Turkey’s investment legislation is simple and complies with international standards, while it offers equal treatment for all investors. 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 sectoral investments.
Recent amendments to the existing law improve Turkey’s investment environment still further.
1. Legal Framework of Foreign Direct Investment
The aim of the Foreign Direct Investment (FDI) Law No. 4875 is:
- to encourage FDI in the country
- to protect the rights of investors
- to align investors and investments with international standards
- to establish a notification-based system rather than an approval-based one for FDI
- to increase the volume of FDI through streamlined policies and procedures.
The FDI Law provides a definition of foreign investors and foreign direct investments. In addition, it explains important principles of FDI, such as freedom to invest, national treatment, expropriation and nationalization, transfers, access to real estate, dispute settlement, valuation of non-cash capital, employment of expatriates, and liaison offices.
The regulation on the implementation of the FDI Law consists of:
- specifying the procedures and principles of the issues that are laid down in the FDI Law.
The aim of the new FDI Law on work permits for foreigners is:
- to regulate the work carried out by foreigners
- to stipulate the rules on work permits given to foreigners.
2. Bilateral Agreements
2. a. Bilateral Agreements for the Promotion and Protection of Investments
Bilateral Agreements for the Promotion and Protection of Investments were signed from 1962 onwards with countries that show the potential to improve bilateral investment relations. The basic aim of bilateral investment agreements is to establish a favorable environment for economic cooperation between the contracting parties by defining standards of treatment for investors and their investments within the boundaries of the countries concerned. The aim of these agreements is to increase the flow of capital between the contracting parties, while ensuring a stable investment environment. In addition, by having provisions on international arbitration, they aim to prescribe ways to successfully settle disputes that might occur among investors and the hosting state. Turkey has signed Bilateral Investment Treaties with 75 countries.
75 countries Afghanistan, Albania, Argentina, Australia, Austria, 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, Pakistan, Philippines, Poland, Portugal, Qatar, Romania, Russian Federation, Saudi Arabia, Serbia, Singapore, Slovakia, Slovenia, South Korea, Spain, Sweden, Switzerland, Syria, Tajikistan, Thailand, United Arab Emirates, Yemen, United Kingdom, United States of America, Tunisia, Turkmenistan, Ukraine, Uzbekistan.
2. b. Double Taxation Prevention Treaties
Turkey has signed double taxation prevention treaties with 77 countries. This enables tax paid in one of two countries to be offset against tax payable in the other, thus preventing double taxation.
77 countries Albania, Algeria, Austria, Azerbaijan, Bahrain, Bangladesh, Belarus, Belgium, Bosnia and Herzegovina, Bulgaria, Canada, China, Croatia, Czech Republic, Denmark, Egypt, Estonia, Ethiopia, Finland, France, Germany, Georgia, Greece, Hungary, India, Indonesia, Iran, Ireland, Israel, Italy, Japan, Jordan, Kazakhstan, Kuwait, Kyrgyzstan, Latvia, Lebanon, Lithuania, Luxembourg, Macedonia, Malaysia, Moldova, Mongolia, Montenegro, Morocco, Netherlands, New Zealand, Norway, Oman, Pakistan, Poland, Portugal, Qatar, Romania, Russian Federation, Saudi Arabia, Serbia, Singapore, Slovakia, Slovenia, South Africa, South Korea, Spain, Sudan, Sweden, Syria, Tajikistan, Thailand, United Arab Emirates, United Kingdom, United States of America, Tunisia, Turkish Republic of Northern Cyprus, Turkmenistan, Ukraine, Uzbekistan, Yemen.
Turkey is continuing to expand the area covered by the double taxation prevention treaty by adding more countries on an ongoing basis.
2. c. Social Security Agreements
Turkey has signed Social Security Agreements with 22 countries .These agreements make it easier for expatriates to move between countries. The number of these countries will increase in line with the increased sources of FDI.
22 countries Albania, Austria, Azerbaijan, Belgium, Bosnia and Herzegovina, Bulgaria, Canada and the Province of Quebec, Czech Republic, Denmark, France, Georgia, Germany, Libya, Luxembourg, Macedonia, Netherlands, Norway, Romania, Sweden, Switzerland, Turkish Republic of Northern Cyprus, United Kingdom.
3. Customs Union and Free Trade Agreements (FTA)
A Customs Union Agreement between Turkey and the European Union has been in effect since 1996. The agreement allows trade between Turkey and the EU countries without any customs restrictions. The EU-Turkey Customs Union is one of the steps towards full Turkish membership of the EU itself.
Turkey has FTAs with 22 countries, creating a free trade area in which the countries agree to eliminate tariffs, quotas and preferences on most goods and services traded between them. This framework explains why many global companies are now using Turkey as a second supply source and manufacturing base, not only for the EU and rapidly growing Turkish markets, but also for the Middle East, Black Sea and North African markets, with the added advantage of a relatively low cost but well-educated labor force, coupled with cost-effective transportation. The FTAs marked with (*) in the list below are in the process of ratification.
22 countries Albania, Bosnia and Herzegovina, Chile, Croatia, Egypt, Georgia, Iceland, Israel, Jordan, Lebanon*, Liechtenstein, Mauritius*, Macedonia, Montenegro, Morocco, Norway, Palestine, Serbia, South Korea*, Switzerland, Syria, Tunisia. (* in the process of ratification)