Legal routes to follow while investing in Turkey
Foreign direct investment plays an important role in the growth of a country by increasing employment opportunities and transferring expertise to the workforce. The presence of legal incentives and protections for foreign investors, within the framework of the host country’s legislation, is critical when deciding to invest in a foreign economy.
Bilateral agreements on the promotion and protection of investments are important to the foreign direct investment process. These treaties encourage and facilitate investments from abroad by providing more stable and reliable grounds for investment, thereby making the host country more appealing to investors (Steyt, 2006, p. 39).
Turkey has signed many bilateral agreements to promote and protect foreign investments in the country. After the implementation of the Foreign Capital Encouragement Law, Turkey and Germany both signed the Reciprocal Promotion and Protection of Investments (YKTK) agreement in 1962. Given that the YKTK agreement was signed for the first time worldwide by Pakistan and Germany in 1959, Turkey can be counted as one of the earliest signatories of the YKTK agreement.
ADVANTAGES OFFERED TO FOREIGN INVESTORS
Direct investment, referred to by its full name, “Foreign Direct Investment”, involves real, production-oriented investments made by investors outside the borders of a country. Non-citizens making direct investments can benefit equally from the opportunities available to domestic investors. Direct investment usually involves opening a company, branch, or becoming a partner in a firm already operating in Turkey. However, there is no incentive for foreign investors to engage in indirect investment through the purchasing of stocks or bonds. For this reason, only foreigners who make long-term and direct investments in Turkey can benefit from the incentives offered by the state.
Additionally, foreign investors can freely transfer their profits, sales, liquidation and compensation, license and management abroad, as well as other assets arising from their business activities in Turkey. Foreigners wishing to invest in the Turkish economy can expect to benefit from tax deductions, investment location allocations, insurance premiums, and several other similar government incentives.
WHY INVEST IN TURKEY?
The advantages of such investment include Turkey’s geographical location, easy access to European countries, wide domestic and regional markets, a qualified and competitive workforce, and a comprehensive R&D ecosystem. By the end of 2020, the number of companies with international capital in Turkey reached 73,675.
There are joint agreements with various countries allowing foreign investors with Special Tax Arrangements to be exempt from tax payments, both to their own countries and to Turkey. For example, a UK citizen investing in Turkey only pays taxes to the Turkish government for their business activities in Turkey. They would not pay taxes to the UK for these activities.
Some of the countries with which Turkey has agreements, within the scope of the Double Taxation Agreement, include the United Kingdom, USA, Germany, Azerbaijan, People’s Republic of China, France, South Korea, Georgia, Iran, Qatar, TRNC, Malaysia, Pakistan, Russia, Singapore, Luxembourg, Netherlands, Portugal, Norway, Canada, and Denmark.
WHAT YOU NEED TO KNOW ABOUT INVESTING IN TURKEY
>> According to information compiled from data gathered by the Turkish Central Bank, the total amount of direct investments by non-residents in Turkey in the 2016-2020 period reached a value of USD 33.348bn.
>> While investments made by British citizens in Turkey amounted to USD 3.09bn, investors from Azerbaijan made USD 2.92bn worth of investments in the country. Investments by nationals of other countries were as follows: investments from Spain were worth USD 2.3bn, USD 2.1bn from the U.S., USD 1.85bn from Germany, USD 1.8bn from Italy, USD 1.79bn from Qatar, USD 1.33bn from Luxembourg, and USD 1.26bn from Austria.
>> Establishing a company in Turkey has become much easier than before due to improvements to the Turkish Commercial Code. With these developments, foreign nationals are granted the same rights as Turkish citizens when investing. (The series will be continued with the “stages of company establishment” in Turkey)