Policies Towards Foreign Direct Investment

Turkey acknowledges that it needs to attract significant new foreign direct investment (FDI) to meet its ambitious development goals, as well as finance its current account deficit.  As a result, Turkey has one of the most liberal legal regimes for FDI in the Organization for Economic Cooperation and Development (OECD). According to the Central Bank of Turkey’s balance of payments data, Turkey attracted a total of USD 6.5 billion of FDI in 2018, almost USD 1 billion down from USD 7.4 billion in 2017.  U.S. FDI to Turkey was USD 446 million in 2018, up from a historically low USD 180 million in 2017, as FDI dropped considerably following the 2016 coup attempt. (Note: Official statistics understate the amount of U.S. FDI in Turkey. The Central Bank of the Republic of Turkey estimated, for example, that in 2013 and 2014 U.S. FDI inflows were 30 percent higher than official statistics.  End Note.) To attract more FDI, Turkey needs to improve enforcement of international trade rules, ensure the transparency and timely execution of judicial orders, increase engagement with foreign investors on policy issues, and pursue policies to promote strong, sustainable, and balanced growth. It also needs to take other political measures to increase stability and predictability for investors.  A stable banking sector, tight fiscal controls, efforts to reduce the size of the informal economy, increase flexibility of the labor market, improve labor skills, and continued privatization of state-owned enterprises have the potential to improve the investment environment in Turkey. 

Most sectors open to Turkish private investment are also open to foreign participation and investment.  All investors, regardless of nationality, face some challenges: excessive bureaucracy, a slow judicial system, high and inconsistently applied taxes, weaknesses in corporate governance, unpredictable decisions made at the local government level, and frequent changes in the legal and regulatory environment.  Structural reforms that will create a more transparent, equal, fair, and modern investment and business environment remain stalled. Venture capital and angel investing are still relatively new in Turkey, but regulators and new legislation should continue to facilitate greater development of these financing opportunities.

Turkey does not screen, review, or approve FDI specifically.  However, the government established regulatory and supervisory authorities to regulate different types of markets.  Important regulators in Turkey include the Competition Authority; Energy Market Regulation Authority; Banking Regulation and Supervision Authority; Information and Communication Technologies Authority; Tobacco, Tobacco Products and Alcoholic Beverages Market Regulation Board; Privatization Administration; Public Procurement Authority; Radio and Television Supreme Council; and Public Oversight, Accounting and Auditing Standards Authority.  Some of the aforementioned authorities screen as needed without discrimination, primarily for tax audits. Screening mechanisms are executed to maintain fair competition and for other economic benefits. If an investment fails a review, possible outcomes can vary from a notice to remedy, which allows for a specific period of time to correct the problem, to penalty fees. The Turkish judicial system allows for appeals of any administrative decision, including tax courts that deal with tax disputes. 

Limits on Foreign Control and Right to Private Ownership and Establishment

There are no general limits on foreign ownership or control.  Nevertheless, there are increasing pressures in some sectors for foreign investors to partner with local companies and transfer technology and some discriminatory barriers to foreign entrants, such as on the basis of “anti-competitive practices,” especially in the information and communication technology (ICT) sector or pharmaceuticals.  In many areas, Turkey’s regulatory environment is business-friendly. Investors can establish a business in Turkey irrespective of nationality or place of residence. There are no sector-specific restrictions that discriminate against foreign investor access, which are prohibited by World Trade Organization Regulations. 

Other Investment Policy Reviews

In recent years, Turkey has not conducted an investment policy review through the OECD. Turkey’s last investment policy review through the World Trade Organization (WTO) was conducted in March 2016.  Turkey has not conducted an investment policy review through the United Nations Conference on Trade and Development (UNCTAD). Turkey has cooperated with the World Bank to produce several reports on the general investment climate that can be found at: http://www.worldbank.org/en/country/turkey/research  .

Business Facilitation

The Republic of Turkey Prime Ministry Investment Support and Promotion Agency (ISPAT) was the official organization for promoting Turkey’s investment opportunities to the global business community and assisting investors before, during, and after their entry into Turkey.  Under the new presidential system, the institution has been re-organized and named as the Presidency of the Republic of Turkey Investment Office. Its website is clear and easy to use, with information about legislation and company establishment. (http://www.invest.gov.tr/en-US/investmentguide/investorsguide/Pages/EstablishingABusinessInTR.aspx  ).  The website is also a resource for foreigners registering their businesses.

The conditions for foreign investors setting up a business and transferring shares are the same as those applied to local investors.  International investors may establish any form of company set out in the Turkish Commercial Code (TCC), which offers a corporate governance approach that meets international standards, fosters private equity and public offering activities, creates transparency in managing operations, and aligns the Turkish business environment with EU legislation and the EU accession process.

Turkey defines micro, small, and medium-sized enterprises according to Decision No. 2018/11828 of the Official Gazette dated June 2, 2018:

• Micro-sized enterprises: fewer than 10 employees and less than or equal to 3 million Turkish lira in net annual sales or financial statement.
• Small-sized enterprises: fewer than 50 employees and less than or equal to 25 million Turkish lira in net annual sales or financial statement.
• Medium-sized enterprises: fewer than 250 employees and less than or equal to 125 million Turkish lira in net annual sales or financial statement.

Outward Investment

The government promotes outward investment via investment promotion agencies and other platforms.  It does not restrict domestic investors from investing abroad.

Since 1962, Turkey has negotiated and signed agreements for the reciprocal promotion and protection of investments.  As of 2018, Turkey has 75 bilateral investment agreements in force with: Afghanistan, Albania, Argentina, Austria, Australia, Azerbaijan, Bangladesh, Belarus, Belgium, Bosnia and Herzegovina, Bulgaria, China, Croatia, Cuba, Czech Republic, Denmark, Egypt, Estonia, Ethiopia, Finland, France, Georgia, Germany, Greece, Hungary, India, Indonesia, Iran, Israel, Italy, Japan, Jordan, Kazakhstan, Kuwait, Kyrgyzstan, Latvia, Lebanon, Libya, Lithuania, Luxembourg, Macedonia, Malaysia, Malta, Moldova, Mongolia, Morocco, Netherlands, Oman, Saudi Arabia, Pakistan, Philippines, Poland, Portugal, Qatar, Romania, Russian Federation, Serbia, Singapore, Slovakia, Slovenia, South Korea, Spain, Sweden, Switzerland, Syria, Tajikistan, Thailand, Tunisia, Turkmenistan, United Arab Emirates, United Kingdom, United States, Ukraine, Uzbekistan, and Yemen.

Turkey has a bilateral taxation treaty with the United States.

Transparency of the Regulatory System

The Government of Turkey (GOT) has adopted policies and laws that, in principle, should foster competition and transparency.  The GOT makes its budgetary spending reports available online. Accounting, legal, and regulatory procedures appear to be consistent with international norms, including standards set forth by the International Financial Reporting Standards (IFRS), the EU, and the OECD.

Publicly traded companies adhere to international accounting standards and are audited by well-respected international firms.  Copies of draft bills are generally made available to the public by posting them to the websites of the relevant ministry, Parliament, or Official Gazette.  Nevertheless, foreign companies in several sectors claim that regulations are applied in a nontransparent manner. In particular, public tender decisions and regulatory updates can be opaque and politically driven, according to critics. 

International Regulatory Considerations

Turkey is a candidate for membership in the EU; however, the accession process has stalled, with the opening of new accession chapters put on hold.  Some, though not all, Turkish regulations have been harmonized with the EU, and the country has adopted many European regulatory norms and standards. Turkey is a member of the WTO, though it does not notify all draft technical regulations to the WTO Committee on Technical Barriers to Trade (TBT).

Legal System and Judicial Independence

Turkey’s legal system is based on civil law, and provides means for enforcing property and contractual rights, and there are written commercial and bankruptcy laws.  Turkey’s court system, however, is overburdened, which sometimes results in slow decisions and judges lacking sufficient time to grasp complex issues. Judgments of foreign courts, under certain circumstances, need to be upheld by local courts before they are accepted and enforced.  Recent developments reinforce the Turkish judicial system’s need to undertake significant reforms to adopt fair, democratic, and unbiased standards “There were indications the judiciary remained subject to influence, particularly from the executive branch, and faces a number of challenges that limited judicial independence.” See: https://www.state.gov/reports/2018-country-reports-on-human-rights-practices/turkey/

Laws and Regulations on Foreign Direct Investment

Turkey’s investment legislation is simple and complies with international standards, offering equal treatment for all investors.  The New Turkish Commercial Code No. 6102 (“New TCC”) was published in the Official Gazette on February 14, 2011. The backbone of the investment legislation is made up of the Encouragement of Investments and Employment Law No. 5084, Foreign Direct Investments Law No. 4875, international treaties and various laws and related sub-regulations on the promotion of sectorial investments.  Regulations related to mergers and acquisitions include: a) Turkish Code of Obligations: Article 202 and Article 203, b) Turkish Commercial Code: Articles 134-158, c) Execution and Bankruptcy Law: Article 280, d) Law on the Procedures for the Collection of Public Receivables: Article 30, and e) Law on Competition: Article 7. The government’s primary website for investors is http://www.invest.gov.tr/en-US/Pages/Home.aspx  .   Although most U.S. investors have not been directly affected to date, there is an increased perception that the government is willing to use its executive authority to interfere in the court system in ways that could affect foreign investors, including favoring domestic companies.

Competition and Anti-Trust Laws

The Competition Authority is the sole authority on competition issues in Turkey and handles private sector transactions.  Public institutions are exempt from its authority. The Constitutional Court can overrule the Competition Authority’s finding of innocence in a competition case.  There have been some cases of Turkish courts blocking foreign company operations on the basis of anti-competitive claims and a few investigations into foreign companies initiated.  Such cases can take over a year to resolve, during which time the companies can be prohibited from doing business in Turkey, benefitting their (local) competitors. 

Expropriation and Compensation

Under the U.S.-Turkey Bilateral Investment Treaty (BIT), expropriation can only occur in accordance with due process of law, can only be for a public purpose, and must be non-discriminatory.  Compensation must be prompt, adequate, and effective. The GOT occasionally expropriates private real property for public works or for state industrial projects. The GOT agency expropriating the property negotiates the purchase price.  If the owners of the property do not agree with the proposed price, they are able to challenge the expropriation in court and ask for additional compensation. There are no known outstanding expropriation or nationalization cases for U.S. firms.  Although there is not a pattern of discrimination against U.S. firms, the GOT aggressively targeted businesses, banks, media outlets, and mining and energy companies with alleged ties to the so-called “Fethullah Terrorist Organization” (FETO) and/or the July 2016 attempted coup, including the expropriation of over 1,100 private companies worth more than USD 11 billion.

Dispute Settlement

ICSID Convention and New York Convention

Turkey is a member of the International Center for the Settlement of Investment Disputes (ICSID) and is a signatory of the New York Convention of 1958 on the Recognition and Enforcement of Foreign Arbitral Awards.  Turkey ratified the Convention of the Multinational Investment Guarantee Agency (MIGA) in 1987. There are no known arbitration cases involving a U.S. company pending before ICSID. Foreign arbitral awards will be enforced if the country of origin of the award is a New York Convention state, if the dispute is commercial under Turkish law, and as long as none of the grounds under article V of the New York Convention are proved by the opposing party.

Investor-State Dispute Settlement

The U.S.-Turkey BIT ensures that U.S. investors have full access to Turkey’s local courts and the ability to take the host government directly to third-party international binding arbitration to settle investment disputes.  There is also a provision for state-to-state dispute settlement. There is limited data about investment disputes available to the U.S. Embassy’s economic team, with only a handful of known cases. Over the last decade, the government has a mixed record of handling investment disputes through international arbitration.

International Commercial Arbitration and Foreign Courts

Turkey adopted the International Arbitration Law, based on the United Nations Commission on International Trade model law, in 2001.  Local courts accept binding international arbitration of investment disputes between foreign investors and the state. In practice, however, Turkish courts have been reported to sometimes fail to uphold an international arbitration ruling involving private companies in favor of Turkish firms.  There are two main arbitration bodies in Turkey: the Union of Chambers and Commodity Exchanges of Turkey (www.tobb.org.tr  ) and the Istanbul Chamber of Commerce Arbitration and Mediation Center (www.itotam.com/en  ).  Most commercial disputes can be settled through arbitration, including disputes regarding public services.  Parties decide the arbitration procedure, set the arbitration rules, and select the language of the proceedings.  The Istanbul Arbitration Center was established in October 2015 as an independent, neutral, and impartial institution to mediate both domestic and international disputes through fast track arbitration, emergency arbitrator, and appointments for ad hoc procedures.  Its decisions are binding and subject to international enforcement. (www.istac.org.tr/en  ).

As of January 2019, some commercial disputes may be subject to mandatory mediation; if the parties are unable to resolve the dispute through mediation, the case moves to a trial.

Bankruptcy Regulations

Turkey criminalizes bankruptcy and has a bankruptcy law based on the Execution and Bankruptcy Code No. 2004 (the “EBL”), published in the Official Gazette on June 19, 1932 and numbered 2128.  The World Bank’s Doing Business Report gave Turkey a rank of 109 out of 190 countries for ease of resolving insolvency. See: http://www.doingbusiness.org/data/exploretopics/resolving-insolvency  )

Investment Incentives

Turkey’s regional incentives program divides various regions of the country into one of six different zones, providing the following benefits to investors: corporate tax reduction; customs duty exemption; value-added tax (VAT) exemption and VAT refund; employer’s share social security premium support; income tax withholding allowance; land allocation; and interest rate support for investment loans.  The program was launched in 2012 and more detailed information can be found at the Presidency of the Republic of Turkey Investment Office website: http://www.invest.gov.tr/en-US/investmentguide/investorsguide/Pages/Incentives.aspx  .

The incentives program gives priority to high-tech, high-value-added, globally competitive sectors and includes regional incentive programs to reduce regional economic disparities and increase competitiveness.  The investment incentives’ “tiered” system provides greater incentives to invest in less developed parts of the country, and is designed to encourage investments with the potential to reduce dependency on the importation of intermediate goods seen as vital to the country’s strategic sectors.  Other primary objectives are to reduce the current account deficit and unemployment, increase the level of support instruments, promote clustering activities, and support investments to promote technology transfer. The map and explanation of the program can be found at: www.invest.gov.tr/en-US/Maps/Pages/InteractiveMap.aspx  

Foreign firms are eligible for research and development (R&D) incentives if the R&D is conducted in Turkey.  However, investors, especially in the technology sector, say that Turkey has a retrograde brick-and-mortar definition of R&D that overlooks other types of R&D investments (such as in internet platform technologies).  Turkey pays close attention to the impact that micro-economic factors have on business development and growth, and is seeking to foster entrepreneurship and small and medium-sized enterprises (SMEs). Through the Small and Medium Enterprises Development Organization (KOSGEB), the Turkish Government provides various incentives for innovative ideas and cutting-edge technologies, in addition to providing SMEs easier access to medium and long-term funds.  There are also a number of technology development zones (TDZs) in Turkey where entrepreneurs are given assistance in commercializing business ideas. The Turkish Government provides support to TDZs, including infrastructure and facilities, exemption from income and corporate taxes for profits derived from software and R&D activities, exemption from all taxes for the wages of researchers, software, and R&D personnel employed within the TDZVAT, corporate tax exemptions for IT-specific sectors, and customs and duties exemptions.

Turkey’s Scientific and Technological Research Council (TUBITAK) has special programs for entrepreneurs in the technology sector, and the Turkish Technology Development Foundation (TTGV) has programs that provide capital loans for R&D projects and/or cover R&D-related expenses.  Projects eligible for such incentives include concept development, technological research, technical feasibility research, laboratory studies to transform concept into design, design and sketching studies, prototype production, construction of pilot facilities, test production, patent and license studies, and activities related to post-scale problems stemming from product design.  TUBITAK also has a Technology Transfer Office Support Program, which provides grants to establish Technology Transfer Offices (TTO) in Turkey.

Foreign Trade Zones/Free Ports/Trade Facilitation

There are no restrictions on foreign firms operating in any of Turkey’s 21 free zones.  The zones are open to a wide range of activities, including manufacturing, storage, packaging, trading, banking, and insurance.  Foreign products enter and leave the free zones without payment of customs or duties if products are exported to third country markets.  Income generated in the zones is exempt from corporate and individual income taxation and from the value-added tax, but firms are required to make social security contributions for their employees.  Additionally, standardization regulations in Turkey do not apply to the activities in the free zones, unless the products are imported into Turkey. Sales to the Turkish domestic market are allowed with goods and revenues transported from the zones into Turkey subject to all relevant import regulations.

Taxpayers who possessed an operating license as of February 6, 2004, do not have to pay income or corporate tax on their earnings in free zones for the duration of their license.  Earnings based on the sale of goods manufactured in free zones are exempt from income and corporate tax until the end of the year in which Turkey becomes a member of the European Union.  Earnings secured in a free zone under corporate tax immunity and paid as dividends to real person shareholders in Turkey, or to real person or legal-entity shareholders abroad, are subject to 10 percent withholding tax.  See the Ministry of Trade’s website: https://www.ticaret.gov.tr/serbest-bolgeler  .

Performance and Data Localization Requirements

The government mandates a local employment ratio of five Turks per foreign worker.  These schemes do not apply equally to senior management and boards of directors, but their numbers are included in the overall local employment calculations.  Foreign legal firms are forbidden from working in Turkey except as consultants; they cannot directly represent clients and must partner with a local law firm. There are no onerous visa, residence, work permits or similar requirements inhibiting mobility of foreign investors and their employees.  There are no known government-imposed conditions on permissions to invest.

There are no performance requirements imposed as a condition for establishing, maintaining, or expanding investment in Turkey.  GOT requirements for disclosure of proprietary information as part of the regulatory approval process are consistent with internationally accepted practices, though some companies, especially in the pharmaceutical sector, worry about data protection during the regulatory review process.  Enterprises with foreign capital must send their activity report submitted to shareholders, their auditor’s report, and their balance sheets to the Ministry of Trade, Foreign Capital Foreign Capital Directorate, annually by May. Turkey grants most rights, incentives, exemptions, and privileges available to national businesses to foreign business on a most-favored-nation (MFN) basis.  U.S. and other foreign firms can participate in government-financed and/or subsidized research and development programs on a national treatment basis.

Offsets are an important aspect of Turkey’s military procurement, and increasingly in other sectors, and such guidelines have been modified to encourage direct investment and technology transfer.  The GOT targets the energy, transportation, medical devices, and telecom sectors for the usage of offsets. In February 2014, Parliament passed legislation requiring the Ministry of Science, Industry, and Technology (MSIT), currently named the Ministry of Industry and Technology, to establish a framework to incorporate civilian offsets into large government procurement contracts.  The Ministry of Health (MOH) established an office to examine how offsets could be incorporated into new contracts. The law suggests that for public contracts above USD 5 million, companies must invest up to 50 percent of contract value in Turkey and “add value” to the sector. In general, labor, health and safety laws do not distort or impede investment, although legal restrictions on discharging employees may provide a disincentive to labor-intensive activity in the formal economy.

Recent laws targeting the ICT sector have increased regulations on data, online broadcasting, tax collection, and payment platforms.  In particular, ICT and other companies report GOT pressure to localize data, which it views as a precursor to greater GOT access to user information and source code.  Law #6493 on Payment and Security Systems, Payment Services and e-money Institutions, also requires financial institutions to establish servers in Turkey in order to localize data.  The Turkish Banking Regulation and Supervision Agency (BDDK) is the authority that issues business licenses as long as companies 1) localize their IT systems in Turkey, and 2) keep the original data, not copies, in Turkey.  Regulations on data localization, internet content, and taxation/licensing resulted in the departure of several U.S. tech companies from the Turkish market, and has chilled investment by other possible entrants to the e-commerce and e-payments sectors.  The laws potentially affect all companies that collect private user data, such as payment information provided online for a consumer purchase.

Turkey enacted the Personal Data Protection Law in April 2016.  The law regulates all operations performed upon personal data including obtaining, recording, storage, and transfer to third parties or abroad.  For all data previously processed before the law went into effect, there was a two-year transition period. After two years, all data had to be compliant with new legislation requirements, erased, or anonymized.  All businesses are urged to assess how they currently collect and store data to determine vulnerabilities and risks in regard to legal obligations. The law created the new Data Protection Authority, which is charged with monitoring and enforcing corporate data use.

Real Property

Secured interests in property, both movable and real, are recognized and enforced, and there is a reliable system of recording such security interests.  For example, real estate is registered with a land registry office. Turkey’s legal system protects and facilitates acquisition and disposal of property rights, including land, buildings, and mortgages, although some parties have complained that the courts are slow to render decisions and are susceptible to external influence.  However, following the July 2016 coup attempt, the GOT confiscated over 1,100 companies as well as significant real estate holdings for alleged terrorist ties. Although the seizures did not directly impact many foreign firms, it nonetheless raises investor concerns about private property protections.

The Ministry of Environment and Urbanization enacted a law on title-deed registration in 2012 removing the previous requirement that foreign purchasers of real estate in Turkey had to be in partnership with a Turkish individual or company that owns at least a 50 percent share in the property, meaning foreigners can now own their own land.  The law is also much more flexible in allowing international companies to purchase real property. The new law also increases the upper limit on real estate purchases by foreign individuals to 30 hectares and allows further increases up to 60 hectares with permission from the Council of Ministers. As of March 2019, a valuation report, based upon real market value, must be prepared for real estate sales transactions involving buyers that are foreign citizens.  To ensure that land has a clear title, interested parties may inquire through the General Directorate of Land Registry and Cadastre (www.tkgm.gov.tr  ).

Intellectual Property Rights

In 2018, Turkey continued implementation of its Intellectual Property Rights (IPR) law, the first in modern Turkey’s history, and an important step forward in the country’s IPR development.  The law brings together a series of “decrees” into a single, unified, modernized legal structure. It also greatly increases the capacity of the country’s patent office, and improves the framework for commercialization and technology transfer.  Turkey also prepared draft legislation on a new Copyright Law. However, while legislative frameworks are improving, IPR enforcement remains lackluster. Turkey remains on the United States Trade Representative (USTR) Special 301 Watch List for 2019 and the Notorious Markets List for 2018.  Concerns remain about policies requiring local production of pharmaceuticals, inadequate protection of test data, and a lack of transparency in national pricing and reimbursement. IPR enforcement suffers from a lack of awareness and training among judges and officers, as well as a lack of prioritization relative to terrorism and other concerns.  Law enforcement officers also do not have ex officio authority to seize and destroy counterfeit goods, which are prevalent in the local market and the Grand Bazaar. Software piracy is also high.

Additionally, the practice of issuing search-and-seizure warrants varies considerably.  Intellectual Property (IP) courts and specialized IP judges only exist in major cities. Outside these areas, the application for a search warrant must be filed at a regular criminal court (Court of Peace) and/or with a regular prosecutor.  The Courts of Peace are very reluctant to issue search warrants. Although, by law, “reasonable doubt” is adequate grounds for issuing a search-and-seizure order, judges often set additional requirements, including supporting documentation, photographs, and even witness testimony, which risk exposing companies’ intelligence sources.  In some regions, Courts of Peace judges rarely grant search warrants, for example in popular tourist destinations. Overall, according to some investors, it is difficult to protect their rights and general IPR enforcement is deteriorating. For additional information about treaty obligations and points of contact at local IP offices, please see World Intellectual Property Right’s country profiles at http://www.wipo.int/directory/en  .

Capital Markets and Portfolio Investment

The Turkish Government strongly encourages and offers an effective regulatory system to facilitate portfolio investment.  There is sufficient liquidity in the markets to enter and exit sizeable positions. Existing policies facilitate the free flow of financial resources into the product and factor markets.  The government respects IMF Article VIII by refraining from restrictions on payments and transfers for current international transactions. Credit is generally allocated on market terms, though the GOT has increased low- and no-interest loans for certain parties, and pressured state-owned banks to increase their lending, especially for public projects and electoral priorities.  Foreign investors are able to get credit on the local market. The private sector has access to a variety of credit instruments.

Money and Banking System

The Turkish banking sector, a central bank system, is relatively healthy.  The estimated total assets of the country’s largest banks are as follows: Ziraat Bankasi A.S. – USD 106.95 billion, Is Bankasi – USD 98.95 billion, Garanti – USD 83.42 billion, Akbank – USD 77.89 billion, Yapi ve Kredi Bankasi – USD 77.14 billion, Halk Bankasi – USD 72.75, Turkiye Vakiflar Bankasi – USD 67.04 billion.  (Conversion rate used was 5.47 TL/1 USD). According to the BDDK, the share of non-performing loans in the sector was approximately 4.03 percent as of March 2019. The only requirements for a foreigner to open a bank account in Turkey are a passport copy and either an ID number from the Ministry of Foreign Affairs or a Turkish Tax ID number.  The Turkish Government adopted a framework Capital Markets Law in 2012, aimed at bringing greater corporate accountability, protection of minority-shareholders, and financial statement transparency.

The independent BDDK monitors and supervises Turkey’s banks.  The BDDK is headed by a board whose seven members are appointed for six-year terms.  Bank deposits are protected by an independent deposit insurance agency, the Savings Deposit Insurance Fund (SDIF).  Because of historically high local borrowing costs and short repayment periods, foreign and local firms frequently seek credit from international markets to finance their activities.  Foreign banks are allowed to establish operations in the country.

Foreign Exchange and Remittances

Foreign Exchange

Turkish law guarantees the free transfer of profits, fees, and royalties, and repatriation of capital.  This guarantee is reflected in Turkey’s 1990 Bilateral Investment Treaty (BIT) with the United States, which mandates unrestricted and prompt transfer in a freely-usable currency at a legal market-clearing rate for all investment-related funds.  There is little difficulty in obtaining foreign exchange, and there are no foreign-exchange restrictions, though in 2018, the GOT continued to pressure businesses to conduct trade in lira. An amendment to the Decision on the Protection of the Value of the Turkish Currency was made with Presidential Decree No. 85 in September 2018 wherein the GOT tightened restrictions on Turkey-based businesses conducting numerous types of transactions using foreign currencies or indexed to foreign currencies.  The Turkish Ministry of Treasury and Finance may grant exceptions, however. Funds associated with any form of investment can be freely converted into any world currency. The exchange rate is free-floating, though the GOT has taken measures to stabilize the lira when it experiences a period of rapid depreciation.

Remittance Policies

In Turkey, there have been no recent changes or plans to change investment remittance policies, and indeed the GOT in 2018 actively encouraged the repatriation of funds.  The GOT announced “Assets Peace” in May 2018 which incentivized the citizens to bring assets to Turkey in the form of money, gold or foreign currency by eliminating any tax burden on the repatriated assets.  There are also no time limitations on remittances. Waiting periods for dividends, return on investment, interest and principal on private foreign debt, lease payments, royalties, and management fees do not exceed 60 days.  There are no limitations on the inflow or outflow of funds for remittances of profits or revenue.

Sovereign Wealth Funds

The GOT announced the creation of a sovereign wealth fund (SWF) in August 2016.  The controversial fund consists of shares of state owned enterprises (SOEs) and is designed to serve as collateral for raising foreign financing.  However, the SWF has not launched any major projects since its inception. In September 2018, the President became the Chairman of the SWF. Several leading SOEs, such as natural gas distributor BOTAS, Turkish Airlines and Ziraat Bank have been transferred to the SWF.  Critics worry management of the fund is opaque and politicized.

As of 2018, the sectors with active SOEs include mining, banking, telecom, and transportation.  The full list can be found here: https://www.hmb.gov.tr/kamu-sermayeli-kurulus-ve-isletme-raporlari  .  Allegations of unfair practices by SOEs are minimal, and the Embassy is not aware of any ongoing complaints by U.S. firms.  Turkey is not a party to the World Trade Organization’s Government Procurement Agreement. Turkey is a member of the OECD Working Party on State Ownership and Privatization Practices, and OECD’s compliance regulations and new laws enacted in 2012 by the Turkish Competitive Authority closely govern SOE operations.  In 2015 at the Antalya Leaders’ Summit, G20 Leaders endorsed the new global standard on corporate governance which will help policymakers evaluate and improve their national corporate governance frameworks with a view to promote market-based financing and to boost long-term investment. The G20/OECD Principles of Corporate Governance represent a shared understanding with respect to corporate governance standards and practices in areas such as transparency, disclosure, accountability, board oversight, shareholder rights and the role of key stakeholders.  They also provide recommendations for national policymakers on executive remuneration, the behavior of institutional investors and how stock markets should function.

Privatization Program

The GOT has continued to make progress on privatization over the last decade.  Of 278 companies the state once owned, 207 are fully privatized. According to the Ministry of Treasury and Finance’s Privatization Administration, transactions completed under the Turkish privatization program generated 751 million USD in 2017 and 1.379 million USD 2018.  See: https://www.oib.gov.tr/  .  The Turkish government says it is committed to continuing the privatization process despite the contraction in global capital flows.  However, other measures, such as the creation of a SWF with control over major state-owned enterprises, suggests that the government sees greater benefit in using some public assets to raise additional debt rather than privatizing them.  Accordingly, the GOT has shelved plans to increase privatization of Turkish Airlines and instead moved them and other SOEs into the SWF. Additional information can be found at the Ministry of Treasury and Finance’s Privatization Administration website: https://www.oib.gov.tr/  .

In Turkey, responsible business conduct (RBC) is gaining traction and more is being expected of companies.  Reforms carried out as part of the EU harmonization process have had a positive effect on laws governing Turkish associations, especially non-governmental organizations (NGOs).  However, recent democratic backsliding has reversed some of these gains, and there has been increasing pressure on civil society. Turkey has not yet established a central coordinating office or information agency to assist companies in their efforts, and the topic of RBC is handled by the various ministries.  Some U.S. companies have focused RBC activities on improving education in Turkey.

NGOs that are active in the economic sector, such as the Turkish Union of Chambers and Commodity Exchanges (TOBB) and the Turkish Industrialists’ and Businessmen’s Association (TÜSIAD), issue regular reports and studies, and hold events aimed at encouraging Turkish companies to become involved in policy issues.  In addition to influencing the political process, these two NGOs also assist their members with civic engagement. The Business Council for Sustainable Development Turkey (http://www.skdturkiye.org/en) and the Corporate Social Responsibility Association in Turkey (www.csrturkey.org  ), founded in 2005, are two associations devoted exclusively to issues of responsible business conduct.  The Turkish Ethical Values Center Foundation, the Private Sector Volunteers Association (www.osgd.org  ) and the Third Sector Foundation of Turkey (www.tusev.org.tr  ) also play an important role.

Corruption remains a serious concern to many businesses, a reality reflected in Turkey’s sliding score in recent years in Transparency International’s annual Corruption Perceptions Index, where it ranked 78 of 180 countries and territories around the world in 2018.  According to some businesses, government mechanisms to investigate and punish alleged abuse and corruption by state officials remained inadequate, and impunity remained a problem. Though independent in principle, the judiciary remained prone to government, and particularly executive branch, interference, including with respect to the investigation and prosecution of major corruption cases.  In some cases, the state of emergency amplified pre-existing concerns about judicial independence. (See the Department of State’s annual Country Reports on Human Rights Practices for more details: https://www.state.gov/reports/2018-country-reports-on-human-rights-practices/turkey/).  The government does not actively encourage private companies to establish internal codes of conduct that prohibit bribery of public officials.  Turkey is a participant in regional anti-corruption initiatives, specifically co-heading the G20 Anti-Corruption working group with the United States.   Under the new presidential system, the Presidential State Supervisory Council is responsible for combating corruption.

Public procurement reforms were designed in Turkey to make procurement more transparent and less susceptible to political interference, including through the establishment of an independent public procurement board with the power to void contracts.  Critics claim, however, that government officials have continued to award large contracts to firms friendly with the ruling Justice and Development Party (AKP), especially for large public construction projects.

Turkish legislation outlaws bribery, but enforcement is uneven.  Turkey’s Criminal Code makes it unlawful to promise or to give any advantage to foreign government officials in exchange for their assistance in providing improper advantage in the conduct of international business.

The provisions of the Criminal Law regarding bribing of foreign government officials are consistent with the provisions of the Foreign Corrupt Practices Act of 1977 of the United States (FCPA).  There are, however, a number of differences between Turkish law and the FCPA. For example, there is no exception under Turkish law for payments to facilitate or expedite performance of a “routine governmental action” in terms of the FCPA.  Another difference is that the FCPA does not provide for punishment by imprisonment, while Turkish law provides for punishment by imprisonment from four to twelve years. The Presidential State Supervisory Council, which advises the Corruption Investigations Committee, is responsible for investigating major corruption cases brought to its attention by the Committee.  Nearly every state agency has its own inspector corps responsible for investigating internal corruption. The Parliament can establish investigative commissions to examine corruption allegations concerning cabinet ministers; a majority vote is needed to send these cases to the Supreme Court for further action.

Turkey ratified the OECD Convention on Combating Bribery of Public Officials and passed implementing legislation in 2003 to provide that bribes of foreign, as well as domestic, officials are illegal.  In 2006, Turkey’s Parliament ratified the UN Convention against Corruption.

Resources to Report Corruption

Contact at government agency or agencies are responsible for combating corruption:

Presidential State Supervisory Council
Beştepe Mahallesi, Alparslan Türkeş Caddesi, Devlet Denetleme Kurulu, Yenimahalle
Telephone: Phone: +90 312 470 25 00
Fax : +90 312 470 13 03

Contact at “watchdog” organization

Seref Malkoc
Chief Ombudsman
The Ombudsman Institution
Kavaklidere Mah. Zeytin Dali Caddesi No. 4 Cankaya Ankara
Telephone: +90 312 465 22 00
Email: iletisim@ombudsman.gov.tr

2015 and 2016 was one of the most violent periods in Turkey since the 1970s.  However, since January 2017, Turkey has experienced historically low levels of violence when compared to even relatively calm years since the 1970s.  Turkey experiences politically motivated violence ranging from coup attempts to attacks on opposition party offices. In July 2016, an attempted coup resulted in the death of more than 240 people, and injured over 2,100 others.  Since the July 2015 collapse of the cessation of hostilities between the government and the terrorist Kurdistan Workers’ Party (PKK) [also operating as the Kurdistan People’s Congress (KCK), Kongra Gel (KGK), or via splinter groups like the Kurdistan Freedom Hawks (TAK)], PKK terrorist attacks and violence between government security forces and the PKK have claimed the lives of hundreds of civilians and security forces.

Other U.S.-designated terrorist organizations such as Islamic State of Iraq and Syria (ISIS) and the leftist Revolutionary People’s Liberation Party–Front (DHKP/C) are present in Turkey and conducted attacks in 2015, 2016, and early 2017.  The indigenous terrorist organization DHKP/C, established in the 1970s and designated by the U.S. in 1997, is responsible for several attacks against the U.S. Embassy in Ankara and the U.S. Consulate General Istanbul in recent years. The DHKP/C has stated its intention to commit further attacks against the United States, NATO, and Turkey.  In addition, violent extremists associated with other groups have transited Turkey en route to Syria.

There have been past instances of violence against religious missionaries and others perceived as proselytizing for a non-Islamic religion in Turkey.  Perpetrators have threatened and assaulted Christian and Jewish individuals, groups, and places of worship. Anti-Israeli sentiment remains high.

Turkey has a population of 82.3 million, with 23.4 percent under the age of 14 as of 2018.  92.3 percent of the population lives in urban areas. Official figures put the labor force at 32.0 million in December 2018.  Approximately one-fifth of the labor force works in agriculture while another fifth works in industrial sectors. The country retains a significant informal sector at 33 percent.  In 2018, the official unemployment rate stayed at 13.5 percent, with 24.5 percent unemployment among those 15-24 years old. Turkey provides twelve years of free, compulsory education to children of both sexes in state schools.  Authorities continue to grapple with facilitating legal employment for working-age Syrians, a major subset of the 3.5 million displaced Syrian men, women, and children—unknown numbers of which were working informally—in the country in 2018.

Turkey has an abundance of unskilled and semi-skilled labor, and vocational training schools exist at the high school level.  There remains a shortage of high-tech workers. Individual high-tech firms, both local and foreign-owned, typically conduct their own training programs.  Within the scope of employment mobilization, the Ministry of Family, Labor, and Social Services, Turkish Employment Agency (ISKUR) and Turkey Union of Chambers and Commodity Exchanges (TOBB) has launched the Vocational Education and Skills Development Cooperation Protocol (MEGIP).  Turkey has also undertaken a significant expansion of university programs, building dozens of new colleges and universities over the last decade.

The use of subcontracted workers for jobs not temporary in nature remained common, including by firms executing contracts for the state.  Generally ineligible for equal benefits or collective bargaining rights, subcontracted workers—often hired via revolving contracts of less than a year duration— remained vulnerable to sudden termination by employers and, in some cases, poor working conditions.  Employers typically utilized subcontracted workers to minimize salary/benefit expenditures and, according to critics, to prevent unionization of employees.

The law provides for the right of workers to form and join independent unions, bargain collectively, and conduct legal strikes.  A minimum of seven workers is required to establish a trade union without prior approval. To become a bargaining agent, a union must represent 40 percent of the employees at a given work site and one percent of all workers in that particular industry.  Certain public employees, such as senior officials, magistrates, members of the armed forces, and police, cannot form unions. Nonunionized workers, such as migrants, domestic servants, and those in the informal economy, are also not covered by collective bargaining laws.

Unionization rates generally remain low.  Independent labor unions—distinct from their government-friendly counterpart unions—reported that employers continued to use threats, violence, and layoffs in unionized workplaces across sectors.  Service-sector union organizers reported that private sector employers sometimes ignored the law and dismissed workers to discourage union activity. Turkish law provides for the right to strike but prohibits strikes by public workers engaged in safeguarding life and property and by workers in the coal mining and petroleum industries, hospitals and funeral industries, urban transportation, energy and sanitation services, national defense, banking, and education.  The law explicitly allows the government to deny the right to strike for any situation it determines a threat to national security. Turkey has labor-dispute resolution mechanisms, including the Supreme Arbitration Board, which addresses disputes between employers and employees pursuant to collective bargaining agreements. Labor courts function effectively and relatively efficiently. Appeals, however, can last for years. If a court rules that an employer unfairly dismissed a worker and should either reinstate or compensate him or her, the employer generally pays compensation to the employee along with a fine.

Turkey has ratified key International Labor Organization (ILO) conventions protecting workers’ rights, including conventions on Freedom of Association and Protection of the Right to Organize; Rights to Organize and to Bargain Collectively; Abolition of Forced Labor; Minimum Age; Occupational Health and Safety; Termination of Employment; and Elimination of the Worst Forms of Child Labor.  Implementation of a number of these, including ILO Convention 87 (Convention Concerning Freedom of Association and Protection of the Right to Organize) and Convention 98 (Convention Concerning the Application of the Principles of the Right to Organize and to Bargain Collectively), remained uneven. Implementation of legislation related to workplace health and safety likewise remained uneven.  Child labor continued, including in its worst forms and particularly in the seasonal agricultural sector, despite ongoing government efforts to address the issue. See the Department of State’s annual Country Reports on Human Rights Practices and the Department of Labor’s annual Findings on the Worst Forms of Child Labor for more details on Turkey’s labor sector and the challenges it continues to face.

The Overseas Private Investment Corporation (OPIC) offers a full range of programs in Turkey, including political risk insurance for U.S. investors, under its bilateral agreement.  OPIC is also active in financing private investment projects implemented by U.S. investors in Turkey, including public hospital projects. Small- and medium-sized U.S. investors in Turkey are also eligible to utilize the Small Business Center facility at OPIC, offering OPIC finance and insurance support on an expedited basis for loans from USD 100,000 to USD 10 million.  In 1987, Turkey became a member of the Multinational Investment Guarantee Agency (MIGA).

Table 2: Key Macroeconomic Data, U.S. FDI in Host Country/Economy

Table 3: Sources and Destination of FDI

Table 4: Sources of Portfolio Investment

Economic Specialist
American Embassy Ankara
110 Atatürk Blvd.
Kavaklıdere, 06100 Ankara – Turkey
Phone: +90 (312) 455-5555
Email:  Ankara-ECON-MB@state.gov

Policies Towards Foreign Direct Investment

Ugandan authorities vocally welcome FDI, and Uganda’s legal regime generally facilitates FDI.  A new Investment Code Act (new ICA) came into force in February 2019. The new ICA defines investment more broadly, to include both FDI and portfolio investment.  It also includes international development agencies and companies incorporated in Uganda but with foreign ownership or control in the “foreign investor” category. The new ICA abolishes restrictions on technology transfer and on repatriation of funds by foreign investors.  It establishes new incentives for investment, and grandfathers in old incentives.

Uganda’s laws do not discriminate against foreign investors per se.  Some provisions of the new ICA may discourage FDI, however. Investors must obtain a license from the Uganda Investment Authority (UIA) before investing.  The new ICA establishes a minimum threshold value of USD 250,000 for FDI and a yet-to-be-specified minimum threshold value for portfolio investment. The Ugandan authorities can alter these minimums at any time, thereby creating potential uncertainty for investors.  Additionally, investment licenses may carry specific performance conditions, such as requiring investors to permit the UIA to monitor operations, or to employ or train Ugandan citizens or use Ugandan goods and services to the greatest extent possible. Further, the Ugandan government may revoke investment licenses of entities that “tarnish the good repute of Uganda as an attractive base for investment.”  The government has yet to revoke any investor license on this ground.

Sending a possibly chilling signal to would-be foreign investors, in early 2019, the government accused South African telecoms giant MTN of conspiring with foreigners to commit treason, deported several of its top foreign executives, and reportedly pressured it to list on the Ugandan stock exchange and sell at least 20 percent of its equity to Ugandans.  In a seemingly arbitrary manner, the government also raised the fee for renewal of MTN’s license from USD 100 million to USD 118 million.

The UIA facilitates investment by granting licenses to foreign investors, as well as promoting, facilitating, and supervising investments in Uganda.  It provides a “one stop” shop online where investors can apply for a license, pay fees, register businesses, apply for land titles, and apply for tax identification numbers.  In practice, investors may also need to liaise with other authorities to complete legal requirements. The UIA also triages complaints from foreign investors. The UIA’s website (www.ugandainvest.go.ug  ) and the Business in Development Network Guide to Uganda (www.bidnetwork.org  ) provide information on the laws and reporting requirements for foreign investors.

In practice, investors often bypass the UIA after facing delays, poorly enforced regulations, and corruption.  For larger investments, companies have reported that political support from a high-ranking Ugandan official is a prerequisite.

President Museveni hosts an annual investors’ round table to consult a select group of both foreign and local investors on increasing investment in Uganda, occasionally including U.S. investors.  Every Ugandan embassy has a trade and investment desk charged with advertising investment opportunities in the country. In January 2019, the government conducted a workshop to train its diplomats on investment promotion.

Limits on Foreign Control and Right to Private Ownership and Establishment

With the exception of land, foreigners have the right to own property, establish businesses, and make investments.  The new ICA eliminates all obligations and restrictions regarding technology transfer, intellectual property, and repatriation of funds.  Ugandan law permits foreign investors to acquire domestic enterprises and to establish green field investments. The Companies Act of 2010 permits the registration of companies incorporated outside of Uganda.

As detailed above, all investors must secure a license from the UIA.  The Ugandan authorities evaluate investment proposals based on a number of criteria, including potential for generation of new earnings; savings of foreign exchange; the utilization of local materials, supplies and services; the creation of employment opportunities in Uganda; the introduction of advanced technology or upgrading of indigenous technology; and the contribution to locally or regionally balanced socioeconomic development.

Foreigners wishing to invest in the oil and gas sector must apply for registration in through the Petroleum Authority of Uganda (PAU) National Supplier Database.  More information is available at the Embassy’s website on this process (select – Registering a U.S. Firm on the National Supplier Database): https://ug.usembassy.gov/business/commercial-opportunities/

Uganda’s petroleum laws already impel foreign oil companies to preference local goods and labor where available, with the Minister of Energy authorized to determine the extent of required local content.

Other Investment Policy Reviews

• The United Nations Commission on Trade and Development (UNCTAD) issued its World Investment Report, 2018, available at: https://unctad.org/en/pages/PublicationWebflyer.aspx?publicationid=2130  
• The International Monetary Fund issued an Article IV Consultation and Review in 2019, and its concluding statement is available at: www.imf.org/en/News/Articles/2019/02/14/mcs021419-uganda-staff-concluding-statement-of-the-2019-article-iv-mission  

Business Facilitation

The UIA one-stop shop website assists in registering businesses and investments.  In practice, investors and business may need to liaise with multiple authorities to set up shop, and the UIA lacks the capacity to play a robust and proactive business facilitation role.  According to the 2018 World Bank Doing Business report, business registration takes an average of 24 days.

Prospective investors can also register online and apply for an investment license at https://www.ebiz.go.ug/  .  The UIA also assists with the establishment of local subsidiaries of foreign firms by assisting in registration with the Uganda Registration Services Bureau (URSB) (http://ursb.go.ug/  ).  New businesses are required to obtain a Tax Identification Number from the Uganda Revenue Authority (URA), which they can do online (https://www.ura.go.ug/myTin.do  ) or through the UIA.  Businesses must also secure a trade license from the municipality or local government in the area in which they intend to operate.  Investors in specialized sectors such as finance, telecoms, and petroleum often need an extra permit from the relevant ministry in coordination with the UIA.

Under the Uganda Free Zones Act of 2014, the government continues to establish free trade zones for foreign investors with an export orientation.  Such investors receive a range of benefits including tax rebates on imported inputs and exported products. An investor seeking a free zone license may lodge an application with the Uganda Free Zones Authority (https://freezones.go.ug/  ).

Outward Investment

The GOU does not promote or incentivize outward investment, nor restrict domestic investors from investing abroad.

Uganda has bilateral investment protection treaties with the following countries:  BLEU (Belgium-Luxembourg Economic Union), China, Cuba, Denmark, Egypt, Eritrea, France, Germany, Italy, Netherlands, Nigeria, South Africa, Switzerland, United Kingdom, and Zimbabwe.

Although the countries of the East African Community (EAC) agreed on a text for an Economic Partnership Agreement (EPA) with the European Union (EU) in October 2014, the parties have yet to ratify the agreement.

Uganda does not have a bilateral investment protection treaty, nor a free trade agreement, with the United States.

The United States has Trade and Investment Framework Agreements (TIFAs) with the EAC and the Common Market for Eastern and Southern Africa (COMESA), both organizations to which Uganda belongs.  In 2015, the United States and the EAC also signed a Cooperation Agreement to increase trade-related capacity in the region and deepen economic ties. Within the EAC, the slow pace of regulatory reform, lack of harmonization, non-tariff barriers, and bureaucratic inefficiencies still hamper the free movement of goods, capital, and people among member states.

In March 2018, Uganda signed the Treaty Establishing the African Continental Free Trade Area (AfCFTA).

Uganda does not have a tax treaty with the U.S., but has bilateral taxation treaties with the following countries:  Denmark, India, Mauritius, Netherlands, Norway, South Africa, United Kingdom, and Italy.

In 2018, the government introduced new taxes on social media and mobile money transactions, largely seen as regressive by analysts and widely criticized by the telecom industry.  Early analysis suggests that the taxes are having a deleterious effect on both financial inclusion and technological innovation.

Uganda imposes a 15 percent withholding tax on “every person or company who derives any dividend, interest, royalty, rent, natural resource payment, or management charge from sources in Uganda.”  The URA also charges an 18 percent value-added tax (VAT) on business transactions conducted with a foreign firm.  URA does not allow companies to offset this foreign service tax against their withholding tax, effectively charging a 33 percent tax on all foreign services.  This tax disproportionately impacts U.S. businesses offering software and cloud services.

Transparency of the Regulatory System

On paper, Uganda’s legal and regulatory systems are generally transparent and non-discriminatory, and in accordance with international norms.  In practice, bureaucratic hurdles and corruption significantly affect all investors, but with disproportionate effect on foreigners learning to navigate a parallel informal system.  While Ugandan law requires open and transparent competition on government project tenders, U.S. investors have alleged that endemic corruption means that competitors not subject to the Foreign Corrupt Practices Act can pay bribes to win awards.

Ugandan law allows the banking, insurance, and media sectors to establish self-regulatory processes through private associations.  The government continues to regulate these sectors, however, and the self-regulatory practices generally do not discriminate against foreign investors.

Potential investors must be aware of local, national, and supra-national regulatory requirements in Uganda.  For example, international EAC rules on free movement of goods and services would affect an investor planning to export to the regional market.  Similarly, regulations issued by local governments regarding operational hours or the location of factories would affect an investor’s decision at a local level only.  Foreign investors should liaise with relevant ministries to understand regulations in the proposed sector for investment.

Uganda’s accounting procedures are broadly transparent and consistent with international norms, though full implementation remains a challenge.  Publicly listed companies must comply with accounting procedures consistent with the International Auditing and Assurance Standards Board.

Governmental agencies making regulations typically engage in only limited public consultation.  Draft bills similarly are subject to limited public consultation and review. Local media typically cover public comment only on more controversial bills.  Although the government publishes laws and regulations in full in the Uganda Gazette, the gazette is not available online and can only be accessed through purchase of hard copies at the Uganda Printing and Publishing Corporation offices.   The Uganda Legal Information Institute also publishes all enacted laws on its website (https://ulii.org/  ).

Uganda’s court system and Inspector General of Government ensure governmental adherence to the administrative process, although anecdotal reports suggest that corruption significantly undermines the judiciary’s oversight role.

Public finances are generally transparent and budget documents are available online.  However, the government’s significant use of supplementary and classified budget accounts undermines parliamentary and public oversight of public finances.  Some analysts believe that Uganda’s growing public debt burden is higher than official government reports indicate.

International Regulatory Considerations

Per treaty, Uganda’s regulatory systems must conform to the below supranational regulatory systems.  In practice, domestication of supranational legislation remains imperfect:

• African, Caribbean, and Pacific Group of States (ACP)
• African Union (AU)
• Common Market for Eastern and Southern Africa (COMESA)
• Commonwealth of Nations
• East African Community (EAC)

Uganda is a member of the WTO and notifies the WTO Committee on Technical Barriers to Trade (TBT) of all draft technical regulations through the Ugandan Ministry of Trade’s National TBT Coordination Committee.

Legal System and Judicial Independence

Uganda’s legal system is based on English Common Law.  The courts are responsible for enforcing contracts. Litigants must first submit commercial disputes for mediation either within the court system or to the government-run Center of Arbitration for Dispute Resolution (CADER).  Uganda does not have a singular commercial law; multiple statutes touch on commercial and contractual law. A specialized commercial court adjudicates commercial disputes. Approximately 80 percent of commercial disputes are resolved through mediation.  Litigants may appeal commercial court decisions and regulatory and enforcement actions through the regular national court system.

While in theory independent, in practice there are credible reports that the executive may attempt to influence the courts in high-profile cases.  More importantly for most investors, endemic corruption and significant backlogs hamper the judiciary’s impartiality and efficacy.

Laws and Regulations on Foreign Direct Investment

The Constitution and new ICA regulate FDI.  The UIA provides an online “one stop shop” for investors (www.ugandainvest.go.ug  ).

Competition and Anti-Trust Laws

Uganda does not have any specialized laws or institutions dedicated to competition-related concerns, although the regular courts occasionally handle disputes with competition elements.

Expropriation and Compensation

The constitution guarantees the right to property for all persons, domestic and foreign.  It also prohibits the expropriation of property, except when in the “national interest” as eminent domain, and preceded by compensation to the owner at fair market value.  In March 2019, the government announced plans to table a new land amendment bill to facilitate large infrastructure projects while respecting the constitutionally protected rights of landowners.  Details and the timeline for passage of the controversial bill remain unclear. Some observers considered the government’s pressure in early 2019 on telecoms giant MTN to sell at least 20 per cent of its equity to Ugandans to be a form of expropriation.

Dispute Settlement

ICSID Convention and New York Convention

Uganda is a party to both the ICSID Convention and the New York Convention of 1958 on the Recognition and Enforcement of Foreign Arbitral Awards.  The domestic Arbitration and Conciliation Act incorporates the 1958 New York Convention.

Investor-State Dispute Settlement

Pursuant to the Arbitration and Conciliation Act, the courts and government in theory accept binding arbitration with foreign investors and between private parties.  In practice, the overall challenges of the judiciary are likely to impede full enforcement. There is no recent history of prominent extrajudicial action against foreign investors.  Uganda has not been involved in any investment disputes with a U.S person in the last ten years; however, U.S. firms do complain about serious corruption in the award of government tenders.

International Commercial Arbitration and Foreign Courts

Ugandan law provides for arbitration and mediation of civil disputes.  The legal framework on arbitration includes the Arbitration and Conciliation Act and Commercial Court Division Mediation Rules.  Litigants must first submit all civil disputes to mediation before a court-appointed mediator. CADER is a statutory institution that facilitates the mediation and operates based on the UNCITRAL Arbitration rules.

Most investment disputes in Uganda are resolved through unrecorded private arbitration.  The Foreign Judgments Reciprocal Enforcement Act enables the recognition and enforcement of judgments and awards made by foreign courts.

There is no evidence that Ugandan courts favor state owned enterprises when arbitrating or adjudicating disputes.

Bankruptcy Regulations

The Bankruptcy Act of 1931, the Insolvency Act of 2011, as well as the Insolvency Regulations of 2013 generally align Uganda’s legal framework on insolvency with international standards.   Uganda ranked 112 out of 190 countries for resolving insolvency in the 2019 World Bank Doing Business Report. Uganda averages 39.3 cents on the dollar for recoveries, well above the sub-Saharan average of 20 cents per dollar.  Bankruptcy is not criminalized.

Investment Incentives

The government is still formulating new investment incentives after the enactment of the new ICA.  The Public Private Partnership Act of 2015 creates a legal framework for the government to partner with private investors, both local and foreign, in financing investment in key sectors.  The government has undertaken joint ventures with foreign investors in key sectors such as oil and gas and infrastructure.

Foreign Trade Zones/Free Ports/Trade Facilitation

The Uganda Free Zones Authority (UFZA) (https://freezones.go.ug/  ) regulates free trade zones, which offer a range of tax advantages.  The government’s process in awarding free zone status is not transparent, however.  There have been reports that corrupt individuals in government are allocating free trade zones in return for bribes.  UFZA has issued 20 Free Zone Licenses to 17 developers and three operators. In the first half of 2018-2019, the government estimates the value of exports through Free Zones at USD 93.6 million.

Performance and Data Localization Requirements

The new ICA does not impose any direct requirements regarding local employment and does not specify mandatory numbers for local employment in management positions.  The broadness of its provisions, however, arguably leaves the door open for enforcement of local employment requirements. The Petroleum Exploration, Development, and Production Act and the Petroleum Refining, Conversion, Transmission, and Midstream Storage Act may require investors in the oil sector to contribute to the creation of a local skilled Ugandan workforce.  Bureaucratic hurdles and inconsistent enforcement can make obtaining visas and work permits for foreign workers an onerous and expensive process. Foreign investors must have a license to invest in Uganda.

The government regularly moots local content laws.  Uganda’s petroleum laws already impel foreign oil companies to preference local goods and labor where available, with the Minister of Energy authorized to determine the extent of required local content.  The new ICA provides for broad performance requirements, but is vague on enforcement action.

While there are no general requirements for foreign information technology (IT) providers to give the government any source code or information related to encryption, the National Information Technology Authority Act allows the Minister for Information, Communication and Technology to order an IT provider to submit any information to the National Information Technology Authority (NITA).  Similarly, the Computer Misuse Act allows the government to “compel a service provider…to co-operate and assist the competent authorities in the collection or recording of traffic data in real time, associated with specified communication transmitted by means of a computer system.” These regulatory powers apply to all IT providers, both foreign and local. There are no measures to prevent or unduly impede companies from freely transmitting customer or other business-related data outside of Uganda.  In 2017, however, the Bank of Uganda interpreted Uganda’s cyber security legislation as providing it with the mandate to require financial institutions to relocate their data centers to Uganda to provide the government with access to customers’ digital financial information. Citing customer privacy concerns, financial firms remain in negotiations with the Bank of Uganda over this policy.

Real Property

Land rights are complicated in Uganda, and present a significant barrier to investment.  Uganda enforces property rights through the courts. The Mortgage Act and regulations make provisions for mortgages, sub-mortgages, trusts, and other forms of lien.  However, due to widespread corruption and administrative red tape, investors frequently struggle with the integrity of land transactions and recording systems.

Foreigners cannot own land directly and may only acquire leases.  Such leases cannot exceed 99 years. However, foreign investors can create a Ugandan-based firm to purchase and own real estate.

The Land Act provides for four forms of land tenure:  freehold, customary, “Mailo” (a form of freehold) and leasehold.  Freehold, leasehold, and Mailo tenure owners hold registered titles, while customary or indigenous communal landowners – who account for up to 80 percent of all landowners – do not.  Ugandan law provides for the acquisition of prescriptive rights by individuals who settle onto land (squatters) and whose settlement on such land is unchallenged by the owner for at least twelve years.

Intellectual Property Rights

Ugandan law provides for the protection of intellectual property rights (IPR), but the enforcement mechanisms are weak.  The country particularly lacks the capacity to prevent piracy and counterfeit distribution. As a result, theft and infringement of IPR is common and widespread.  Uganda does not track seizures of counterfeit goods or prosecutions of IPR violations. Agriculture experts estimate some 20 percent of agriculture products under copyright in Uganda are counterfeit.

In November 2018, Parliament passed the Genetic Engineering Regulatory Bill of 2018, which currently awaits presidential assent before coming into force.  While the new law provides for the registration of IPR in biotechnology, it makes the proprietor or an individual developer of genetically engineered material strictly liable for any damage, harm, inconvenience or loss caused to the environment, community livelihood, indigenous knowledge systems or technologies.  While the law is a positive development for IPR, the strict liability clauses are likely to discourage innovation.

Uganda is not included in the United States Trade Representative (USTR) Notorious Markets List or Special 301 Report.

For additional information about national laws and points of contact at local IP offices, please see WIPO’s country profiles (http://www.wipo.int/directory/en/  ).

Capital Markets and Portfolio Investment

The government generally welcomes foreign portfolio investment and has put in place a legal and institutional framework to manage such investments.  The Capital Markets Authority (CMA) licenses brokers and dealers and oversees the Uganda Securities Exchange (USE), which is now trading the stock of 18 companies.  Liquidity remains constrained to enter and exit sizeable positions on the USE. Capital markets are open to foreign investors and there are no restrictions for foreign investors to open a bank account in Uganda.  The government imposes a 15 percent withholding tax on interest and dividends. Foreign-owned companies may trade on the stock exchange, subject to some share issuance requirements. The government IMF Article VIII and refrains from restricting payments and transfers for current international transactions.  Credit is allocated on market terms and foreign investors are able to access credit. However, the private sector remains crowded out of domestic debt markets due to extensive domestic government borrowing.

Money and Banking System

Formal banking participation remains low, with twenty percent of Ugandans having access to deposits in bank accounts.  While only some five million Ugandans hold bank accounts, some 22 million use mobile money transfers to accomplish basic financial transactions.  In 2018, the government imposed new taxes on the use of mobile money, resulting in a drop in mobile money transactions. Uganda’s banking and financial sector is generally healthy, though non-performing loans remain a problem.  According to the Bank of Uganda’s latest Financial Stability Report 2018, Uganda’s non-performing loan rate stood at 4.4 percent at the end of June 2018, while total bank assets grew to USD 7.3 billion from USD 6.8 billion year over year.  Competitiveness and innovation are steadily increasing in Uganda’s banking sector, but lending to the private sector is still relatively low, largely because of perceived high risk (limited collateral) among potential borrowers, and the government crowding out the private sector in the bond market.  The Bank of Uganda regulates the banking sector. Foreign banks may establish branches in Uganda. Uganda does not have restrictions on a foreigner’s ability to establish a bank account.

Foreign Exchange and Remittances

Foreign Exchange

Uganda keeps open capital accounts, and there are no restrictions on capital transfers in and out of Uganda.  If, however, an investor benefited from tax incentives on the original investment, he or she will need to seek a “certificate of approval to “externalize” the funds.  Investors may convert funds associated with any form of investment into any world currency. The Ugandan shilling (UGX) trades on a market-based floating exchange rate.

Remittance Policies

There are no restrictions for foreign investors on remittances to and from Uganda.  The Financial Intelligence Authority and Bank of Uganda may delay remittances if investigating money laundering concerns or terrorist finance.

Sovereign Wealth Funds

In 2015, the government established the Uganda Petroleum Fund to receive and manage all government revenues from the oil and gas sector.  By law, the government must spend a portion of proceeds from the fund on oil-related infrastructure, with parliament appropriating the remainder of revenues through the normal budget procedure.  In early 2019, the Auditor General found that the government had already made significant withdrawals from the fund without parliamentary approval as required by law.

Uganda has thirty State Owned Enterprises (SOEs).  There is no formally published list of SOEs and detailed information on the ownership of SOEs, their total assets, total net income, or number of people employed is not accessible to the public.  SOEs do not get special financing terms and are subject to hard budget constraints. According to the Ugandan Revenue Authority Act, they have the same tax burden as the private sector. According to the Land Act, private enterprises have the same access to land as SOEs.  One notable exception is the Uganda National Oil company (UNOC), which receives proprietary exploration data on new oil discoveries in Uganda. UNOC can then sell this information to the highest bidder in the private sector to generate income for its operations.

Privatization Program

The government privatized many SOEs in the 1990s.  Uganda does not currently have any privatization program.

Awareness of responsible business conduct varies greatly among corporate actors in Uganda.  No organizations formally monitor respect for Corporate Social Responsibility (CSR). CSR is not a requirement for an investor to obtain an investment license and CSR programs are voluntary.  While government officials make statements encouraging CSR, there is no formal government program to monitor, require, or encourage CSR. In practice, endemic corruption means that well-connected companies can enjoy impunity for harmful practices.  Regulations on human and labor rights, and consumer and environmental protection are inconsistently enforced. Several nongovernmental organizations attempt to name-and-shame companies engaged in nefarious practices, with differing degrees of success.

Uganda’s capacity and political will to regulate mineral trade across its borders remains weak.  Credible organizations allege Uganda’s mineral trade relies on conflict minerals from neighboring countries, especially from the eastern Democratic Republic of Congo.  In 2018, gold surpassed coffee as Uganda’s main export, although Uganda has no significant domestic gold deposits. Non-governmental sources allege that a single well-connected gold refinery that sources gold from conflict areas in neighboring countries accounts for the jump in Uganda’s gold exports.

Uganda announced in 2019 that it would join the Extractive Industry Transparency Initiative, but has not yet finalized its membership.  Uganda has also not formally adopted the Voluntary Principles on Security and Human Rights.

Uganda has generally adequate laws to combat corruption, and an interlocking web of anti-corruption institutions.  However, endemic corruption remains a very serious problem and a major obstacle to investment. Transparency International ranked Uganda 149 out of 180 countries in its 2018 Corruption Perception Index.  While anti-corruption laws extend to family members of officials and political parties in most cases, in practice many well-connected individuals enjoy de facto impunity for corrupt acts. The government does not require companies to adopt specific internal procedures to detect and prevent bribery of government officials.  While Uganda has signed and ratified the UN Anticorruption Convention, it is not yet party to the OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions. Uganda does not provide protection for non–governmental organizations investigating corruption, and some organizations in fact allege government harassment.  U.S. firms consistently identify corruption a major hurdle to business and investment. Corruption in procurement processes remains a particular problem.

Resources to Report Corruption

Contacts at government agency or agencies are responsible for combating corruption:

Justice Irene Mulyagonja
Inspector General of Government
Inspectorate of Government
Jubilee Insurance Centre, Plot 14, Parliament Avenue, Kampala
Telephone:  +256-414-344-219
Website:  www.igg.go.ug  

Contact at “watchdog” organization:

Anti-Corruption Coalition Uganda
Cissy Kagaba
Telephone:  +256-414-535-659
Email:  kagabac@accu.or.ug
Website:  http://accu.or.ug  

Public Procurement and Disposal of Public Assets Authority (PPDA)
UEDCL Towers Plot 39 Nakasero Road
P.O. Box 3925, Kampala Uganda
Telephone:  +256-414-311100
Email:  info@ppda.go.ug
Website: https://www.ppda.go.ug/  

Uganda has experienced periodic political violence associated with elections and other political activities.  Security services routinely use force to halt protests and demonstrations. There are no prominent examples in the past ten years of such violence leading to significant damage of projects or installations.  There has been an uptick in crime over the past several years. In addition, political tensions are likely to increase in the run up to 2021 general elections.

Over seventy percent of Ugandans derive their livelihoods from agriculture.  Formal employment remains low, as do skill and education levels. With figures ranging from five to 80 percent, youth unemployment statistics in Uganda can vary significantly depending on the source and definition of employment.  However, there is consensus that Uganda’s young population faces major unemployment, underemployment, and overwhelming informal employment.

Statistics on the number of foreign/migrant workers are not publicly available.  There are acute shortages of skilled and specialized laborers, especially in the trades.

While there are no explicit provisions requiring the hiring of nationals, there are broad standards requiring investors to contribute to the creation of local employment.  The Petroleum Exploration, Development, and Production Act of 2013 and the Petroleum Refining, Conversion, Transmission, and Midstream Storage Act of 2013 both require investors to contribute to the development of a skilled local workforce.  Foreign nationals must obtain a work permit from the Ministry of Internal Affairs.

Ugandan labor laws specify procedures for termination of employment and for termination payments.  Depending on the employee’s duration of employment, employers are required to notify an employee two weeks to three months prior to the termination date.  Employees terminated without notice are entitled to severance wages. Ugandan law only differentiates between termination with notice (or payment in lieu of notice) and summary dismissal (termination without notice).  Summary dismissal applies when the employee fundamentally violates his/her terms of employment. Uganda does not provide unemployment insurance or any other social safety net programs for terminated workers.

Current law requires employers to contribute ten percent of an employee’s gross salary to the National Social Security Fund (NSSF).  The Uganda Retirement Benefits Regulatory Authority Act of 2011, which provides a framework for the establishment and management of retirement benefits schemes for both the public and private sectors, has created an enabling environment for liberalization of the pension sector.

The Employment Act of 2006 does not allow waivers of labor laws for foreign investors.

Ugandan law allows workers, except members of the armed forces, to form and join independent unions, bargain collectively, and conduct legal strikes.  The National Organization of Trade Unions (NOTU) has 20 member unions. Its rival, the Central Organization of Free Trade Unions (COFTU), also has 20 union members.  Union officials estimate that nearly half of employees in the formal sector belong to unions. In 2014, the Government of Uganda created the Industrial Court (IC) to arbitrate labor disputes.

Uganda ratified all eight ILO fundamental conventions enshrining labor and other economic rights and partially adopted these conventions into the 1995 Constitution, which stipulates and protects a wide range of economic rights.

Despite these legal protections, many Ugandans work in unsafe environments due to poor enforcement and the limited scope of the labor laws.  Labor laws do not protect domestic, agricultural, and informal sector workers.

OPIC is currently working on several projects in Uganda.  The potential for continued OPIC participation in projects in Uganda is very good.  OPIC has a bilateral agreement with the government of Uganda, which was executed in 1965 and remains in effect (https://www.opic.gov/sites/default/files/docs/africa/bL_uganda.PDF  )

Table 2: Key Macroeconomic Data, U.S. FDI in Host Country/Economy

* Source for Host Country Data: Uganda Bureau of Statistics Statistical Abstract 2018

Table 3: Sources and Destination of FDI

Source: IMF’s Coordinated Portfolio Investment Survey (CPIS) site (cpis.imf.org)

Table 4: Sources of Portfolio Investment

Data not available.

Seth Miller
Economic and Commercial Officer
U.S. Embassy Kampala, Ggaba Road, Kampala
Telephone: +256 (0) 414-306-240 (office)
Email: MillerSA@state.gov