FOREIGN DIRECT INVESTMENTS LAW IN TURKEY
FOREIGN DIRECT INVESTMENTS IN TURKEY
Ozge Hakdan Erguc
Attorney At Law
The legal framework of the Foreign Direct Investments(FDI) are regulated under the law numbered 4875 and dated 17.06.2003. This law is structured as a legal guideline for investors and consists of 7 articles which includes general rules and principles about FDI. In this article, I would like to explain this law’s articles briefly.Foreign investment can be defined as the transfer of movable and immovable assets from one country to another for the profit of multinational companies under partial or complete supervision of asset owners by means of contributing welfare of the invested country. In the FDI Code foreign investors are classified as real persons and foreign legal entities. According to the code transferred instruments from abroad are;
- Monetary capital as convertible money which exchanged by Central Bank of Republic of Turkey
- Company stocks and shares ( Except Government Investment)
- Machinery and equipment
- Industrial and Intellectual Property Rights
Instruments provided domestically are;
- Profit, proceeds, outstanding money using in reinvestment or other monetary rights related to investment
- Rights related to exploration and extraction of natural resources
By the mediation of economic assets as listed above;
i)to establish a new company or open a branch
ii)to become a partner of an existing company by acquisitions which provides share gaining except stock exchanges or min 10% share perception from stock exchanges or voting right in same perception.
Fundamental principles about foreign direct investments are regulated in article 3. According to this article first fundamental principle is “Freedom of investment and national treatment.” As the code says, Unless otherwise provided by international agreements and specific law terms, foreign investors are free to invest directly in Turkey and they are subject to equal treatment with domestic investors.
The second principle is about expropriation and nationalization restriction. According to the related article, foreign direct investments can not be expropriated and nationalized unless otherwise public interest is not required and considerations thereof are not paid. According to the another principle provided in the FDI Code, foreign investors can freely transfer the followings abroad through banks and special financial institutions:
the considerations of net profit, dividend, sale, liquidation and indemnity; amounts arising from license, management and similar agreements; and foreign credit capital and interest payments arising from their business and activities within Turkey.
In article 3, principles to be applied for resolution of disputes are stipulated. According to this stipulation resolution of disputes related to investment agreements subject to private law and public service franchise terms and conditions and agreements constituted between foreign investors and government can be settled by national or international arbitration or by other alternative dispute resolutions on condition that parties have agreed on and terms required by relevant regulation arose right along with authorized court.
Another principle concerning the foreign investments is about value assessment of non-cash capital. The value assessment of non-cash capital is done within the scope of the provisions of Turkish Commercial Law. In case of utilization of stocks and shares of companies established in foreign country as an investment instrument, assessments of authorities entitled for the value assessment according to legislation of country of origin or experts appointed by courts of country of origin or international assessment establishments are taken as basis.
In case of employment of foreign personnel Ministry of Labor and Social Security gives work permit to foreign employees who will be employed in such companies, branches and firms established in scope of this code.
The last principle is about Liasion Offices. Undersecretariat is authorized to give permission to open liasion offices to the companies established in conformity with foreign country codes, provided to not to engage in commercial activities in Turkey. According to Article 9 of Implementation Regulation for Foreign Direct Investments Law which has come into force by being published in Official Gazzette No.25205 and dd. 20.08.2003, Companies that foreign investors can establish or participate in, are unlimited companies which are provided in Turkish Commercial Law and Obligation Law. Companies such as, unlimited, consortium, partnership, joint venture and some other companies which do not have particular specialties provided in Turkish Commercial Law, are considered as unlimited company in respect to enforcement of law. In Turkey, the most commonly used company types are Joint Stock Company and Limited Liability Partnerships. In a shortly explanation; A joint stock company is a commercial company and founded by at least five people to deal with a particular economical subject and purpose through a contract under a title and whose capital stock is stated and divided into shares, and which is liable for its debts only with its amount of assets, limited with the capital that the partners subscribed liability, has legal identity and limited capacity. A Limited Liability Company is a company established by two or more persons, real or legal, under a commercial title, the liability of the partners of which is limited with the capital they have undertaken to provide and the capital stock of which is certain. The Turkish Foreign Direct Investment Law was legislated in 1999, after revisions made in 2003 such as fundamental principles of freedom of investment and national treatment, access to the real estate, expropriation and nationalization restrictions etc. provided to protection of foreign investors in Turkey.