1. Openness To, and Restrictions Upon, Foreign Investment
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 a result, Turkey has one of the most liberal legal regimes for FDI among Organization for Economic Cooperation and Development (OECD) members. According to the Central Bank of Turkey’s balance of payments data, Turkey attracted a total of USD 5.6 billion of FDI in 2019, almost USD 1 billion down from USD 6.7 billion in 2018. This figure is the lowest FDI figure for Turkey in the last 15 years. In order to attract more FDI, Turkey needs to improve enforcement of international trade rules, ensure the transparency and timely execution of judicial awards, 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, increased labor market flexibility, improved labor skills, and continued privatization of state-owned enterprises would, if pursued, 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 similar challenges: excessive bureaucracy, a slow judicial system, relatively high and inconsistently applied taxes, and frequent changes in the legal and regulatory environment. Structural reforms that would 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.
Turkey does not screen, review, or approve FDI specifically. However, the government has 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. However, there is increasing pressure in some sectors for foreign investors to partner with local companies and transfer technology, and some discriminatory barriers to foreign entrants, 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 (WTO) Regulations.
Other Investment Policy Reviews
The OECD published an Environmental Performance Review for Turkey in February 2019, noting the country was the fastest growing among OECD members. Turkey’s most recent investment policy review through the World Trade Organization (WTO) was conducted in March 2016. 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 .
The Presidency of the Republic of Turkey Investment Office is 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. 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 where foreigners can register 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 as well as with 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.
The government promotes outward investment via investment promotion agencies and other platforms. It does not restrict domestic investors from investing abroad.