This information was provided by Şafak Herdem on 28 October 2020,
and should be reviewed against any later legislative updates.

Foreign direct investments are primarily regulated under the Foreign Direct Investment Law numbered 4875 dated June 5, 2003 (“FDI Law”) and the Regulation on Implementation of Foreign Direct Investment Law (“FDI Regulation”) dated June 17, 2003 in Turkey. However, relevant regulations on foreign investments are decentralized due to sector-specific rules and procedures provided under variety of laws. The Ministry of Industry and Technology is authorized under the FDI Law. Other government bodies are also authorized to monitor and regulate foreign investments in specific sectors. With this respect, examples of prominent government bodies are listed as below:

  • The Banking Regulation and Supervision Agency (“BRSA”), which is authorized under the Banking Law numbered 5411 as the regulatory authority with a public legal entity and administrative and financial autonomy
  • The Capital Markets Board (“CMB”) which is authorized under the Capital Markets Law numbered 6362 as the regulatory authority with a public legal entity and administrative and financial autonomy,
  • The Competition Authority (“TCA”) which is authorized under the Law on Protection of Competition numbered 4054 as the regulatory authority with a public legal entity and administrative and financial autonomy,
  • The Information and Communication Technologies Authority (“ICTA”) which is authorized under the Electronic Communications Law numbered 5809 as the regulatory authority with a public legal entity and administrative and financial autonomy,
  • The Radio and Television Supreme Council (“RTSC”) which is authorized under the Law on the Establishment of Radio and Television Enterprises and their Media Services numbered 6112 as the regulatory authority with a public legal entity and administrative and financial autonomy,
  • The General Directorate of Petroleum Affairs (“GDPA”) which is authorized under the Turkish Petroleum Law numbered 6491 as the relevant affiliated body of the Ministry of Energy and Natural Resources,
  • The General Directorate of Land Registry and Cadastre (“GDLR”) which is authorized under the Land Registry Law Numbered 2644 as the relevant affiliated body of the Ministry of Environment and Urbanization.

The FDI Law regulates principles to encourage foreign direct investments, protect the rights of foreign investors, define investment and investor in line with international standards. In line with provided principles, the FDI Law establishes a notification-based system rather than screening or approval-based systems to increase foreign direct investments by establishing an equal treatment policy to be applied to foreign investors. In this context, foreign investors, as a rule, are free to make foreign direct investments in Turkey and shall be subject to the equal treatment as any other domestic investor.

In addition, there are various legislations that stipulate rules and principles on foreign direct investments regarding specific sectors. Prominent examples of relevant regulations are:

  • The Law on the Establishment of Radio and Television Enterprises and their Media Services numbered 6112 aims to establish rules regarding radio and television broadcasting services and the obligations of media service providers. Accordingly, the total shares directly held by foreign investors shall not exceed fifty percent of the paid-in capital in a company which operates as a media service provider. Moreover, regardless of the percentage of shares held by foreign investors, foreign real persons or legal entities may only directly become the shareholder of two companies which operate as media service providers at most.
  • The Land Registry Law numbered 2644 regulates real estate acquisition of foreign real persons and companies having legal entity established in foreign countries. Accordingly, foreign real persons cannot acquire real estates or limited rights in rem which refer to areas more than 10 % of total area, which is available for private ownership in a county, and more than 30 hectares countrywide. Besides, acquisition of military zones and security zones by foreign real persons and companies is prohibited. On the other hand, the President of Turkey is authorized to alter, restrict, or prohibit the real estate acquisition of foreign real persons and companies on nationality basis. Additionally, the companies established in Turkey, yet, 50 % or more than 50 % shares or the power to appoint or dismiss the majority of persons with management rights of which is held by foreign real persons, companies having their legal entities established in foreign countries and international organizations may only acquire real estate or limited rights in rem in Turkey to carry out the activities specified in their articles of association. Furthermore, the use of real estates acquired by the companies falling under sighted conditions is monitored periodically by the governorships within the framework of the title deed records.
  • The Turkish Petroleum Law numbered 6491 aims to provide that the petroleum resources of Turkey are rapidly, continuously, and effectively explored and produced by ensuring the national interests. Accordingly, the Cabotage Law numbered 815 stipulates that only foreigners which are entitled to by virtue of petroleum rights shall conduct petroleum investigation and production activities in Turkish territorial waters. With this respect, investigation permits, exploration licenses and production leases may only be granted to domestic stock corporations or foreign companies having its legal entity established in foreign countries under relevant legal systems as stock corporations.

As explained under question 2, the FDI Law does not regulate screening requirements and establishes a notification-based system in terms of foreign direct investments to attract potential foreign investors. However, various sector-specific regulations may stipulate further rules as they are deemed as regulated markets. Respectively, sectors that are more strictly regulated include but not limited to energy, real estate, banking and finance, insurance, aviation, technology, media, and telecommunications.

There are foreign direct investment regulations applicable for specific time periods such as first two years of investment etc. As sector specific regulations may vary, it is not possible to give a comprehensive answer here.

For example, the Land Registry Law stipulates that foreign real persons and companies having legal entity established in foreign countries have to develop a project on the real estate they have acquired which is undeveloped as an investment and submit the project to the Ministry of Environment and Urbanization within two years starting from the date of acquisition. If the project is not summited within two years or the approved project is not completed according to the stipulated period, the concerned real estate would be liquidated.

Yes, foreign direct investment is defined under the FDI Law as, establishing a new company or branch of a foreign company by foreign investor, or share acquisitions of a company established in Turkey (any percentage of shares acquired outside the stock exchange; or 10% or more of the shares or voting power acquired through the stock exchange) by means of, but not limited to the following economic assets:

  • Assets acquired from abroad by the foreign investor:
  • Capital in cash in the form of convertible currency bought and sold by the Central Bank of the Republic of Turkey,
  • Stocks and bonds of foreign companies (excluding government bonds),
  • Machinery and equipment,
  • Industrial and intellectual property rights.
  • Assets acquired from Turkey by foreign investor:
  • Reinvested earnings, revenues, financial claims, or any other investment-related rights of financial value,

Commercial rights for the exploration and extraction of natural resources.

Without prejudice to any sector-specific regulation and international agreements concerning foreign investors, foreign investors are free to make foreign direct investments in Turkey and shall be subject to equal treatment as any other domestic as per the FDI Law. Therefore, foreign direct investments are evaluated under general rules and principles provided under Turkish Law such as not being against public order, national security, national interests, and public requirements. However, sector-specific regulations may vary in terms of assessment criteria to be taken into consideration for foreign investors. In this regard, please see the example provided under question 4 on assessment process of projects to be concluded on undeveloped real estates in Turkey.

Several threshold limitations are triggered by domestic investors as well. According to the Regulation on Commercial Air Transport Operators, where it is deemed necessary by Directorate General of Civil Aviation of Turkey, the indirect ownership of the companies which operate in commercial air transportation in Turkey may be subject to further investigation to reveal the real persons regarding threshold restrictions mentioned under question 9 on the share structures of the company’s current shareholders, notified buyers as well as shareholders of mentioned legal entities.

As Turkey is not an EU member state, investors from EU Member States and non-EU Member States are not subject to different treatment in Turkey.

Sector-specific regulations vary regarding foreign investors and investment procedures. Regardless of any screening procedure as explained under question 2, threshold limitations include but are not limited to the below examples:

  • According to the Law on the Establishment of Radio and Television Enterprises and their Media Services numbered 6112, the total shares directly held by foreign investors shall not exceed fifty percent of the paid-in capital in a company which operates as a media service provider.

According to the Regulation on Commercial Air Transport Operators, the majority of total shares and the control of a company that operates in commercial air transportation sector in Turkey, as well as the majority of the members and voting rights in board of directors have to be held by citizens of Turkey.

Yes, rules and principles regarding foreign direct investments are applicable to publicly listed companies, too. The companies subject to relevant share acquisitions (any percentage of shares acquired outside the stock exchange; or 10% or more of the shares or voting power acquired through the stock exchange) as per the FDI Law are required to comply with notification obligations. Please see the answers to questions 11 and 13 for more details on notification obligations.

As explained under question 2, the FDI Law stipulates a notification-based system. Accordingly, foreign direct investors are obliged to provide annual or transactional information. According to the FDI Regulation, companies, and branch offices subject to the provisions of the FDI Law shall submit specified information to the Electronic Incentive Practices and Foreign Capital System (“E-TUYS”). The E-TUYS is a web-based information system which is governed by the General Directorate of Incentive Practices and Foreign Capital affiliated to the Ministry of Industry and Technology. Moreover, the FDI Law regulates that the Ministry of Industry and Technology is entitled to collect statistical information on foreign direct investments from all public institutions and organizations.

Yet, in terms of confidentiality the information or documentation provided to the said authorities is kept confidential unless there is a related public registry on such matter in general under Turkish Law. For instance, the Turkish Petroleum Law numbered 6491 regulates that, regardless of the investor’s nationality, rights and permits related to petroleum are publicly available on the registry of petroleum. Nevertheless, as regard to the publicity of information related to investors, sector specific regulations may be stipulated by authorities.

No, use of mitigation agreements is not required by law. However, the FDI Law offers legal protection to potential foreign investors, including provisions relating to expropriation and dispute resolution. Accordingly, foreign direct investments shall not be expropriated except for cases regarding public interests, and if expropriation is necessary for public interests, appropriate compensation shall be paid to the investor in accordance with due process of law. Furthermore, foreign investors may apply to authorized local courts of Turkey as well as national or international arbitration or other means of dispute resolution for the settlement of disputes arising from investment agreements subject to private law and investment disputes arising from public service concessions contracts. However, it should be noted that legal requirements regarding arbitration contracts have to be fulfilled under Turkish Law to pursue such dispute resolution mechanisms lawfully.

Without prejudice to any sector-specific regulation, there are several notifications to be made via the E-TUYS in terms of foreign direct investments as explained under question 11.

As a relevant example of sector-specific regulations regarding M&A transactions, the Law on Protection of Competition numbered 4054 stipulates that several transactions must be notified to the TCA. Both parties of the transaction may submit the notification. Following the notification, the TCA conducts a preliminary examination within 15 days and may resolve to approve the M&A transaction or to conduct final examination. If the TCA resolves to conduct final examination, it duly notifies the parties that the M&A transaction is suspended until issuance of a final decision and the transaction may not be put into practice. In cases where a M&A transaction which is subject to notification has not been notified to the TCA, the TCA ex officio reviews such M&A transaction, after it becomes aware of such transaction.

The information to be provided to the E-TUYS must be submitted by the user assigned by the foreign direct investor. Without prejudice to any sector-specific regulation, please see the answer to question 13 for the notification regarding M&A transactions.

Without prejudice to any sector-specific regulation, please see the answer to question 13 for the notification regarding M&A transactions. As explained under question 2, the FDI Law stipulates a notification-based system rather than screening mechanisms. However, sector-specific regulations may stipulate further rules and procedures regarding foreign investors and investments in this regard. Yet, in general, competent authorities are entitled to start investigations ex officio regarding the matters within the scope of their establishment laws.

Without prejudice to any sector-specific regulation, the companies and branch offices under the scope of the FDI Law have to provide information to the General Directorate of Incentive Practices and Foreign Capital via the E-TUYS within the specific timeframe stipulated in the FDI Regulation concerning:

  • Their investors, shareholders, and subsidiaries,
  • Their activities on annual basis, latest until the end of May every year,
  • Updates regarding their shareholders,
  • Payments made for share transfers and sale of shares.

As the FDI Law stipulates a notification-based system, there is no specific authority to issue a decision whether to grant or refuse a foreign investment correspondingly. In terms of sector-specific regulations, each foreign investment activity has its own procedures to be followed. There are variety of competent authorities as mentioned under question 1 and each process may require different time limits and procedures.

Please see the answer to question 17.

Please see the answer to question 11.

The FDI Law does not stipulate mechanisms that would result the foreign investment to be suspended, conditioned, or stopped. However, competent authorities may monitor foreign investments on sectoral basis, and they may adopt decisions relating to cancellation, suspension, revocation of approvals and licenses or decide against an investment to any reasonable condition. Please see the answer to question 4 regarding the liquidation of real estate due to breaching compliance requirement to the project or notification obligation.

In general, competent authorities are entitled to impose administrative fines in line with their establishment laws or cancel/suspend licenses or approval they have provided as per sector-specific regulations.

Yes, decisions issued by competent administrative authorities may be challenged through administrative suits in Turkey. With this regard, the administrative suits to be filed shall be heard before administrative courts.