ESTABLISHING A COMPANY IN TURKEY

Turkey serves as a bridge between Asia, Europe, and the Middle East. The unique geographic location of Turkey brings significant logistic and economic advantages that have been drawing foreign investors’ attention for years. Turkey’s geographical advantage provides easy access to a population of 1.5 billion including those of Europe, the Middle East, North Africa, and Central Asia, and to a market worth more than USD 20 trillion. However, the reasons why Turkey attracts foreign investments are not limited to its geographical advantages. Turkey is preferred by foreign investors due to other various reasons including its convenient population, qualified and low-cost labor, and investment incentives. Since a lot of foreign investors are seeking information regarding the establishment of business in Turkey, we would like to give a comprehensive explanation of these matters as a law firm whose main specializations are corporate and commercial law. With this article, we will focus not only on the company establishment processes but also on the incentives, free trade zones, data protection requirements, and being an employer in Turkey.

1.   TYPES OF COMPANIES CAN BE ESTABLISHED IN TÜRKİYE

Turkish Commercial Code numbered 6102 regulates four types of commercial companies: joint stock, limited liability, limited partnership and collective companies. In addition, unincorporated companies such as joint ventures, business associations and consortiums can also be established. Apart from these, foreign investors are also allowed to open branch or liaison offices, invest in existing companies, make financial investments in the stock market or make concession agreements with the Turkish government. However, in this article, we will concentrate on joint stock and limited liability companies since they interest foreign investors in particular. Before moving on to give details regarding these two company types, we would like to point out that neither a Joint Stock Company nor a limited Liability Company requires any Turkish shareholders. (i.e., they may be 100% foreign-owned).

a.   JOINT STOCK COMPANY (JSC)

Even though joint stock companies are usually formed by investors or a large group of investors aiming to establish a mid/large-scale business in Turkey, only one shareholder is required in order to form such a company. A shareholder can be a real person or a legal entity and there is no upper limit on the number of partners of JSCs. Shareholders are only liable to the company with the capital shares they have committed and the company’s liability is limited to its assets. Therefore, JSCs are very appealing in terms of protecting shareholders’ personal assets from the company’s debts.

There is a minimum capital requirement of TRY 50.000 (For non-public Joint stock companies accepting the registered capital system, the initial capital may be at least 100,000 Turkish Liras.) however only a quarter of the nominal value of the shares committed in cash must be paid before registration. The remaining amount can be paid within 24 months following the registration.  

JSC is the only type of company whose shares are offered to the public and whose shares are traded on the stock exchange. JSCs may issue registered and bearer shares and they may also issue bonds and similar debt instruments. Although there are a few exceptions regarding registered shares, shares of a JSC may be transferred freely without being subject to any restrictions. In principle, it is not mandatory to perform the transfer of shares before the notary public or to register these transfers in the trade registry. This company type is the most preferred by both local and foreign investors, mainly due to the ability to go public and the fluidity with which share transfers can be realized.

b.   LIMITED LIABILITY COMPANY (LLC)

Limited liability company is frequently preferred by small and medium-size enterprises and is essentially similar to joint stock companies with some different features. A single person may establish a limited liability company, and the partners of the company may be a real person or a legal entity. However, while there is no upper limit on the number of partners of joint stock companies, a limited liability company may have a maximum of 50 partners.

The minimum capital requirement of LLC is 10,000 Turkish Liras. It is possible to pay all of the capital brought in cash within 24 months after the registration.  Shareholders are only liable with their own capital commitment and they bear no personal liability, however, there is an exception regarding this matter. Contrary to JSC, the shareholders of LLC are also liable for public debts (taxes, fines, etc.) which could not have been collected from the company itself.

In LLC, the transfer of shares is subject to certain conditions and formal requirements. The transfer must be made by a notarized transfer agreement. Then, the approval of the general assembly of the company must be obtained (unless otherwise stated in the articles of association) and the share transfer must be registered in the trade registry. If the transfer is not registered, the transfer shall not be deemed legally valid. LLCs cannot be offered to the public and cannot issue bearer shares, however, registered shares can be issued by LLCs.

2.   INCENTIVES

Turkey offers a comprehensive investment incentives program with a wide range of instruments for both greenfield and brownfield projects in order to help minimize the upfront cost burden and accelerate the returns on investments. In 2012, a new incentive regime started to be implemented with the Decision on the State Investment Incentives numbered 2012/3305 (the “Decision“). The Decision lays the foundation of the current investment incentive regime in Turkey. The Decision was later amended on 7 August 2019 with a Presidential Decree which introduced certain amendments to the Decision.

Turkey’s new investment system provides various benefits to foreign investments from VAT and customs duty exemptions to social security premium support depending on the value and the location of the investments in various sectors including but not limited to the electronics, telecommunications, transportation, shipbuilding sectors, and services such as health and education. The scale of incentives increases for projects in priority sectors classified as key areas for the transfer of technology and economic development.

The investment incentive system conducted by The Ministry of Industry and Technology comprises different investment models such as,

• General Investment Incentives
• Regional Investment Incentives
• Medium-High Tech Investment Incentives
• Priority Investment Incentives
• Strategic Investment Incentives
• Project-Based Incentives

Investors wishing to benefit from such investment incentives must obtain an investment incentive certificate by applying to the Ministry of Industry and Technology.

In addition, Turkey provides generous support programs for R&D and innovation projects, employee training initiatives, and for exporters through various grants, incentives, and loans.

3.   FREE TRADE ZONES

Besides the incentive programs we mentioned above, foreign investors can also enjoy the benefits provided by Turkey’s Free Trade Zones (“FTZ”). Free Trade Zones are defined as special sites within the country that are deemed to be outside of its customs borders, and as regions that are exempted from import duties, commercial policy measures, and foreign exchange legislation and offer storage, warehousing, distribution facilities, transshipment, and re-export operations. Free zones offer a more convenient and flexible business environment in order to increase trade volume and exports for some industrial and commercial activities in comparison to other parts of the country. The matters related the FTZs are regulated under the Free Zones Act (Law No. 3218) The following are some of the benefits of the FTZs:

• The earnings of manufacturers generated through the sales of the goods that are produced in the zones are exempted from income and corporate taxes.
• The wages of the workers employed by manufacturers who export at least 85% of the FOB value of the goods they produced in the zones are exempted from income tax.
• The transactions and arranged documents related to the activities carried out by manufacturer users in the zones are exempted from stamp duties and fees.
• No property tax is paid for buildings or land in the free zones.
• Since free zones are legally outside the customs borders of Turkey, custom related taxes and regulations are not applicable to the goods entering the zones.

Turkey has 18 FTZs located around the country and these zones are mostly organized around major seaports, international airports, and national frontiers where many geographic advantages stand for the trade. Foreign companies are entitled to embark upon all types of industrial, commercial, and service operations deemed appropriate by the Supreme Planning Board. Investors are free to construct their own premises, while zones have also available office spaces or warehouses for rent with convenient terms.

General Directorate of Free Zones, Overseas Investment and Services (“GD”) is the relevant authority to give permissions to whomever wishes to establish a business in FTZs. Investors should submit their applications together with the articles of association of their companies to the GD through Zone Directorates. Any of company types provided under Turkish Commercial Code (i.e.  Limited Liability Company and Joint Stock Company) can be formed by investors in FTZs.

4.   BEING AN EMPLOYER IN TÜRKİYE

Employment laws in Turkey apply equally to Turkish nationals and foreign nationals. There are various legislations regulate the employment-related subjects such as:

• Turkish Labor Code (No. 4857).
• Turkish Code of Obligations (No. 6098).
• Social Insurance and General Health Insurance Code (No. 5510)
• Workplace Health and Safety Code (No. 6331).
• Private International and Procedural Law (No. 5718)
• International Labor Force Law (No. 6735)

As per the International Private and Civil Procedure Law No. 5718, the parties can choose the governing law for their employment contract, but in the case that the laws of the country where the work is being performed provide more favorable rules that give employees a higher standard of protection than the law chosen to govern the employment contract, laws of the country where the work is being performed shall apply to the contract. It means that more favorable rules of Turkish law will still apply to employment contracts of your employees if you have a business in Turkey.  

Where the parties have not explicitly chosen an applicable law, the laws of the country where the work is performed is applicable, hence Turkish law will apply if your business is in Turkey. In addition, where international or bilateral treaties are in place between Turkey and the employee’s country of origin, the related terms of that treaty are applied to the extent possible.

Before moving on another subject, we would like to share a table shows the minimum cost of having an employee in Turkey.

5.   DATA PROTECTION REQUIREMENTS

In Turkey, data protection requirements are determined by the Law on the Protection of Personal Data Numbered 6698 (“KVKK”). KVKK provides the guidelines applicable to the processing of personal data, in line with the constitutional principles protecting privacy and confidentiality of personal life. KVKK, modeled after European Union’s relevant legislations and practices (GDPR), is applicable to any entity that processes, for any reason, any kind of personal data of real persons.

All natural and legal persons, collecting, processing, and transferring personal data are deemed as “Data Controller” and are obliged to take some legal and technical precautions while dealing with personal data. Data controllers shall register the records of the data processing activities they are engaged in within the Data Controllers’ Registry (VERBİS). Another important requirement is that data controllers should inform data owners (employees, clients, buyers, etc.) regarding the data processing activities that they implement.

Turkish Data Protection Authority (“Authority”) is the relevant authority that oversees the companies’ compliance with the data protection legislation. If the Authority determines the existence of a data breach upon the complaint or ex officio, Authority notifies all concerned of its decision including the order that the data breach must be settled by the relevant controller. A data controller must fulfill the Authority’s decision without undue delay and within thirty days of receipt.

Those who do not fulfill the obligations related to data security or do not fulfill the decisions issued by the Authority are imposed to pay administrative fines. Also, please note that unlawful recording of personal data, unlawful sharing and acquiring of personal data, and failure of destruction of personal data constitutes a crime in the eye of Turkish Criminal Code numbered 5237.

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We offer a full range of legal services, including risk analysis and management to foreign companies and individuals who are willing to invest and establish a business in the Turkish market and expand their operations. If you have any questions about the subject, please feel free to contact our office. Erkan Partners Law Office is ready to assist you in all the processes regarding the establishment of a business in Turkey.