Doing Business in Turkey

Overview of the Turkish Economy

The Turkish economy is characterized by its strategic positioning between Europe and Asia, boasting a diverse industrial base and a dynamic market. It presents opportunities for investment across various sectors, supported by strong economic indicators.

Economic Indicators

Turkey’s economy, known for its resilience and dynamic nature, is ranked as the 19th largest globally, with a GDP of approximately $906 billion. They have witnessed robust growth, with an impressive expansion of 11% in 2021. However, challenges such as inflation and unemployment are pertinent, with the former often outpacing many of its G20 counterparts.

• GDP (2022): $905 billion
• Growth Rate (2021): 11%
• Inflation: High
• Unemployment: Significant

Investment Climate

Within the Turkish investment landscape, the ease of doing business is a notable feature, underpinned by governmental reforms and incentives to attract foreign capital. They have focused on simplifying administrative processes, improving legal frameworks, and offering various investment incentives to nurture a friendly business environment.

• Ease of Doing Business Rank:
  • Getting Electricity: 41
  • Registering Property: 27
  • Starting a Business: 77

Key Industries

Turkey’s economy thrives on a mix of traditional and modern industries. The agricultural sector remains a steadfast contributor to GDP and employment. Textile and apparel account for a significant share of its exports, leveraging their quality and competitive pricing. In addition, telecommunications morph into a high-tech hub, with major investments in digital infrastructure. Tourism is vital, drawing on Turkey’s rich cultural heritage and natural landscapes to contribute substantially to foreign exchange earnings.

• Agriculture: Staple contributor to work and GDP
• Textile and Apparel: Export-oriented
• Telecommunications: Rapidly growing
• Tourism: Major source of revenue

Establishing a Business in Turkey

Investing in Turkey involves navigating various corporate structures and registering with the appropriate legal entities. The Turkish Commercial Code defines the process and requires careful consideration of the country’s legal system.

Types of Corporate Structures

In Turkey, investors can choose from several corporate structures that align with their business goals:

• Joint Stock Company (A.Ş.): Suitable for large-scale operations with a minimum capital requirement, and it allows for public trading of shares.
• Limited Liability Company (Ltd. Şti.): Preferred by small to medium-sized enterprises (SMEs), with a simpler structure and lower minimum capital requirements than a Joint Stock Company.

These entities must adhere to the Code of Obligations and other relevant commercial codes, especially in regulated sectors.

Company Registration Process

To legally establish a business in Turkey, one must follow the company registration process:

1. Deposit the required minimum capital.
2. Execute and notarize company articles of association.
3. Apply to the relevant Trade Registry office with the necessary documents.
4. Obtain the registration confirmation and announce the company in the Trade Registry Gazette.
5. Get the tax identification number for the company.

Foreign companies aiming to expand into the Turkish market must also establish a presence by forming a new entity or opening a branch office.

Legal Considerations

Understanding the Turkish legal system is fundamental when doing business in Turkey:

• Compliance with the Turkish Commercial Code and regulations for foreign companies is a must.
• Businesses must acquaint themselves with local tax laws, employment regulations, and in certain industries, additional regulated sectors specific legislations.

Businesses can effectively navigate Turkey’s corporate landscape by remaining compliant with the above considerations.

Financial and Legal Framework

The financial and legal systems in Turkey are designed to support domestic and international investors, with regulatory bodies such as the Central Bank of Turkey playing pivotal roles. Modern banking and finance laws ensure a competitive yet stable environment, while robust accounting and audit regulations and a comprehensive tax system create a transparent operational landscape.

Banking and Finance

The banking sector in Turkey is well-regulated, with the Banking Regulation and Supervision Agency (BRSA) overseeing its functionality. Finance is a dynamic aspect of the Turkish business world, emphasizing compliance with international standards. The Capital Markets Board of Turkey is the main regulatory body overseeing securities and capital markets, ensuring the stability and integrity of financial systems.

• Primary Entities Involved:
  • Banks: Subject to regulations by the BRSA.
  • Capital Markets: Monitored by the Capital Markets Board.
  • Securities: Regulations ensure transparency and protect investors.

Accounting and Audit Regulations

Accounting practices in Turkey conform to the global standards, specifically International Financial Reporting Standards (IFRS), making financial reports of businesses comparable at an international level. Independent auditing is mandated for certain company size and turnover thresholds, providing credibility and accuracy in financial reporting.

• Standards and Entities:
  • Accounting Standards: Adherence to IFRS.
  • Independent Auditing: A requirement for larger enterprises.

Taxation System

Turkey has a multifaceted taxation system encompassing corporate tax, income tax, and indirect taxes like VAT and special consumption tax. The Revenue Administration is responsible for tax collection and enforcement of tax laws. Incentives may be available for specific sectors or investments.

• Key Tax Components:
  • Corporate Tax: Levied at a flat rate on profits of corporations.
  • Income Tax: Applicable to individuals on a progressive scale.
  • VAT and Other Indirect Taxes: Apply to various goods and services.

Intellectual Property and Compliance

When doing business in Turkey, safeguarding intellectual property (IP) assets, adhering to a multifaceted regulatory framework, and complying with competition and anti-corruption laws are crucial. Companies must navigate the complexities of these areas to mitigate risk and maintain a competitive edge.

Protecting IP Assets

Turkey’s stance on IP protection is proactive, with a strong legal framework to safeguard various forms of IP. Key legislation covers copyrights, trademarks, designs, utility models, patents, and geographical indications. Companies need a solid strategy for protecting intellectual property to secure their creative and commercial assets.

Security and Collateral regarding IP:

• Intellectual property can serve as collateral, providing security interests to lenders.
• Registration of such collateral with the relevant Turkish authorities solidifies these security interests.

Regulatory Compliance and Sanctions

The regulatory landscape in Turkey for business operations includes various restrictions, currency regulations, and incentives. Companies must comply with all relevant sanctions and regulations to avoid penalties and maintain lawful operations.

Regulatory Framework Elements:

• Business entities must stay up-to-date with changing currency exchange regulations.
• Ongoing monitoring of sanction lists and export controls is necessary to ensure compliance.

Anti-Corruption and Competition Laws

Businesses operating in Turkey must adhere to strict anti-corruption statutes and competition regulations to promote fair trade practices. Anti-corruption laws prohibit bribery and ensure transparency, while competition law seeks to avoid monopolies and maintain market fairness.

Key Compliance Points Include:

• Enforcement of anti-corruption policies within the organization.
• Understanding of competition law exemptions and compliance with all disclosure requirements.

Employment and Labor Laws

Turkey’s employment and labor laws create a comprehensive framework for employer-employee relations, stipulating clear guidelines on employment contracts, termination procedures, union activities, and social security obligations.

Hiring and Employment Contracts

When businesses hire employees, they should draft clear employment contracts that comply with the Turkish Labor Law. These contracts define the rights and responsibilities of both parties and must include, at a minimum, details about the job description, salary, and work hours. Special attention must be given to the regulations governing young workers to ensure compliance with youth employment laws.

Termination and Unions

Terminating employment in Turkey must adhere to the legal grounds specified by labor law. Employers must provide valid reasons for termination, follow the prescribed notice periods, or pay severance whenever applicable. Employees can join unions and engage in collective bargaining agreements, which safeguard their rights and often influence termination and other employment conditions.

Workforce and Social Security

Social security in Turkey is a mandatory scheme to cover all employees against certain life events and health issues. Employers are responsible for reporting their employees to the social security institution and making contributions. The Turkish workforce, characterized by a young population, poses unique considerations under employment laws involving working conditions and benefits.

Operating a Business

When stepping into the Turkish market, businesses must navigate the landscape of property rights, adhere to stringent environmental regulations, and understand the multifaceted culture and communication norms crucial to any venture’s establishment and growth.

Property and Investment Protection

Turkey assures property rights protection through its legal and institutional framework, which is particularly accommodating towards foreign investment. The country has bilateral investment treaties that provide comprehensive protection for foreign investments, including fair treatment, protection from expropriation, and free transfer of funds related to their investments.

Foreign entities are generally allowed to own real estate in Turkey with limited restrictions. The Land Registry Law and related legislation stipulate procedures and requirements for acquiring property. It’s important to conduct thorough due diligence since properties that fall within military or strategic zones may be subject to restrictions.

Environmental Compliance

Environmental law in Turkey comprises various regulations businesses must comply with to operate. These laws align with EU standards and focus on Environmental and Social Governance (ESG)principles. The regulatory framework includes requirements for environmental impact assessments, permits, and audits for facilities that may have an environmental impact.

Companies must register with the local authorities and obtain the necessary environmental licenses. Non-compliance can result in fines, closure of facilities, or other legal sanctions. This underscores the imperative for organizations to prioritize sustainability and integrate ESG strategies into their business models.

Culture and Communication

The business culture in Turkey is uniquely relationship-driven and hierarchical. It is essential to show respect to senior members in meetings and negotiations. Direct and clear communication is valued, but one should also know the nuances and subtext in conversations.

Turkish is the official language, and while business dealings can be conducted in English, particularly in larger cities or multinational companies, understanding and using basic Turkish phrases can greatly enhance relationships and show respect for the local culture. The importance placed on interpersonal relationships in Turkey means investing time in getting to know business contacts can facilitate smoother negotiations and successful partnerships.

Industry Specific Guidelines

Regulatory compliance is critical for companies operating in Turkey. Stringent regulations often apply to specific sectors, and businesses must adhere to them to ensure operational longevity and legal conformance.

Energy Sector

The energy sector in Turkey is regulated by the Energy Market Regulatory Authority (EMRA). Companies looking to invest in this sector need a license for activities such as production, transmission, distribution, wholesale, import, and export. Renewable energy initiatives are especially supported, with incentives for those who invest in wind, solar, and hydroelectric power generation.

Healthcare and Pharmaceuticals

The healthcare and pharmaceutical industries are overseen by the Ministry of Health. Companies involved in pharmaceuticals must comply with good manufacturing practices and get approval from the Turkish Medicines and Medical Devices Agency. The healthcare sector has grown, with private healthcare providers expanding rapidly and focusing on medical tourism.

Infrastructure and Transportation

Investment in infrastructure and transportation in Turkey is pivotal due to its strategic geography as a bridge between Asia and Europe. The government has a series of Public-Private Partnership (PPP)projects for companies to engage in, catering to developing roads, airports, and seaports. The sector is regulated by local municipalities and the Ministry of Transport and Infrastructure.

Mining and Crypto Assets

Turkey’s mining sector attracts investors interested in various minerals; however, it demands adherence to environmental regulations and obtaining specific permits. As for crypto assets, despite their growing popularity, they are not currently recognized as legal tender and a comprehensive regulatory framework is being assessed by the government. Companies should maintain a cautious approach until clear regulations are established.

Challenges and Considerations

When doing business in Turkey, companies must navigate a complex tapestry of economic challenges and a varied political and legal landscape. These factors profoundly impact trade, currency valuation, demand, and the authority firms hold within the market.

Economic Challenges

Turkey’s economy presents a fluctuating demand landscape, and the Turkish Lira’s value often experiences volatility, affecting businesses’ planning and financial stability. The trading environment also reveals challenges. Firms must adjust to comprehensive trade regulations, which can influence how businesses rank in terms of competitiveness and market penetration. According to the TMF Group, entities face approximately 15 tax payments annually, requiring an average of 223 hours of company time. Moreover, Turkey’s population growth influences market demand dynamics, which requires businesses to continually adapt their strategies to cater to the evolving consumer base.

Political and Legal Landscape

Their authority and impact on businesses characterizes the political and legal realms in Turkey. Companies must adhere to a legal framework that can be unpredictable, with instances of inconsistent enforcement of regulations. This poses a challenge to firms seeking stability and predictability in their operations. For instance, the International Trade Administration notes that U.S. exporters face similar challenges that exist in other semi-developed markets, such as unpredictable judicial frameworks. Furthermore, the potential for political instability can lead to unexpected changes in policy, affecting businesses’ legal standings or the necessity of a suit to protect corporate interests. It is pivotal for businesses to stay informed and compliant with local laws to maintain their right to operate within the country.

Key Contacts and Support

When establishing or conducting business within Turkey, it is crucial to engage with knowledgeable legal and financial advisors and understand the regulatory landscape, which includes various governmental authorities and agencies.

Legal and Financial Advisors

Prominent legal advisors such as Norton Rose Fulbright provide invaluable guidance for foreign businesses entering the Turkish corporate environment. They bring over 25 years of experience, offering insights into fiduciary duties and minority rights essential for operating within Turkey. Another well-established firm in the region is Pekin & Bayar Mizrahi, which is recognized for its expertise in the global business community by prominent industry rankings.

Governmental Authorities and Agencies

Navigating the Turkish market requires compliance with local laws and regulations enforced by governmental authorities. The Ministry of Trade oversees commercial activities, while the Banking Regulation and Supervision Agency ensures that the financial services sector adheres to national and international standards. Establishing relationships with these agencies can catalyze seamless market entry and operations.

Resources for Further Information

When considering doing business in Turkey, investors and business professionals must have access to reliable and updated market information. A range of resources are available to facilitate this need:

• World Bank’s Report: Offering insights into the ease of doing business in Turkey, the report provides valuable information on various business topics. It is a significant resource for understanding the business environment. PDF Doing Business in Turkey – World Bank

• PwC’s Guide: This guide covers the essentials of starting and managing a business in Turkey, including taxation and legal factors. Doing business in Turkey – PwC

• Baker McKenzie’s Publication: Their document is updated yearly and guides the investment climate and relevant laws regulating investments in Turkey. This is recommended for information on privatization and the legal landscape. Doing Business in Turkey 2022 – Baker McKenzie

• Practical Law’s Overview: This resource provides a Q&A overview of Turkey’s legal systems, investment restrictions, and business vehicles. Doing Business in Turkey: Overview | Practical Law

• Deloitte’s Investors’ Guide: Tailored for the global business community, it offers perspectives on Turkey’s economic, industrial, and service outlook. How to do business in Turkey? – Deloitte US

For real-time updates and detailed analytics on Turkey’s market conditions, these documents can provide a sturdy foundation for understanding the country’s economic landscape. Additionally, they offer insights into the process and implications of privatization efforts within Turkey’s economy, guiding those interested in public sector opportunities.

Conclusion

Turkey presents a unique blend of opportunities and challenges for businesses. It is strategically positioned at the crossroads of Europe and Asia, offering access to multiple markets. The nation boasts a growing young population, which can be an asset to employers seeking a dynamic workforce.

Legal and regulatory frameworks are essential for foreign investors to consider. The Turkish legal system has specific rules regarding foreign investment, currency regulations, and business incentives. Businesses must navigate these carefully to ensure compliance and success.

Economic indicators suggest growth potential, although investors should remain aware of geopolitical risks and economic fluctuations. It is of paramount importance for businesses to conduct thorough due diligence and seek local expertise when considering investment in Turkey.

For those willing to undertake comprehensive research and planning, Turkey offers promising sectors such as renewable energy, automotive, and information technology. The government provides various incentives for business vehicles, especially in special economic zones and technology development areas.

Understanding Turkish business culture and etiquette is equally crucial. Relationships and networking play a significant role in the Turkish business, often influencing negotiations and partnerships.

In summary, conducting business in Turkey requires a strategic approach underscored by local knowledge and adaptability. Those who invest the time and resources to understand the intricacies of the Turkish market may find rewarding opportunities.