A. Law No. 4875 of 2003 on Foreign Direct Investments

Direct investment by the nationals of foreign states in the Turkish territory is mainly regulated in the Foreign Direct Investment Law No. 4875 ("Law No. 4875").  The following main principles govern foreign direct investments:

  • Freedom to Invest and Equal Treatment Principle: Except for any restrictions which may be introduced by international treaties to which Turkey is a party or imposed by any special pieces of legislation governing e.g., petroleum and tourism sectors,  foreign nationals can, in principle, freely make direct investments in Turkey (Art. 3 of Law No. 4875). A direct investment can take the form of incorporating of a green field company, investing in an existing company or opening up a branch office in Turkey.  Law No. 4875 adheres to the principle of equal treatment whereby foreign investors enjoy the same rights, benefits and privileges as are granted to, and enjoyed by Turkish nationals, save for any exceptions and restrictions imposed by local laws and international treaties. 
  • Repatriation Rights: Net profits acquired from the sale and transfer of the shares which were held in a Turkish company, as well as net dividends and liquidation proceeds and payables due under licensing, management and any similar agreements are freely transferable outside Turkey through licensed banks and finance institutions by way of observing the rules and procedures stipulated in the foreign exchange regulations.
  • Right to Employ Foreign Personnel: Foreign personnel who will be employed in the companies which shall be set up as per the Law No. 4875 shall be issued appropriate residence and work permits.
  • Appraisal of Capital Contribution in Kind: is made in accordance with Turkish Commercial Code ("TCC"), except where any securities of foreign origin shall be put as a capital contribution; their appraisal will be made by the authorised bodies of the relevant foreign state or special experts who shall be appointed by competent foreign courts or professional appraisers with international practice. 

B. Foreign Exchange Regulations

Foreign exchange rules are mainly set forth in the Decree No. 32 regarding the Protection of the Value of Turkish Currency ("Decree No. 32").  Accordingly, Turkish currency is freely convertible to foreign currencies and transferable abroad, provided that its transfers are made through licensed banks or financial institutions, and, in certain specified circumstances, certain notice requirements have been duly satisfied.

Residents and non-residents of Turkey can freely export and import Turkish currency in and outside Turkey. Non-residents can freely make payments and collections in cash money and make cash deposits in Turkish currency within Turkey. Banks shall inform the authorities to be determined by the Prime Ministry, Undersecretariat of Treasury ("Ministry") of any Turkish Lira transfers outside Turkey having a value exceeding USD 50,000 or its equivalent in any other foreign currency, within a 30 day-period of the date of transfer except for transfers made in the context of imports, exports and certain specified "invisible transactions" (Article 3 of Decree No. 32).

Similarly, importation of foreign currency to Turkey is free. Residents and non-residents may freely transfer foreign exchange to Turkey through licensed banks or finance institutions subject to (i) a similar notice requirement with that explained in the preceding paragraph in the case of transfers with a minimum value of USD 50.000 or its equivalent in another foreign currency, and (ii) the same exceptions as those explained in the preceding paragraph (Art. 4 of Decree No. 32).

Any loan provided by its foreign shareholder to a Turkish company can be freely converted into equity, save that the rules and regulations governing financial assistance and thin capitalization shall be observed. In case of the conversion of a shareholder loan as explained above, certain authorities should be notified by the bank that carried out the transactions in respect of the shareholder loan, and informed that the subject loan will not be reimbursed, but contributed as a capital share. At present, foreign capital companies can receive advance payment from their foreign shareholders for a future capital increase. (Circular of Central Bank of Turkey (CBT) regarding Capital Activities No. 2002/Y-I)

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.