already dominant one, the Competition Board will not give the transaction the green light.

While assessing a proposed transaction, the Competition Board has a choice: it can allow it, or if there are some concerns, it can dig deeper in a final examination (Phase II). During this process, if there is a preliminary objection, the Competition Board lets the parties know and may even pause the whole deal until a final decision is made.

To protect the competitive structure that existed in the market prior to the transaction, the undertaking concerned may give (or the Competition Board may suggest) commitments in accordance with the principles laid down in Article 14 of Communiqué No 2010/4 and in the “Guidelines on Remedies that are Acceptable by the Turkish Competition Authority for Merger/Acquisition Transactions”. Proposed remedies aimed at eliminating competition problems created by a concentration transaction may be structural or behavioural.

Common Types of Remedies or Commitments

Remedies or commitments will depend on the circumstances of each case and the concerns raised by the competition authority.

Divestitures

The merging parties may be required to sell off certain assets, subsidiaries, or business units to a third party to maintain or restore competition in the affected market.

Removal of links with competitors

To address competition issues arising from links between parties and competitors in a concentration, potential remedies include divesting shares in joint ventures or minority holdings in competitors, altering management structures or withdrawing veto rights.

Access remedies

The Competition Board may require the parties to grant licences to third parties to use certain technologies or intellectual property or to provide competitors with access to essential infrastructure or facilities, promoting a level playing field in the market.

Price controls

In some cases, the authority may impose restrictions on pricing strategies to prevent the abuse of market power, ensuring that consumers are not adversely affected.

Consequences of Failing to Notify a Notifiable Transaction

If the parties fail to notify a notifiable transaction and the Competition Board is informed about this within eight years (statute of limitations in Türkiye) after the closing, an administrative fine amounting to 0.1% of the turnover in Türkiye of the relevant undertaking (buyers in acquisition transactions, the merged entity in merger transactions) that was generated in the year preceding the fining decision. This fine is imposed solely for failure to notify and it does not matter whether the transaction would lead to any substantive competition law concerns or not.

If the relevant transaction does not raise any substantive concerns, the Competition Board will evaluate the transaction and render a clearance decision which will be effective retroactively (ie, beginning at the time of closing). Thus, the only actual consequence would be the administrative fine in that case (some companies also have reputational concerns and prioritise avoiding administrative fines regardless of the magnitude).

If a notifiable transaction that creates substantive concerns is not notified, the Competition Board will impose the 0.1% administrative fine for failure to notify and it will also initiate an investigation. If it is found that the relevant transaction was anti-competitive, the Competition Board may impose an administrative fine of up to 10% of the relevant parties’ turnover. Moreover, the Competition Board could impose structural and/or behavioural remedies. The nature of these remedies would be determined by the Competition Board and the main aim of these remedies would be to reinstate the original situation that preceded the transaction.

Judicial Review of the Competition Board’s Decisions

Parties have the option to seek judicial review of the Competition Board’s decisions by filing an appeal case with the administrative courts within 60 calendar days of receiving the Competition Board’s justified decision.

Overview

Under Turkish law, FDIs do not need approval or advance notification from government authorities except for the specific sector-related exemptions outlined in 8.1 Other Regimes and certain notification requirements to be made to the General Directorate of Foreign Investment.

National Security and Restriction on Foreign Investors’ Acquisition of Lands and Rights in Rem

Turkish legal entities with foreign investors can purchase real estate (subject to limitations with respect to the total area that can be purchased by foreign investors in certain districts), unless the relevant property is located in an area categorised as a military zone or a security zone. However, foreign legal entities may not directly acquire any property in Türkiye unless a special code or law envisages otherwise (such as the Law on Incentivising Tourism numbered 2634, the Law on Industrial Zones numbered 4562, etc). In this respect, (i) Turkish companies controlled by foreign investors (ie, where the foreign investors have the right to appoint or dismiss the majority of the decision-makers in the Turkish company); and (ii) Turkish companies where the majority (50% or more) of shares are directly or indirectly owned by foreign investors, may acquire any property by filing an application with the governorship of the relevant province, together with certain documents stipulated under the legislation.

Process for National Security Review

Upon the application of the company, the governorship should send the title registry details of the land to the Turkish General Staff or the relevant command authorised by the General Staff, to determine whether the land is located at a prohibited military zone, military security zone or other zones of strategic importance. Unless the General Staff or the authorised command objects to the governorship’s letter, the governorship will send another letter to the provincial security directorate or provincial gendarmerie command to determine whether the land is located at a private security zone. In practice, rather than contacting the General Staff, the governorships usually contact the relevant title registry directorates directly, which shortens the clearance procedure.

After obtaining the relevant clearances, the governorship sends a notification to the relevant title registry and grants its permission for the transfer of title. However, such permit is only valid for a period of six months and if the title transfer cannot be consummated within this time period, a new permit should be obtained.

Restriction on Foreign Investors’ Acquisition of Rights in Rem

The above-mentioned principle is also applied to cases where a company is to be granted a right in rem (ie, usufruct rights or construction rights). However, in this case, the necessary documentation to be submitted to the governorship is slightly less when compared to the acquisition of full ownership interest.

If the relevant authorities decide that the company should not own lands in the area declared as a military or security zone, the company is required to terminate its operations over the land and liquidate its ownership interest in the land.

Decision of the Governorship

If the determination is ultimately made that the real property is situated within the relevant zones and foreign ownership poses a national security risk, authorisation for foreign ownership will be denied. In such instances, the company must dispose of the real property within a six-month timeframe. Failure by the company to dispose of the real property within the specified period will result in liquidation by the Ministry of Finance and Treasury of Türkiye, with the proceeds from the sale, after deducting liquidation expenses, being remitted to the company.

Any decisions made by the relevant administrative bodies can be challenged through local administrative courts.

See 7.1 Applicable Regulator and Process Overview.

See 7.1 Applicable Regulator and Process Overview.

See 7.1 Applicable Regulator and Process Overview.

As a rule, foreign investors can make direct investments in Turkish companies without the need for prior approval or notification. Nevertheless, there are specific key points and sector-related restrictions which should be considered in terms of FDI:

• Language requirement – As a matter of public policy, agreements signed by Turkish persons (legal and real) are required to be in Turkish, even if there is a foreign element in the transaction.
• Currency requirements – Certain contracts (eg, rental agreements and loan agreements) need to be denominated in Turkish liras following the introduction of Presidential Decree No 32.
• Changes in legislation – Legislation in Türkiye changes quickly. It is therefore advisable to be on top of current legislative requirements and to keep abreast of any proposed changes.
• Restrictions on acquiring real estate – See 7.1 Applicable Regulator and Process Overview for more details.
• Restricted sectors – These include energy, mining, media, broadcasting, aviation and maritime transportation.

Corporate Income Tax (CIT)

Companies whose headquarters are located in Türkiye, or whose operations are centred and managed in Türkiye, are subject to CIT on their worldwide income.

The general CIT rate is 25%. However, there are certain deviations from this rate, for certain taxpayer groups (eg, banks, electronic payment and money institutions, companies, authorised foreign exchange institutions, asset management companies, capital market institutions, insurance and reinsurance companies and pension companies, and qualifying manufacturers and companies).

Branches are taxed solely on income derived from activities in Türkiye, since they are regarded as non-resident entities for Turkish purposes. Branch profits are subject to Turkish CIT at the rate of 25%. The branch profit transferred to headquarters is subject to dividend withholding tax at a rate of 10%, which might be reduced under an applicable double tax treaty (DTT).

Ordinary partnerships (adi ortaklık) and general partnerships (kollektif şirket) do not need to be tax registered for income or corporate tax purposes, whereas VAT registration is required. The profits and losses incurred by the partnership should be included in the partners’ own income/corporate tax returns, depending on the partnership rates, and declared by the partners themselves.

Other Taxes

VAT

The deliveries and services performed in Türkiye within the scope of commercial, industrial, agricultural and self-employment activities, and the importation of goods and services to Türkiye, are subject to VAT at a general rate of 20%. A reduced rate from 1% to 10% applies to the delivery of certain types of goods and services.

Stamp tax

Stamp tax is applied to a wide range of documents, including but not limited to, agreements, deeds of assignment, deeds of undertaking, and payrolls. The stamp tax rates vary between 0.189% and 0.948%, depending on the type of document, with an overall cap of TRY17,006,516.30 (for 2024).

Special consumption tax

Special consumption tax is also applicable on certain goods and services and is applied as either an exact value or a certain ratio and charged only once, at the stage of manufacture, import or at first acquisition.

Real estate tax

Buildings and land owned in Türkiye are subject to real estate tax on the tax value of the property at varying rates between 0.1% and 0.6%, depending on the classification of the property. 

Valuable house tax

Owners, usufruct right holders, or those making dispositions of residential immovable property in the absence of an owner, or a usufruct right holder of residential immovable properties located within the borders of Türkiye and with a building tax value exceeding TRY12,880,000 (for 2023), will be liable to pay valuable house tax in 2024, regardless of their status as a real person or as a legal person. Progressive valuable house tax rates range from 0.3% to 1% depending on the building tax value of the property.

Revenues generated from digital services

Revenues generated from digital services provided in Türkiye, including any and all kinds of advertising services provided through digital media, sale of audio, visual or digital content through digital media and services provided through digital media, services of the provision and operation of digital media enabling users to interact with each other, and intermediation services provided by digital service providers through digital media, are subject to digital services tax at 7.5%.

Resident companies in Türkiye are obliged to apply withholding tax on certain types of payments made to non-resident entities. The withholding tax rate for dividends paid to non-resident entities is 10%, whereas interest payments are subject to withholding tax of between 0% and 10%, and royalties are subject to 20% withholding tax. However, these rates might be reduced under an applicable DTT, as Türkiye has an extensive DTT network, subject to the conditions under the specific DTTs.

The payments made for online advertising services provided by non-residents are also subject to 15% withholding tax.

There are different ways of structuring a business in Türkiye through available tax-free tools (eg, partial spin-off, full spin-off and merger) and these should be analysed in detail, for each case based on the transaction specifics.

Türkiye offers a number of tax incentives, depending on the type, sector, subject, size and place of the investment, covering reduced corporate income tax benefits, VAT exemption, customs tax exemption, etc. The companies established in Technology Development Zones or R&D Centres and Free Trade Zones are also granted certain tax benefits, which should be analysed based on their operations in Türkiye.

While investing in Türkiye, the benefits under the extensive DTT network of Türkiye should also be considered, to determine the investment structure.

Türkiye does not allow for tax consolidation; each company in a group must file its own corporate tax return.

The previous years’ losses may be carried forward for five years.

Türkiye applies limitations on the deduction of financing expenses, related to intercompany loans, through thin capitalisation rules, transfer pricing regulations and the financing expense deduction limitation rule.

Capital gains enjoyed by all companies are included in ordinary income and are subject to corporate tax.

The capital gains obtained by a foreign investor from the sale of Turkish participation shares will be taxable in Türkiye if such sale is performed or assessed in Türkiye. However, as per most of the DTTs signed with Türkiye, if the shares are held for more than one year by a foreign investor, then the capital gains will not be taxed in Türkiye.

Under certain conditions, 75% of capital gains derived by Turkish resident corporate taxpayers from the sale of Turkish participation shares owned by them for at least two years, are exempt from corporate tax.

General Anti-avoidance Rule

Türkiye applies the general anti-avoidance rule, the so-called “substance over form” principle, according to which, the real nature of the transaction should be taken into consideration when determining the tax implications.

Special Anti-avoidance Rules

Special anti-avoidance rules, such as transfer pricing, thin capitalisation regulations and controlled foreign company regime are also in place.

Thin capitalisation rules

As per thin capitalisation rules, if the ratio of borrowings from shareholders or from persons related to the shareholders exceeds three times the shareholders’ equity in the borrower company at any time within the relevant year, the excess portion of the borrowing will be considered disguised capital. Interests and foreign-exchange differences corresponding to disguised capital are regarded as non-deductible expenses and treated as a dividend distribution which should be subject to dividend withholding tax. 

Transfer pricing regulations

According to transfer pricing regulations, transactions between related parties should be in line with the arm’s length principle. In the case of non-compliance with the arm’s length principle, the payments would be considered as a disguised profit distribution through transfer pricing and would be deemed to be a non-deductible expense for corporate tax purposes. 

Controlled foreign company (CFC) regime

As per the controlled foreign company (CFC) regime, if a Turkish company or an individual directly or indirectly controls at least 50% of a foreign entity, the profits of that CFC, regardless of whether or not they are distributed, would be included in the profits of the Turkish company or individual and would therefore be subject to corporate and income tax, provided that:

• at least 25% of the gross income of the CFC is comprised of passive income (eg, dividends, interest, rental income, capital gain from security sales, and licence fee);
• the CFC is subject to an effective tax rate lower than 10% in the jurisdiction of residence; and
• the total annual gross revenue of the CFC exceeds TRY100,000.

Legal and Regulatory Regime Applicable to Employment and Labour Matters

The Turkish Labour Law, Occupational Health and Safety Law and Law on Social Security and General Health Insurance mainly regulate employment and labour matters in Türkiye.

In general, Turkish labour courts have a tendency to render employee-biased decisions, considering employees as the weaker party in an employment relationship.

If an employer engages a person by way of an employment agreement, the employee is subject to a mandatory social insurance system in Türkiye. Employers must register their employees with the Social Security Institution (SSI) and pay the statutory social security premiums to the SSI, by withholding employees’ mandatory contribution from their income and adding the employer’s portion of the mandatory contribution to the payment to the SSI.

As with the payment of social security premiums, the employer must make declarations to the tax authority, withhold employees’ income tax and stamp tax duties from employees’ salaries and pay these to the tax authority.

Collective Bargaining, Works Council or Labour Union Arrangements

There is no works council in Türkiye. A labour union is authorised to execute a collective labour agreement for a workplace or enterprise consisting of more than one workplace if: (i) 1% of the employees working in the line of work of the labour union are union members; and (ii) more than half of the employees working at a workplace or 40% of the total number of employees working at an enterprise, are members of the labour union. It is common for labour unions to become authorised in companies in industrial sectors.

FDI-related matters

Foreign individuals must obtain a work permit from the Ministry of Labour before starting work in Türkiye.

In the assessment of work permit applications, one of the prerequisites is the company’s employment of five Turkish employees for each foreign employee who will work for the company. However, there are certain exemptions from the application of the 1:5 rule. Another prerequisite is that the employer’s paid-in capital must be at least TRY100,000, or the lowest figure for its gross sales must be TRY800,000, or the amount of the previous year’s exports must be at least USD250,000.

Minimum Wage Requirement

In Türkiye, there is a minimum wage for employees. The Minimum Wage Determination Commission announces in principle the minimum wage each year in January. This has been increased to gross TRY20,002.50 (approximately EUR610) and net TRY17,002.12 (approximately EUR520) per month, to be valid for the period between 1 January 2024 and 31 December 2024, due to rising inflation.

Side Benefits

Providing employees with side benefits is not mandatory under the Labour Law. In practice, the most common benefits provided to employees at employers’ discretion are a transportation allowance, company car, food allowance, private life insurance, private health insurance, bonus and/or gratuity pay.

Individual Pension Scheme

Employers who employ at least five employees must choose a private individual pension company and execute a private individual pension scheme agreement for its Turkish employees or foreign employees holding a blue card who are under the age of 45. The employer is only required to deduct the contribution to the pension scheme from each employee’s salary and transfer it to the individual pension company. In other words, the financial burden of making contributions to the individual pension scheme falls on the employee.

Effects of Acquisition, Change-of-Control or Other Investment Transaction

In the event of an acquisition, change-of-control or other investment transaction, the employees’ salaries and benefits will remain the same. If the acquirer intends to change them to the employees’ disadvantage, the employees’ prior written consent is required.

If a workplace or a part thereof is transferred by way of a legal transaction, the employees are transferred along with all their rights and obligations.

If there will be a merger or spin-off, the employment agreements pass to the transferee with all the rights and obligations arising from the employment agreements prior to the transfer date, unless the employees object to the transfer. If an employee objects to the transfer, the employee’s employment agreement will automatically terminate at the end of the respective statutory notice period. The objection of the employee will not have any impact on the completion of the transaction.

There are no collective bargaining requirements to be met to complete an acquisition or other investment transaction.

Pursuant to Foreign Investment Law, intellectual property (IP) rights brought from abroad are included within the scope of the FDI regime. There are no special IP provisions within the FDI regime in Türkiye.

IP Protection

The Turkish IP legal framework covers a broad spectrum of intellectual property and is based on international conventions, protocols and treaties. The following is the main legislation governing IP rights in Türkiye:

• the Law on Literary and Artistic Works, governing copyright, related rights, computer programs and databases;
• the Industrial Property Law, governing trade marks, geographical indications and designations of origin, designs, patents and utility models;
• the Law on Protection of Integrated Circuit Topographies, governing integrated circuit topographies; and
• the TCC, governing trade names and unfair competition.

Obtaining or Enforcing IP Rights in Türkiye

Although there are several exceptions to the rule, protection of industrial property rights commences upon registration with the Turkish Patent and Trademark Office (TPTO). Unregistered industrial property rights can be protected pursuant to unfair competition rules under the TCC. While copyright protection is not conditional on registration, registration of cinematographic and musical works with the Ministry of Culture and Tourism is mandatory for evidential purposes.

Persons who are eligible for the protection granted in the Industrial Property Law but who do not have a place of residency in Türkiye must be represented by a registered trade mark or patent attorney (depending on the type of IP) for procedures before the TPTO, including trade mark, design and patent applications. There is no such representation requirement for copyright protection.

While protection through civil actions is generally available, not all IP rights can be protected through criminal actions. There is no criminal protection foreseen against patent, utility model or design infringements. Criminal protection for trade marks is conditional on registration of the trade mark with the TPTO. Criminal protection is available against copyright or related rights infringements and certain acts of unfair competition.

There are no particular sectors for which it is difficult to obtain IP protection or which are subject to significant limitations. Rules regarding the subject matters that are ineligible for protection are on a par with international treaties such as the TRIPS Agreement, European Patent Convention and Paris Convention for the Protection of Industrial Property.

Regulatory Overview

The Personal Data Protection Law (DPL) is the main legislation regarding the protection of personal data in Türkiye. There are also secondary regulations and communiqués containing binding decisions of the Turkish Data Protection Authority (DPA).

Territorial Scope

The DPL does not contain any explicit clauses regarding its territorial scope. As per the DPA’s decisions, the DPA will follow the territorial scope applicable to the EU’s General Data Protection Regulation. Accordingly, in broader terms, the DPA applies the DPL to data processing activities that concern individuals in Türkiye and/or that have consequences for individuals in Türkiye. Therefore, a foreign investor may be subject to the DPL.

Enforcement Trends and Penalties

The DPA actively enforces compliance with the DPL and its secondary regulations by investigating any potential violations of these regulations either upon complaint or ex officio. The DPA has the power to impose administrative fines as well as order data controllers to take corrective measures, and it uses these powers very effectively in practice. The DPA also often publishes summaries of its decisions on its official website (not every decision is publicly available, as it is not mandatory for the DPA to publish its every decision).

According to the DPA’s latest activity report for the year 2022, a total of 10,370 complaints were submitted to the DPA, 134 of which resulted in administrative fines and 81 of which resulted in corrective measures being imposed by the DPA. In practice, the DPA generally imposes administrative fines on foreign companies ranging between TRY189,245 and TRY9,463,213, since data controllers located abroad are obliged to register with the Data Controllers Registry.

Violations of the provisions of the DPL are also subject to criminal liability, as envisaged under the Turkish Criminal Code. In practice, there are not many instances where officials or employees of private companies are charged with these crimes, even in instances where the DPA has detected a clear violation.

The DPL lists four types of misdemeanours that are subject to administrative sanctions, and there are no multipliers applicable for these penalties. It must be noted that one of the misdemeanours listed is non-compliance with the decisions of the DPA. The amounts of the administrative fines provided under the DPL range from a minimum of TRY47,303 up to TRY9,463,213 for the year 2024 (these fines are subject to re-evaluation by the government every year, based on inflation).