2023 Investment Climate Statements: Türkiye

POLICIES TOWARDS FOREIGN DIRECT INVESTMENT

Türkiye acknowledges that it needs to attract significant new FDI to meet its ambitious development goals. As a result, Türkiye 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 Republic of Türkiye’s (CBRT) balance of payments data, Türkiye attracted a total of $6.48 billion of equity capital inflows FDI in 2022, compared to $7.1 billion in 2021. In 2022, Türkiye also attracted $6.3 billion in foreign real estate investments and $800 million in FDI via debt instruments: foreign investors divested $600 million from the Turkish market, bringing net FDI inflows to $13 billion, compared to $13.3 billion in 2021. Türkiye needs to take steps to stabilize its macroeconomic fundamentals; improve enforcement of international trade rules; ensure the transparency and timely execution of judicial awards; increase engagement with foreign investors on policy issues; and implement consistent monetary and fiscal economic policies to promote strong, sustainable, and balanced growth. Türkiye also needs to enact other economic measures to increase stability and predictability for investors: a stable banking sector, more independent monetary policy, tighter fiscal controls, efforts to reduce the size of the informal economy, increased labor market flexibility, improved labor skills, and continue privatization of state-owned enterprises would, if pursued, have the potential to improve the investment environment in Türkiye.

Most sectors open to Turkish private investment are also open to foreign participation and investment. All investors, regardless of nationality, face similar challenges: macroeconomic instability, 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 concepts in Türkiye.

Türkiye does not screen, review, or approve FDI specifically. However, the government has established regulatory and supervisory authorities to regulate different markets. Important regulators in Türkiye include the Competition Authority; the Excessive Pricing Evaluation Board; 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. 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 mandated remedy, which allows for a specific period to correct the problem, to penalty fees. Turkish law has increasingly moved to classify technology firms that provide services in Türkiye as Turkish firms. U.S. technology firms have faced increasingly frequent fines from Türkiye’s competition authority over their market presence and social media firms face a fine of up to three percent of global revenues under a new Turkish law that aims to curb ‘disinformation.’ The Turkish judicial system allows for appeals of any administrative decision, including tax courts that deal with tax disputes.

Türkiye promotes investments though the Investment Office of the Presidency of the Republic of Türkiye and encourages investments through incentive programs administered by the Ministry of Industry and Technology.

LIMITS ON FOREIGN CONTROL AND RIGHT TO PRIVATE OWNERSHIP AND ESTABLISHMENT

There are no general limits on foreign ownership or control. However, foreign investors in some sectors face increasing pressure to partner with local companies and transfer technology. These localization requirements are frequently written into government tenders, effectively mandating a local partner and some local production. This trend has been especially pronounced in the information and communications technology (ICT) and the pharmaceutical sectors. Telecommunications industry insiders, for example, anticipate that the government of Türkiye will require the existing 45 percent local component requirements for 4.5G to continue in 5G regulations. Unlike the rollout of 4.5G, the government will likely remove major loopholes to reduce the number of non-Turkish companies bringing in non-Turkish products and intellectual property that are superficially deemed “Turkish” after final assembly in Türkiye or joint ownership with a Turkish company. In the telecommunications industry, several multinational companies have moved some final stage assembly to Türkiye.

In many other sectors, Türkiye’s regulatory environment remains business friendly. Investors can establish a business in Türkiye irrespective of nationality or place of residence. There are no sector-specific restrictions that discriminate against foreign investor access, which is prohibited by World Trade Organization (WTO) regulations. Turkish Law No. 5174 mandates that firms operating in Türkiye are required to join one of the 365 local chambers of commerce and commodity exchanges located throughout Türkiye’s 81 provinces and are obliged to pay a registration and annual dues. All chambers and commodity exchanges are members of the Union of Chambers and Commodity Exchanges of Turkey (TOBB) – a confederation of all local chambers of commerce, industry and maritime as well as commodity exchanges – that collects dues from local chambers and commodity exchanges. Consequently, TOBB represents every business in Türkiye with limited exceptions for artisans and very small enterprises. TOBB offers a variety of business services and issues an annual economic report.

OTHER INVESTMENT POLICY REVIEWS

The OECD published an Environmental Performance Review for Türkiye in February 2019, noting the country was the fastest growing among OECD members, and an Economic Survey of Türkiye in 2021, which noted that investor confidence in policy predictability could not be consolidated. The review also outlined that risk premium and exchange rate volatility remained very high. The OECD survey that includes details on policy recommendations, can be found at:  https://www.oecd.org/Türkiye/oecd-environmental-performance-reviews-Türkiye-2019-9789264309753-en.htm  

Türkiye’s most recent investment policy review through the WTO was conducted in March 2016; the next is scheduled for 2023. Türkiye has cooperated with the World Bank to produce several reports on the general investment climate that can be found at: https://www.wto.org/english/tratop_e/tpr_e/tp431_e.htm 

The International Investors Association’s (YASED) members represent 85 percent of all FDI in Türkiye. YASED has a working group structure to support the demands of investors and targets common themes to express investors’ perspectives and concerns to the government to shape the policymaking processes. YASED’s publications can be found at:  https://www.yased.org.tr/reports  

BUSINESS FACILITATION

The Presidency of the Republic of Türkiye Investment Office is the official organization for promoting Türkiye’s sectoral investment opportunities to the global business community and assisting investors before, during, and after their entry into Türkiye. Its website is clear and easy to use, with information about legislation and company establishment.  The Investment Office’s website and information on establishing a business in Türkiye can be found at:https://www.invest.gov.tr/en/investmentguide/pages/establishing-a-business.aspx

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.

Türkiye defines micro, small, and medium-sized enterprises according to Decision No. 2022/5315 of the Official Gazette dated March 17, 2022. Micro-sized enterprises are those that have fewer than 10 employees and less than or equal to 5 million Turkish lira in net annual sales or financial statement. Small-sized enterprises are those that have fewer than 50 employees and less than or equal to 50 million Turkish lira in net annual sales or financial statement. Medium-sized enterprises are those that have fewer than 250 employees and less than or equal to 250 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.

TRANSPARENCY OF THE REGULATORY SYSTEM

The government of Türkiye has adopted policies and laws that, in principle, should foster competition and transparency. The government of Türkiye makes its budgetary spending reports available online. Copies of draft bills are generally made available to the public by posting them to the websites of the relevant ministry, Parliament, or the Official Gazette. However, foreign companies in several sectors claim that regulations are applied in an inconsistent and nontransparent manner. Public tender decisions and regulatory updates can be opaque and politically driven.

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. Türkiye is a member of the OECD Inclusive Framework on Base Erosion and Profit Shifting (BEPS) and is party to the Inclusive Framework’s October 2021 deal on the two-pillar solution to global tax challenges, including a global minimum corporate tax.

In 2021, Türkiye’s Office of the Presidency partnered with the United Nations Development Program (UNDP) to assess the Impact Investing Ecosystem in Türkiye and the Sustainable Development Goal (SDG) Investor Map in Türkiye. These efforts provided preliminary steps towards environmental, social, and governance (ESG) regulations. Türkiye’s Capital Markets Board (CMB) amended its Corporate Governance Communique on Türkiye’s Sustainability Principles Compliance Framework for publicly traded companies in 2020. The Framework offers publicly traded companies an opportunity to take their social, environmental, and governance impact seriously, beyond shareholders’ demands. There is no standard ESG legal framework or required ESG disclosures, but the government of Türkiye recommends that all companies operating in Türkiye proactively adopt ESG standards. The Turkish Sovereign Wealth Fund has an initiative to integrate sustainability and ESG goals into investment decision-making.

INTERNATIONAL REGULATORY CONSIDERATIONS

Türkiye is a candidate for EU membership; however, the accession process has stalled, with the opening of new chapters currently 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. Türkiye 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). Türkiye’s customs union with the European Union allows free movement of goods without customs duties and quantitative restrictions between Türkiye and the EU for goods either wholly produced or put in free circulation after their importation from third countries in either Turkey or the EU. Turkey aims to harmonize with the regulations and principles adopted under the European Green Deal; Turkish goods will be subject to the EU Carbon Border Adjustment Mechanism (CBAM) once it comes into effect.

LEGAL SYSTEM AND JUDICIAL INDEPENDENCE

Türkiye’s legal system is based on civil law, provides means for enforcing property and contractual rights, and has written commercial and bankruptcy laws. Türkiye’s court system is overburdened, which sometimes results in slow decisions and judges lacking sufficient time to consider complex issues. Judgments of foreign courts, under certain circumstances, need to be upheld by local courts before they are accepted and enforced. The Turkish judicial system needs to undertake significant reforms to adopt fair and unbiased standards. The government is currently implementing a series of judicial reform packages introduced since 2019, but Amnesty International noted the new Human Rights Action Plan and two Judicial Reform Packages prepared by the Ministry of Justice “failed to address deep flaws in the judiciary.” The judiciary remains subject to influence, particularly from the executive branch, and faces significant challenges that limit judicial independence. The judicial reform strategy’s nine priorities are: protecting and improving rights and freedoms; improving judicial independence, objectivity and transparency; improving both the quality and quantity of human resources; increasing performance and productivity; enabling the right of defense to be used effectively; making justice more approachable; increasing the effectiveness of the penal justice system; simplifying civil justice and administrative procedures; and popularizing alternative mediation methods.

LAWS AND REGULATIONS ON FOREIGN DIRECT INVESTMENT

Türkiye’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 February 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: the Turkish Code of Obligations: Article 202 and Article 203; the Turkish Commercial Code: Articles 134-158; the Execution and Bankruptcy Law: Article 280; the Law on the Procedures for the Collection of Public Receivables: Article 30; and the Law on Competition: Article 7. Specific details can be found at: https://www.invest.gov.tr/en/pages/home-page.aspx

COMPETITION AND ANTITRUST LAWS

The Competition Authority is the sole authority on competition issues in Türkiye and handles private sector transactions. Public institutions are exempt from its authority. The Constitutional Court can overrule the Competition Authority’s finding in a competition case. There have been some cases of Turkish courts blocking foreign company operations based on competition concerns. Such cases can take over a year to resolve, during which time the companies can be prohibited from doing business in Türkiye, benefiting local competitors.

In 2019, the Government of Türkiye established a related board, the Excessive Pricing Evaluation Board, under the authority of the Ministry of Trade. As inflation has continued to increase throughout the country, some private sector contacts noted a marked increase in the frequency and aggressiveness of audits by the board. The board reportedly uses a “secret comparable,” whereby a product’s price is compared against the product of an unnamed company. In 2021 and 2022, prompted by dissatisfaction over rapid inflation, an increasingly active Competition Authority of Türkiye (RK) has stepped up its investigations with the purported intent of protecting consumers from anticompetitive behavior and price gouging. On October 29, 2022, the RK fined five supermarkets and one supplier a combined $283 million for violating antitrust regulations. The RK also announced investigations against two appliance distributors on January 5, 2023.

On October 13, 2022, the Turkish Parliament approved Law No. 7418, the Amendment of Press Law and Certain Laws. This omnibus law amended several existing laws, placing additional restrictions on social media providers and other technology firms whose software includes over-the-top (OTT) messaging services. The legislation was sweeping and, in many cases, vaguely written. The ultimate effect of the law will be determined by yet-to-be published secondary regulations made by the Türkiye’s Information Technologies and Communications Authority (BTK), as these regulations will determine how the law in enforced and how much discretion the regulator would have in how it is enforced. The law also appears to compel social media firms to allow intrusive audits that could compromise trade secrets and relinquish user data in ways that the firms claim violates their community standards. The new law carries a potential fine of up to three percent of a firm’s global revenue in the previous fiscal year and bandwidth throttling of up to 90 percent in the event of noncompliance. The law also compels social media firms present in Türkiye to appoint a local representative physically present in Türkiye. Article 29 of the new law establishes criminal liability carrying a possible prison sentence of one to three years for spreading disinformation to “create fear and disturb public order.”

The Turkish Parliament adopted the Law Amending the Regulation on Electronic Commerce on July 1, 2022, which introduces significant obligations to service providers and intermediary service providers.  The law identified certain e-commerce marketplaces as “large” and “very large,” based on specific turnover thresholds, and barred certain companies (based on their size) from competing horizontally by integrating into other sectors of the economy, including banking, travel, and entertainment. The new legislation imposed additional taxes on companies based on their revenues, while providing support for Türkiye-based e-commerce companies. The new legislation would impose harsher fines on companies that sell counterfeit products on their platforms and forbids companies from engaging in promotional activities that hurt competition and for use of consumer data to “create unfair competition.”

In November 2022, the Ministry of Trade released text of the Draft Amendment to Law No.4054 on the Protection of Competition, which would purportedly closely follow the European Union’s Digital Markets Act (EU DMA).

EXPROPRIATION AND COMPENSATION

Under the U.S.-Türkiye 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 government of Türkiye occasionally expropriates private real property for public works or for state industrial projects. The government of Türkiye agency expropriating the property negotiates the purchase price. If the owners of the property do not agree with the proposed price, they can challenge the expropriation in court and request additional compensation. There are no known outstanding expropriation or nationalization cases involving U.S. firms.

DISPUTE SETTLEMENT

ICSID Convention and New York Convention

Türkiye is a member of the International Centre for the Settlement of Investment Disputes (ICSID) and is a signatory to the New York Convention of 1958 on the Recognition and Enforcement of Foreign Arbitral Awards. 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 if none of the grounds under Article V of the New York Convention are proved by the opposing party.

Investor-State Dispute Settlement

U.S. investors generally have full access to Türkiye’s local courts and the ability to take the government directly to international binding arbitration if a breach of the U.S.-Türkiye Bilateral Investment Treaty has occurred.

International Commercial Arbitration and Foreign Courts

Türkiye adopted the International Arbitration Law, based on the United Nations Commission on International Trade Law (UNCITRAL) model law, in 2001. Local courts accept binding international arbitration of investment disputes between foreign investors and the state. In practice, Turkish courts have sometimes failed to uphold international arbitration awards involving private companies and have favored Turkish firms. There are two main arbitration bodies in Türkiye: the Union of Chambers and Commodity Exchanges of Türkiye HYPERLINK “http://www.tobb.org.tr “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 and emergency arbitration, and appointments for ad hoc procedures. Its decisions are binding and subject to international enforcement. More information can be found at: 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

Türkiye criminalizes bankruptcy and has a bankruptcy law based on the Execution and Bankruptcy Code No. 2004 (the “EBL”), published in 1932, and numbered 2128.

INVESTMENT INCENTIVES

Türkiye’s investment incentives program consists of four main pillars: the General Investment Incentive Scheme, Regional Investment Incentive Scheme, Priority Investment Incentive Scheme, and the Strategic Investment Incentive Scheme. These incentives can provide corporate tax reductions; customs duty exemptions; value added tax (VAT) exemption and VAT refunds; support with the employer’s share social security premiums; income tax withholding allowances; land allocation; and interest rate support for investment loans. The incentive schemes are updated almost every year by the Ministry of Industry and Technology, and the Presidency of the Republic of Türkiye Investment Office publishes these offerings on their websites. https://www.invest.gov.tr/en/pages/home-page.aspx

Renewable energy investments

Investments in electrical power generation from biomass, solar energy, hydroelectric energy, geothermal energy, and wind energy are supported within the framework of the general incentive system and can receive VAT and customs tax exemptions. Green investments can also receive investment support under Türkiye’s Priority Investment Scheme. According to an amendment made on February 24, 2022, to encourage green transformation, solar power-based and wind power-based electricity generation facility investments made in the most economically developed regions of Türkiye can enjoy investment incentives normally reserved for developing areas. On November 19, 2022, the government of Türkiye made several amendments to the Electricity Market License Regulation to complement the existing rules with respect to the development and operation of electricity storage units at power generation plants. The updated rule adds storage ratio capacity for wind and solar power generation plants.

Additional pre-license requirements for the electricity generation plants with storage units.

Project-Based Investment Incentives

There is a special category of investment incentives that is tailored for projects that will serve the country’s current or future critical needs such as security of supply, reduction of foreign dependency, realization of technological transformation, innovation, and R&D-intensive and high-value-added solutions. Incentives for these types of projects are screened by the Ministry of Industry and Technology and approved by presidential decree.

FOREIGN TRADE ZONES/FREE PORTS/TRADE FACILITATION

There are no restrictions on foreign firms operating in any of Türkiye’s 18 free trade zones. These 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 imposition of customs or duties if they 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 Türkiye do not apply to the activities in the free zones, unless the products are imported into Türkiye. Sales to the Turkish domestic market are allowed with goods and revenues transported from the zones into Türkiye 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 Türkiye 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 Türkiye, or to real person or legal-entity shareholders abroad, are subject to 15 percent withholding tax.

https://www.ticaret.gov.tr/serbest-bolgeler  

PERFORMANCE AND DATA LOCALIZATION REQUIREMENTS

The government mandates a local employment ratio of five Turkish citizens per foreign worker in any firm operating in Türkiye employing more than one foreign employee. 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 Türkiye, except as consultants; they cannot directly represent clients and must partner with a local law firm. Türkiye does not impose 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.

Recent laws targeting the ICT sector have increased regulations on data, social media, online marketing, online broadcasting, tax collection, and payment platforms. ICT companies report pressure from the government of Türkiye to localize data, which they view as a precursor to greater governmental access to user information and source code. In 2019, the government of Türkiye implemented a measure prohibiting public institutions and organizations from using cloud-computing services and requiring that certain critical information and data, such as health records and biometric data, be stored domestically. In early 2018, the Capital Markets Board of Türkiye published the “Communique on Information Systems Management,” which requires publicly traded companies to retain their primary and secondary information systems, data, and infrastructure within Türkiye.

Law No. 6493 on Payment and Security Systems, Payment Services, and e-money Institutions, also requires financial institutions to localize data through the establishment of servers in Türkiye. The Turkish Banking Regulation and Supervision Agency (BDDK) is the authority that issues business licenses if companies localize their IT systems in Türkiye and retain the original data (not copies) in Türkiye. Regulations on data localization, internet content, and taxation/licensing have resulted in the departure of several U.S. technology companies from the Turkish market and have 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.

Türkiye enacted the Personal Data Protection Law in April 2016. The law regulates all operations performed pertaining to personal data including obtaining, recording, storage, and transfer to third parties domestically 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 regarding legal obligations. The law created the Data Protection Authority (KVKK), which is charged with monitoring and enforcing corporate data use.

There are no performance requirements imposed as a condition for establishing, maintaining, or expanding investment in Türkiye. The government of Türkiye’s 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, express concern 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 Industry and Technology, Directorate General of Incentives, Implementation and Foreign Investments annually by May. Türkiye 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 Türkiye’s military procurement, and increasingly in other sectors, and such guidelines have been modified to encourage direct investment and technology transfer. The government of Türkiye targets 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, 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) has also established an office to examine how offsets could be incorporated into new contracts. The law suggests that, for public contracts above $5 million, companies must invest up to 50 percent of contract value in Türkiye 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.

REAL PROPERTY

Secured interests in property, both movable and real, are generally 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. Türkiye’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.

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 Türkiye 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 also provides additional flexibility in allowing international companies to purchase real property. The 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 2020, 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 Cadaster.

INTELLECTUAL PROPERTY RIGHTS

Türkiye continues to implement its intellectual property rights (IPR) law, the Industrial Property Code No. 6769, which entered into force in 2017. 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 (TurkPatent) and improves the framework for commercialization and technology transfer. Türkiye is a member of the World Intellectual Property Organization (WIPO) and party to many of its treaties, including the Berne Convention, the Paris Convention, the Patent Cooperation Treaty, the WIPO Copyright Treaty, and the WIPO Performances and Phonograms Treaty.

However, while legislative frameworks are improving, IPR enforcement remains weak. Some investors express difficulty in having theit IPR protected and note that general IP enforcement is deteriorating. Türkiye continued to have a physical market identified on the Office of The United States Trade Representative’s (USTR) Notorious Markets for Counterfeiting and Piracy and remained on USTR’s Special 301 Watch List for 2022. Concerns remain about prohibitive policies requiring the local production and manufacturing of pharmaceuticals, inadequate protection of testing 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 do not have ex-officio authority to seize and destroy counterfeit goods, which are prevalent in the local markets. Software piracy and pirated digital content are also common.

Additionally, the practice of issuing search-and-seizure warrants varies considerably, mainly due to the fact that IPR courts and specialized IPR judges only exist in major cities. Outside these areas, an application for a search warrant must be filed at a regular criminal court (Courts of Peace) and/or with a regular prosecutor. The Courts of Peace are very reluctant to issue search warrants, even in popular tourist areas. Despite the fact that 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 risks exposing companies’ intelligence sources. For additional information about treaty obligations and points of contact at local IP offices, please see WIPO’s country profiles at:  http://www.wipo.int/directory/en  .

CAPITAL MARKETS AND PORTFOLIO INVESTMENT

The Turkish Government encourages and offers an effective regulatory system to facilitate portfolio investment. Since the start of 2020, persistent currency depreciation was exacerbated by the COVID-19 pandemic and high levels of inflation, resulting in dollarization and current account deficit concerns. Existing policies facilitate the free flow of financial resources into product and factor markets; however, since 2022 regulators deployed more than 200 macro prudential measures in the banking sector to address lira depreciation and decrease foreign currency demand, constraining free capital flow. 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 government has increased low- and no-interest loans for certain parties, and pressured state-owned banks to increase their lending, especially for stimulating economic growth and public projects. Foreign investors can obtain credit on the local market, and the private sector has access to a variety of credit instruments.

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. In 2022, Turkish capital markets drew growing interest from domestic investors, according to data from the Central Registry Agency (MKK). In 2021, the number of local real investors reached 2.3 million, up an average of 65,200 per month, with the total portfolio value reaching $22.2 billion. On February 14, 2023, government of Türkiye ordered private pension funds to allocate 30 percent of the funds the government contributes to match individual pension contributions to investments in Turkish equities.

MONEY AND BANKING SYSTEM

The Turkish banking sector, particularly private banks, remains relatively healthy. State-owned banks’ assets represent 38 percent of the banking sector’s total assets. According to the Banking Regulation and Supervision Agency, the share of non-performing loans (NPL) in the sector was approximately 2.1 percent at the end of 2022, though there appears to have been some regulatory forbearance during the COVID pandemic. The only requirements for a foreigner to open a bank account in Türkiye are a passport copy and either an identification number from the Ministry of Foreign Affairs or a Turkish tax identification number. Ziraat Bankasi, Vakiflar Bankasi and Halk Bankasi are state-owned deposit banks. There are three Turkish banks with subsidiaries operating in Russia Ziraat Bank Moscow, Joint Stock Company Isbank, and Denizbank Moscow JSC – these banks face additional sanctions compliance risks due Russian malign activity.

The BDDK monitors and supervises Türkiye’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 (TMSF). 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 Türkiye’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. Funds associated with any form of investment can be freely converted into any world currency. The government of Türkiye has placed some restrictions on acquiring foreign currency on firms and investment banks in an effort to stabilize the value of the Turkish lira. In 2022, the government of Türkiye adopted an amendment to the 2018 Presidential Decree No. 85 Decision on the Protection of the Value of the Turkish Currency. Both the original decree and the subsequent amendment tightened restrictions on Türkiye-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. In November 2020, the limit for swaps, forward and option transactions where banks pay Turkish lira at maturity was raised to 30 percent, depending on their remaining maturities. Türkiye has taken a variety of such measures to support the valuation of the Turkish lira, including the mandatory surrender and repatriation requirements on exporters’ foreign exchange export proceeds. In January 2020, the surrender requirement was dropped, but the repatriation requirement remained. In April 2022 the Central Bank of the Republic of Türkiye (CBRT) announced it would buy 40 percent of all euro, dollar, or British pound-denominated export income from exporters.

On January 26, 2023, CBRT announced that Turkish companies, including exporters and tourism firms that bring in foreign currency from abroad, would be offered foreign exchange conversion support. Firms would be provided support corresponding to two percent of the foreign exchange they repatriate from abroad and convert into Turkish lira after selling it to the CBRT. The mechanism will apply to firms that commit not to buy foreign currency for a period determined by the bank and deposit the remaining amount to conversion accounts as part of a scheme to protect lira deposits against foreign exchange depreciation.

There is no limit on the amount of foreign currency that may be brought into Türkiye, but not more than 25,000 Turkish lira or 10,000 euros worth of foreign currency may be taken out without declaration. Although the Turkish lira is fully convertible, most international transactions are denominated in U.S. dollars or euros due to their universal acceptance. Banks deal in foreign exchange and do borrow and lend in foreign currencies. While foreign exchange is freely traded and widely available, a May 2019 government decree imposed a settlement delay for individuals’ foreign exchange purchases of more than $100,000; there was also a 0.2 percent tax on foreign exchange purchases. The settlement delay provision was repealed in December of 2020. Foreign investors are now free to convert and repatriate their Turkish lira profits.

Remittance Policies

There have been no recent changes or plans to change investment remittance policies. 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 government of Türkiye announced the creation of a sovereign wealth fund (called the Türkiye Wealth Fund, or TVF) in August 2016. Unlike traditional sovereign wealth funds, the fund consists of shares of state-owned enterprises (SOEs) and is designed to serve as collateral for raising foreign financing. However, the TVF has not launched any major projects since its inception. Several leading SOEs, such as natural gas distributor BOTAS, Turkish Airlines, and Ziraat Bank have been transferred to the TVF, which in 2020 became the largest shareholder in domestic telecommunications firm Turkcell. Critics contend that the fund’s management is opaque and politicized. The fund’s consolidated financial statements are available on its website  https://www.tvf.com.tr/en/investor-relations/reports , although independent audits are not publicly available. Firms within the fund’s portfolio appear to have increased their debt loads substantially since 2016. International ratings agencies consider the fund a quasi-sovereign. The fund was already exempt from many provisions of domestic commercial law, and new legislation adopted April 16, 2020, granted it further exemptions from the Capital Markets Law and Turkish Commercial Code, while also allowing it to take ownership of distressed firms in strategic sectors.

PRIVATIZATION PROGRAM

The government of Türkiye has made some progress on privatization over the last decade. Of 278 companies that the state once owned, 210 are fully privatized. According to the Ministry of Treasury and Finance’s Privatization Administration, transactions completed under the Turkish privatization program generated $294 million in 2021, driven by the privatization of six power plants, a holiday village, a mining site, and 324 pieces of real estate, up from $20 million in 2020. See:  https://www.oib.gov.tr/  .

The government of Türkiye has committed to continuing the privatization efforts, but other measures, such as the creation of a sovereign wealth fund with control over major SOEs, suggest that the government has prioritized the use of some public assets to raise additional debt over privatization. Accordingly, the government of Türkiye has shelved plans to increase privatization of Turkish Airlines and instead moved them and other SOEs into the TVF. Additional information can be found at the Ministry of Treasury and Finance’s Privatization Administration website: https://www.oib.gov.tr/ .

Climate Change

Türkiye signed the Paris Agreement in 2016. It ratified the accord in October 2021 when it also submitted its Intended Nationally Determined Contributions (INDCs) to the UN Framework Convention on Climate Change (UNFCCC).  Türkiye has announced it will achieve “net zero emissions” by 2053.  In November 2022, Türkiye announced a new NDC at COP 27, which aims to bring its greenhouse gas emissions 41 percent below business-as-usual levels by 2030, raising the target from 21 percent.  Türkiye has yet to publish a copy of its NDC document, but announced it contains projections of a 30 percent increase in greenhouse gas emissions through 2030, with peak emissions by 2038.   Experts agree that a rapid decarbonization process by 2053 from peak greenhouse gas emissions in 2038 will be difficult and costly and could increase Türkiye’s vulnerability to fossil fuel crises in the near term.  Türkiye’s most recent Climate Change Action Plan can be found at  https://iklim.gov.tr/en/action-plans-i-121 

Türkiye is a green energy leader, with renewables representing 54 percent of installed electricity generation capacity. However, Türkiye lacks a plan to phase out coal power generation, which currently accounts for over 30 percent of Türkiye’s electricity production. The EU is Türkiye’s biggest external market, and Turkish exporters will be subject to the EU’s carbon border tax, which could potentially be as high as $1.8 billion annually, according to the Turkish Industry and Business Association. In August 2021, Türkiye adopted a “Green Deal Action Plan” to comply with the European Green Deal. Türkiye does not have an emissions trading system.