2019 INVESTMENT POLICY AND REGULATORY REVIEW Turkey © 2020 The World Bank Group 1818 H Street NW Washington, DC 20433 Telephone: 202-473-1000 Internet: www.worldbank.org All rights reserved. This volume is a product of the staff of the World Bank Group. The World Bank Group refers to the member institutions of the World Bank Group: The World Bank (International Bank for Reconstruction and Development); International Finance Corporation (IFC); and Multilateral Investment Guarantee Agency (MIGA), which are separate and distinct legal entities each organized under its respective Articles of Agreement. We encourage use for educational and non-commercial purposes. The findings, interpretations, and conclusions expressed in this volume do not necessarily reflect the views of the Directors or Executive Directors of the respective institutions of the World Bank Group or the governments they represent. The World Bank Group does not guarantee the accuracy of the data included in this work. 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Photo Credits: Shutterstock.com TABLE OF CONTENTS ACKNOWLEDGEMENTS 2 GLOSSARY 3 1. INTRODUCTION 5 2. OVERVIEW OF INVESTMENT POLICY FRAMEWORK 7 A. Domestic Legal Instruments Regulating Foreign Investment 7 B. International Legal Instruments Regulating Foreign Investment 8 C. Key Institutions for Investment Promotion 11 D. Foreign Investment Promotion Strategy 12 3. INVESTMENT ENTRY AND ESTABLISHMENT 13 4. INVESTMENT PROTECTION 16 5. INVESTMENT INCENTIVES 19 6. INVESTMENT LINKAGES 20 7. OUTWARD FOREIGN DIRECT INVESTMENT 21 8. RESPONSIBLE INVESTMENT 21 9. RECENT POLICIES ON NEW TECHNOLOGIES 22 10. CITY SPECIFIC REVIEW—ISTANBUL 23 11. COMPETITION LAW & POLICY 24 A. Merger Control 24 B. Leniency Program 26 ENDNOTES 28 LIST OF REFERENCE MATERIALS 30 2019 INVESTMENT POLICY AND REGULATORY REVIEW – TURKEY |1 ACKNOWLEDGEMENTS A team led by Priyanka Kher and Peter Kusek The report benefited from the comments of these prepared this report. The team core members were World Bank Group colleagues: Auguste Tano Maximilian Philip Eltgen and Azza Raslan. The Kouame, Habib Rab, David Stephen Knight, team would like to thank Caroline Freund (Global Wim Douw, Ulla Heher, Tanja K. Goodwin, Sara Director, Trade, Investment and Competitiveness), Nyman, Mariana Iootty De Paiva Dias, Guilherme Christine Zhenwei Qiang (Practice Manager, De Aguiar Falco, Emma Verghese and Abhishek Investment Climate), Ivan Nimac (Global Lead, Saurav. The team would like to thank Nick Younes Investment Policy and Promotion), Georgiana Pop for editing, and Aichin Jones and Amy Quach for (Global Lead, Competition Policy) and Graciela providing design, layout, and production services. Miralles Murciego (Senior Economist, Competition Policy). The report was prepared under the Analyzing Barriers to Investment Competitiveness Project, Legal research for the preparation of this report supported with funding from the Prosperity Fund was carried out by the international law firm Baker of the United Kingdom. McKenzie. | 2 2019 INVESTMENT POLICY AND REGULATORY REVIEW – TURKEY GLOSSARY BRSA Banking Regulation and Supervision Agency CA Competition Authority CPC Central Product Classification CSR Corporate Social Responsibility DTAA Double Taxation Avoidance Agreements E-TUYS Electronic Incentive Application and Foreign Investment Information System EPA Economic Partnership Agreement ESCO Energy Service Company FDI Foreign Direct Investment FET Fair and Equitable Treatment FIE Foreign-Invested Enterprise FX Foreign Exchange GATS General Agreement on Trade in Services ICSID International Centre for Settlement of Investment Disputes IIA International Investment Agreement IMF International Monetary Fund IPR Intellectual Property Rights IPRR Investment Policy and Regulatory Review ISDS Investor-State Dispute Settlement L/C Letter(s) of Credit M&A Mergers and Acquisitions MFN Most-Favored-Nation NT National Treatment OFDI Outward Foreign Direct Investment OIC Organization of the Islamic Conference RDA Regional Development Agencies SMEs Small and Medium enterprises SOE State-Owned Enterprises STI Science, Technology and Innovation TIP Treaty with Investment Provision 2019 INVESTMENT POLICY AND REGULATORY REVIEW – TURKEY |3 TL Turkish Lira TRIMs Agreement on Trade-Related Investment Measures TRIPS Agreement on Trade-Related Aspects of Intellectual Property Rights UNCTAD United Nations Conference on Trade and Development VAT Value-Added Tax WTO World Trade Organization | 4 2019 INVESTMENT POLICY AND REGULATORY REVIEW – TURKEY 1. INTRODUCTION This Investment Policy and Regulatory Review on a review of currently applicable policies, laws (IPRR) presents information on the legal and and regulations. In some cases, consultations with regulatory frameworks governing foreign direct regulators were conducted to collect up to date investment (FDI) and competition that affect information. businesses and foreign investors in Turkey. Because legal and regulatory frameworks are The research was guided by a standardized constantly evolving, a cut-off date was set for the questionnaire, covering a limited set of research. This country review therefore covers topics, including foreign investment entry, information available as of May 31, 2019, unless establishment, protection and select competition otherwise indicated in the review. IPRRs are related aspects. The questionnaire focused on available for the following middle-income countries de jure frameworks as generally applicable to a (MICs): Brazil, China, India, Indonesia, Malaysia, foreign investor, not located in any specialized Mexico, Nigeria, Thailand, Turkey and Vietnam. or preferential regime (such as special economic zones). It primarily focused on national, economy- The research for preparing this IPRR was wide (rather than sector-specific) laws and undertaken by the international law firm Baker regulations. For the purpose of the research, it McKenzie, under the supervision of the World was assumed that the foreign investor is a private Bank Group. The research was primarily based multinational company with no equity interest or Figure 1. Overview of Topics Covered in IPRR Merger control Leniency ■ Key institutions for investment policy/rule ■ Remedies to limit ■ Extent of immunity on making, implemention and FDI promotion anticompetitive fines and damages ■ Key legal instruments effects of merger ■ Ease of admin ■ Transparency/consultation in laws and Main Policy & ■ Ease of admin in leniency regulations Legal Instruments procedures application and Institutions ■ Prohibited and Restricted Select Investment Entry Sectors ■ Equity ceiling Competition and ■ Minimum investment Policy Aspects Establishment requirement ■ FDI approval IPRR ■ R&D, local sourcing, ■ Schemes to increase Questionnaire employment, quantitative, local sourcing and geographic, export build capacity of local Other Areas suppliers (Linkages, OFDI, ■ Restrictions on OFDI Investment Responsible Protection ■ Measures on technology Investment, New Tech) ■ Expropriation ■ Transfer of currency Investment ■ Dispute Settlement Incentives ■ Fair administrative conduct ■ Source of tax and financial incentives ■ Accessibility of tax and financial incentives 2019 INVESTMENT POLICY AND REGULATORY REVIEW – TURKEY |5 management control by the government of its home investment promotion strategy; it also delineates country (that is, not state-owned enterprise). the country’s international investment legal framework, including the country’s commitments There are aspects that this IPRR does not under the World Trade Organization (WTO) cover. It is not a comprehensive review of and select international investment agreements the entire legal and regulatory framework (IIAs); affecting investment. Information presented is not exhaustive, but illustrative of the main topics and n Sections 3-6 cover the country’s policies and issues covered (for example, it does not exhaustively domestic legal framework concerning different list all available tax and financial incentives in the dimensions of the lifecycle of an investment: country). It does not present recommendations entry and establishment (Section 3), protection on reform areas. Notably, it does not capture de (4), incentives (5) and linkages (6); facto implementation of laws and regulations in the country. Given these limitations, information n Sections 7-9 explore emerging investment policy presented in this IPRR should be interpreted and and regulatory areas—Section 7 considers used keeping in view the overall country context outward FDI, Section 8 responsible investment, and realities. Further, it contains information in and Section 9 considers recent policies on new summary form and is therefore intended for general technologies; guidance only. It is not intended to be a substitute n Section 10 focuses on city-specific investment for detailed legal research. policy and regulatory measures in the largest This IPRR is organized as follows: commercial center; and n Section 2 provides an overview of the country’s n Section 11 covers select aspects of competition investment policy framework, including the law and policy, specifically merger control and legal instruments regulating foreign investment, leniency frameworks. key institutions involved in investment promotion, as well as the country’s foreign | 6 2019 INVESTMENT POLICY AND REGULATORY REVIEW – TURKEY 2. OVERVIEW OF INVESTMENT POLICY FRAMEWORK A. Domestic Legal Instruments establishment of liaison offices by foreign investors Regulating Foreign Investment in Turkey. Turkey has a specific foreign direct investment Sector Specific Laws law that governs foreign investment in the country. In addition to this law, sector specific laws Foreign investment in Turkey is also regulated by and bilateral and international treaties also regulate sector-specific laws and regulations. For example, FDI in the country (in addition to the general legal the Turkish Civil Aviation Law No. 2920 governs framework applying to all businesses). investments in the civil aviation sector and the Law on Establishment and Broadcasting Services of FDI Law and Regulation Radio and Television Institutions No. 6112 governs investments in the broadcasting sector. Similarly, The primary law governing foreign direct banking sector related investment activities are investment (FDI) in Turkey is the Foreign Direct governed by Banking Law No. 5411 and are subject Investments Law No. 4875, dated June 5, 2003 to approvals from the Banking Regulation and as amended (FDI Law). The FDI Law defines the Supervision Agency (BRSA). These sector specific concepts of “foreign investor” and “foreign direct laws and regulations generally apply equally to investment” and sets out the principles applicable both domestic and foreign investors, with a few to FDI in Turkey such as freedom of transfers, non- exceptions where restrictions are placed on foreign discrimination, and protections from expropriation ownership. For instance, foreign equity ownership and nationalization. More specifically, the FDI in a broadcasting company is capped at 50%. Law aims to (i) liberalize and encourage foreign direct investment in Turkey; (ii) protect the rights Public Access to Foreign Investment of foreign investors; (iii) align investors and Laws and Policies investments in Turkey with international standards; (iv) establish a notification-based system rather than Laws adopted by the Turkish Grand National an approval-based system for FDI; and (v) increase Assembly (the Turkish legislative body) the volume of FDI through streamlined policies need to be published within fifteen days of and procedures. The main principle governing the adoption according to Article 89 of the Turkish FDI Law is that it provides foreign investors with Constitution.They are published daily in the the same treatment afforded to domestic investors. Official Gazette and on the Turkish Grand National The FDI Law recognizes a company incorporated Assembly’s official website. The laws, presidential in Turkey as a Turkish entity even if it has foreign decrees, regulations, communiqués and other shareholding and such a foreign-owned Turkish regulatory administrative procedures announced in entity enjoys the same benefits enjoyed by an entity the Official Gazette are published in the Legislation that has only local shareholding. Information System, a legal archive including all the legal instruments prepared by the The FDI Law is implemented by the Regulation legislative body. on the Implementation of the Foreign Direct Investments Law, dated August 20, 2003 as At the same time, Turkish case law is not always amended (FDI Regulation). The FDI Regulation publicly available. Case law is another source of provides details on the procedures and principles set law in Turkey that is used for the interpretation forth in the FDI Law and regulates data collection of written rules and regulations. No centralized and notifications by foreign investors and the database currently exists in the country that provides public access to Turkish case law. 2019 INVESTMENT POLICY AND REGULATORY REVIEW – TURKEY |7 Consultation with Stakeholders date the Turkish Grand National Assembly refers a draft law to the commission. Third parties (that Stakeholder consultations are not mandatory in is, NGOs and experts) may also voluntarily submit the law-making process, but some mechanisms their reviews to these commissions regardless of an for stakeholder participation exist. Neither invitation. The agenda for the commission meeting the Turkish legislative body nor the government and draft law are generally made publicly available are mandated to ensure public or stakeholder on the Turkish Grand National Assembly’s website consultations before a new bill is enacted into when a commission begins deliberations. law. Instead, during the law-making process only “law-making commissions” established within the legislative body can offer consultation or comments B. International Legal Instruments on proposed legislation. These commissions are Regulating Foreign Investment established mainly with the purpose of discussing Turkey has undertaken legally binding draft laws and submitting reviews to the Turkish international investment commitments through Grand National Assembly. The commissions a variety of international investment agreements are composed of congressional representatives (IIAs) — signed at the bilateral, plurilateral and and are responsible for various topics (namely, multilateral level. These commitments mainly cover the Environment Commission, the Constitution entry and establishment conditions, protection, as Commission and the Industrial, Trade, Energy well as the legality of specific types of incentives and Natural Resources, Information Technology (see Table 1). It is important for Turkey to reflect Commission). If the president of a commission these commitments in its domestic legal framework finds it necessary, they may invite experts and to ensure consistency as well as to monitor non-governmental organizations (NGOs) to the compliance. commission meetings as third party reviewers. The commission may disregard the invitees’ comments, Having been a member of the World Trade but it must submit a report to the Turkish Grand Organization since March 26, 1995, Turkey has National Assembly within 45 days starting from the commitments under several WTO Agreements. Table 1. Turkey’s International Investment Framework Agreement(s) as Basis of Commitments Type of Agreement Investment Policy Dimensions Covered WTO GATS Agreements Multilateral Entry and Establishment WTO TRIMs Agreement Multilateral Entry and Establishment, Incentives WTO SCM Agreement Multilateral Incentives WTO TRIPS Agreement Multilateral Protection Treaties with Investment Provisions Plurilateral or May cover Entry and Establishment, (20 signed, 16 in force) Bilateral Protection, Incentives Bilateral Investment Treaties Bilateral May cover Entry and Establishment, (105 signed, 80 in force) Protection, Incentives International Centre for Settlement of Multilateral Protection Investment Disputes (ICSID) Convention Convention on the Recognition and Multilateral Protection (Dispute settlement) Enforcement of Foreign Arbitral Awards (New York Convention) IMF Articles of Agreement Multilateral Protection (Art. VIII Acceptance) Double Taxation Avoidance Agreements Bilateral Taxation (80 treaties in force) Source: World Bank Analysis | 8 2019 INVESTMENT POLICY AND REGULATORY REVIEW – TURKEY Under the General Agreement on Trade in Services committed not to apply certain investment (GATS), Turkey grants rights to services suppliers measures that restrict or distort trade (local from other WTO member countries. This includes content requirements, trade balancing services supplied through commercial presence requirements, foreign exchange restrictions and (defined as establishment of territorial presence), in export restrictions). These measures are prohibited other words through FDI. These rights are granted both when the obligation for the foreign investors through commitments undertaken in “schedules”. is mandatory and when it is tied to obtaining an The “schedules” list sectors being opened, the advantage (that is, an incentive). Incentives are extent of market access being given in those sectors further regulated by the WTO Agreement on (for example, whether there are any restrictions Subsidies and Countervailing Measures (SCM), on foreign ownership), and any limitations on which among others prohibits certain types of export national treatment (whether some rights granted subsidies. Under the WTO Agreement on Trade- to local companies will not be granted to foreign Related Aspects of Intellectual Property Rights companies). Turkey has made commitments on (TRIPS), foreign investors’ intellectual property Market Access and National Treatment in 9 out rights are protected. In case of a violation of any of of 12 services sectors in the WTO Classification1: its WTO commitments, Turkey may be sued under (i) Business services, (ii) Communication services, the WTO dispute settlement mechanism. (iii) Construction and related engineering services, (iv) Educational services, (v) Environmental Turkey has further entered into obligations services, (vi) Financial services, (vii) Health related through international investment agreements and social services, (viii) Tourism and travel related (IIAs) — 80 Bilateral Investment Treaties services, and (ix) Transport services. In the 9 sectors, (BITs) and 16 Treaties with Investment Turkey has made partial commitments on market Provisions (TIPs) are currently in force. The access for specific services in 24 sub-sectors as well latter category comprises treaties that include as partial commitments on national treatment in 5 obligations commonly found in BITs (for example, and full commitments in 16 sub-sectors. “Partial” a preferential trade agreement with an investment means that although commitments have been made, chapter). Table 2 provides an overview of select there are still limitations/reservations, which may Agreements: Turkey’s latest publicly available IIA differ in their restrictiveness. For example, foreign (Turkey-Singapore FTA, 2017), its IIA with the persons may only provide primary and secondary largest home country measured by that country’s education services for foreign students, which share in Turkey’s total FDI stock (Netherlands- significantly restricts market access. On the other Turkey BIT, 2012), and an IIA with expansive hand, to be allowed to provide computer and related regional coverage (Organization of the Islamic services, computer engineers are merely required Conference (OIC) Investment Agreement, 1988). to become a temporary member of the relevant The reviewed IIAs generally contain the main Union Chambers. protection guarantees, although the OIC Investment Agreement offers less protection because it does In addition, under GATS every member is not contain a National Treatment and a Fair and obligated to extend Most-Favored Nation (MFN) Equitable Treatment (FET) clause. It also reserves treatment unconditionally to service suppliers of the right to limit transfers to up to 50% of salaries all other WTO members. However, Turkey has or wages of investors and employees. The FTA with made reservations in that regard in nine services Japan further includes a prohibition of performance sectors. It has also made reservations across all requirements, which goes beyond TRIMs in scope sectors, for example reserving the right to extend and includes a higher number of performance full national treatment for the investments of the requirements that are prohibited. It also contains nationals or companies of specific countries such as a commitment to liberalize by providing for those from the EU. both national treatment and most-favored nation treatment in the pre-establishment phase, but under Under the WTO Agreement on Trade Related reservations: Annex 7-A of the agreement lists Investment Measures (TRIMs), Turkey has measures that do not comply with the commitments 2019 INVESTMENT POLICY AND REGULATORY REVIEW – TURKEY |9 Table 2. Comparison of Turkey’s Sample IIAs Largest Home Country Latest IIA (date of entry Expansive Regional IIA (% of total FDI stock): into force): Turkey- Coverage IIA: Netherlands-Turkey BIT Singapore FTA (2017) Organization of the (1989) Islamic Conference (OIC) Investment Agreement (1988) Scope of Application Covers pre-establishment No Yes No Exclusions from scope No Services supplied in the No exercise of governmental authority; Subsidies and grants Standards of Treatment National Treatment (NT) Post-establishment Pre- and post-establishment No Most-Favored-Nation Post-establishment Pre- and post-establishment Yes Treatment (MFN) Fair and Equitable Yes Yes No Treatment (FET) Full Protection & Security Yes Yes Yes Expropriation Direct and indirect Direct and indirect Direct and indirect expropriation, payment of expropriation, payment of expropriation, payment of compensation compensation compensation Rights to Transfer Funds Yes Yes Yes, but allows for restricting transfer of salaries or wages to 50% Prohibition of No TRIMs+ (Prohibiting a larger No Performance number of performance Requirements requirements than TRIMs) Dispute Resolution State-State Dispute Yes Yes, except for measures Yes Settlement in respect of tobacco or tobacco-related products Investor-State Dispute Yes Yes Yes Settlement Source: World Bank Analysis based on IIAs obtained from United Nations Conference on Trade and Development (UNCTAD) Investment Policy Hub that are included under the treaty, and Annex 7-B facilitate the enforcement of arbitral awards, and lists sectors and activities in which countries may has to date been a respondent in 14 publicly known maintain existing, or adopt new or more restrictive, investor-State arbitrations. Two of these have been measures. settled, seven decided in favor of the State, one decided in favor of the investor, one discontinued Further, Turkey is a member of treaties covering and three remain pending. investment arbitration. It is a member of the Convention on the Recognition and Enforcement Acceptance of Article VIII of the International of Foreign Arbitral Awards (New York Convention) Monetary Fund (IMF) Articles Agreement and the International Centre for Settlement of requires Turkey to maintain current account Investment Disputes (ICSID) Convention that convertibility, enabling investors to transfer | 10 2019 INVESTMENT POLICY AND REGULATORY REVIEW – TURKEY certain payments related to their investments. The Investment Office is an administrative Turkey is also party to 80 Double Taxation body funded by and directly reporting to the Avoidance Agreements (DTAAs) that are in force, Presidency. Yet, it has a separate and autonomous influencing its ability to tax foreign investors and budget and administrative structure. Consequently, investments. its internal management (including the management of its budget) and personnel are not controlled C. Key Institutions for Investment by the Presidency. Additionally, its employees Promotion are regarded as private sector employees, not government officials. The Investment Office is Turkey has a national-level investment composed of four units: (i) Chief of Office, (ii) promotion agency charged with foreign main services units, (iii) advisory, and (iv) ancillary investment promotion functions for all economic services. sectors. At the sub-national level, a number of regional development agencies exist that promote Foreign investment reforms in the country and facilitate investments in their respective regions. are driven by the chief of the Investment Office (Chief of Office). The Chief of Office National Level Institutions is directly responsible to the President of the Republic of Turkey for the general management At the national level, the Presidency of the and representation of the Investment Office in Republic of Turkey Investment Office (the accordance with the objectives, policies and Investment Office) is the main official organization strategies determined by the President. The Chief of for promoting Turkey’s investment opportunities Office (i) prepares the Investment Office’s budget to the global business community and for and executes, monitors and reports its application assisting investors before, during, and after their in accordance with the determined purposes, entry into Turkey. In carrying out its investment policy and strategy, and (ii) ensures the Investment promotion functions, it works with a network of Office’s cooperation and coordination with public local consultants based in countries such as Canada, institutions and organizations and non-government China, France, Germany, India, Italy, Japan, Saudi organizations. One of the Investment Office’s main Arabia, Singapore, South Korea, Spain, the UAE, objectives is the reporting of all challenges to the the UK, and the USA. swift enactment of necessary legislation and legal amendments and their subsequent implementation, The Investment Office is not tasked with including the adoption of any necessary rules or any regulatory functions, such as granting regulations. FDI approvals, but is focused on promotion, coordination and advocacy. The main functions of the Investment Office are: Sub-National Investment Promotion Agencies n Promoting activities and projects to increase FDI; There are 26 Regional Development Agencies (RDA) to facilitate and promote local investment. n Coordination between domestic and international They are coordinated by the Ministry of Industry entities (governmental and private sector); and Technology. The main purpose of the RDAs is to develop regions by improving cooperation n Detecting the difficulties faced by foreign between the public sector, private sector and non- investors and reporting these to relevant government organizations; by ensuring the effective authorities; and efficient use of resources; and by encouraging local investment potential. In that context RDAs n Collecting data and information for supporting may engage in promotion activities. For example, the development of FDI in Turkey; and Istanbul Development Agency prepares and n Contributing to reform actions to improve the annually updates an “Istanbul Investment Support investment environment in Turkey. and Promotion Strategy Document”, and annually 2019 INVESTMENT POLICY AND REGULATORY REVIEW – TURKEY | 11 publishes “Istanbul Investment Guides” in several The Ministry of Industry and Technology is languages. responsible for the coordination of the RDAs at the national level, and the Investment Office RDAs are typically comprised of four units: may coordinate with the Regional Development (i) development board; (ii) board of directors; Agencies on an as-needed basis. (iii) general secretariat; and (iv) investment support offices. The main duties of the RDA investment support offices are: D. Foreign Investment Promotion Strategy n Providing guidance to investors regarding regulatory requirements and applications (that There is no specific foreign investment promotion is, licenses and permits); strategy document issued by the Turkish government. Rather, Turkey’s foreign investment n Making direct application before the government promotion strategy can generally be drawn from authorities on behalf of investors if necessary; the Strategic Plan of 2018-2022, the country’s five- and year development plan prepared by the Ministry of Trade. n Tracking regional investments. | 12 2019 INVESTMENT POLICY AND REGULATORY REVIEW – TURKEY 3. INVESTMENT ENTRY AND ESTABLISHMENT Market Entry and Sectoral Limitations There is no centralized official list of the Prohibited or Restricted Sectors. There is also no Turkey strictly prohibits foreign investment in blanket legislation prohibiting foreign ownership of limited sectors (Prohibited Sectors) and restricts the share capital of Turkish companies. However, foreign participation through equity caps in there are sector-specific regulations issued by the certain others (Restricted Sectors). Apart from relevant ministry or government agencies that may the Prohibited and Restricted Sectors, the general prescribe prohibition or restrictions on FDI. position is that 100% foreign equity is permitted in a sector or sub-sector. FDI in regulated sectors (such as telecommunications, energy and banking) is subject Prohibited and Restricted Sectors to the sectoral regulators’ approval, including for Table 3 lists the Prohibited and Restricted transfer of shares, change in shareholders and/or Sectors based on various legislation, guidelines, activities relating to mergers and acquisitions, even and circulars issued by the relevant regulators. if 100% FDI is permitted in such a sector. Examples of sectors permitting 100% foreign participation Given the foreign equity caps in Restricted include agriculture, mining, manufacturing, agro- Sectors (for example, transportation, maritime and processing, textiles, chemicals, pharmaceuticals, broadcasting), a joint venture between a foreign IT and telecom equipment, hotels and restaurants, investor and a local partner is required by default computers and software, among others. for foreign participation in these sectors. Further, Table 3. List of Major Prohibited and Restricted Sectors Prohibited Sectors Scope Electric Power Transmission The Turkish Electricity Transmission Corporation is the sole company in the related business field controlled by the government Railways Republic of Turkey State Railway is a government owned national railway company and is the sole company in the related business field Maritime Foreign ships (as defined under the relevant regulation) are not entitled to carry trade activities and transport goods and passenger between Turkish ports, within the territorial waters of Turkey Education Schools engaged in Turkish education Real Estate in Military Areas Acquisition of real property in certain areas classified as military zones or security areas Restricted Sectors Restrictions on Foreign Equity Transportation — civil aviation Civil aviation operator company — 49.9% cap Maritime Shipping company engaged in trading — 49% cap Broadcasting (TV and radio) 50% cap; foreign investor may directly hold shares of maximum of 2 broadcasting companies Real Estate n In accordance with Industrial Zones Law No. 4737, a foreign company can only own real property within the industrial zones, free zones n In accordance with Turkish Petroleum Law No. 6491, a foreign company must hold operatorship rights (for petroleum reserves) in order to own real property Source: Analysis by Baker McKenzie based on country’s laws and regulations. Note: The table is based on a review of 32 specific sectors identified for the purpose of this research. The list of sectors is therefore not exhaustive.2 2019 INVESTMENT POLICY AND REGULATORY REVIEW – TURKEY | 13 foreign participation is subject to the prior approval operator company with foreign shareholding, of the sectoral regulator. Turkish citizens must comprise a majority of the board of directors. Representatives authorized to Restrictions on Non-Equity Contract manage, represent and bind the company must also Based Investments be Turkish citizens. Similarly, in a television or radio broadcasting company with foreign shareholding, Generally, no special restrictions or conditions only Turkish citizens may be appointed to hold the are imposed on foreign investors regarding key managerial positions in the company or possess non-equity contract-based investments such as controlling influence over the company. Again, franchising, outsourcing, licensing, and so on. Turkish citizens must comprise a majority of the board of directors. Forms of Establishment Turkish law permits foreign-owned Turkish Foreign individuals and companies can entities to hire foreign employees, but the rule generally hold any type of shares in a Turkish is that Turkish entities must employ five Turkish incorporated company (for example, ordinary nationals for each foreign national engaged by shares and preference shares). Apart from the the company. In entertainment and tourism sectors Restricted Sectors, there is no statutory prohibition the ratio is higher—a Turkish company operating against the establishment of a wholly foreign- in this sector must employ at least ten Turkish owned subsidiary, subject to obtaining the necessary nationals for each foreign national engaged by the regulatory approvals, licenses or permits to carry company. on its business activities in Turkey. The process of obtaining expatriate work Further, no special restrictions apply on the permits is clearly defined, and the Ministry of legal forms of companies that foreign investors Labor aims to process and approve employment can establish or invest in the country. Foreign pass applications within 30 days of submission investors mostly carry out their businesses in of all required documents. In practice however, Turkey by incorporating joint stock companies, work permit applications can take longer to process. limited liability companies or liaison offices. Once the Ministry of Labor approves the work permit application, it informs the Turkish embassy/ Minimum Investment Requirements consulate at which the applicant applied. The Turkish embassy/consulate, issues a single-entry Under Turkish law, there is no overarching work visa for the applicant to facilitate their entry minimum investment requirement for FDI. into Turkey. The applicant must visit the Turkish embassy/consulate to collect their single-entry visa Quantitative Limits within 90 days of the application approval. The issuance of the single-entry visa generally takes 2 There are generally no mandatory quantitative to 4 days. Meanwhile, a work permit card is issued limits on the number of foreign service providers, for the applicant and delivered to the employer’s enterprises or market players that can operate workplace. in a given sector. Local Sourcing and R&D Requirements Restrictions on Expatriate Appointments There is no overarching legal requirement In Restricted Sectors, special restrictions subjecting foreign investors to local sourcing or conditions may apply with respect to the requirements or local R&D investments in order appointment of expatriates on boards of to establish businesses in Turkey. directors or key managerial positions of local companies. For example, in a Turkish civil air | 14 2019 INVESTMENT POLICY AND REGULATORY REVIEW – TURKEY Foreign Investment Approval Foreign investors must notify the Ministry of Treasury and Finance of their direct investments Turkey has moved away from a general approval via an online portal namely the Electronic system and towards a notification system. In Incentive Application and Foreign Investment 2003, the FDI Law abolished the approval system Information System (E-TUYS) operated by the and introduced a more liberal notification system General Directorate of Incentives and Foreign to record the incoming FDI. Under the notification Capital within the prescribed time-periods. For system, there is no FDI scrutiny or approval example, when a foreign investor acquires shares process other than sector-specific regulatory in a Turkish company, an online notification must approvals. For example, mergers and acquisition be filed within one month after the acquisition. (M&A) activity in the mining sector requires prior Similarly, incoming foreign remittances must be approval from the Ministry of Energy and Natural notified within one month of the payments. This Resources. Similarly, M&A activities in companies notification of statistical information includes operating ports and pilotage and tugboat services disclosure of information concerning the Turkish (maritime sector) require approval from the company’s pre-investment and post-investment General Directorate of Sea and Inland Water. These ownership structure, and information on the regulatory approvals apply equally to domestic and amount and nature of consideration. Opening a foreign investors regardless of any turnover or asset liaison office, however, requires prior approval size thresholds. from the Ministry of Industry and Technology. The application and approval process for a liaison office is described in the FDI Regulation. 2019 INVESTMENT POLICY AND REGULATORY REVIEW – TURKEY | 15 4. INVESTMENT PROTECTION Protection Against Expropriation (ii) its urgency is decided by the President, or (iii) there is an extraordinary case where it is required The FDI Law protects foreign investors against by law, subject to the State fairly compensating expropriation and nationalization. Pursuant to the owner. the law, foreign investment cannot be expropriated or nationalized unless it is necessary to the public interest and fairly compensated in accordance with Restrictions on Inflow and Outflow of due process. There is no definition of public interest Funds in the FDI law. It is generally defined on case-by- Turkey’s foreign exchange regime is generally case basis. liberal, and few restrictions or approval requirements apply to the inflow of funds to Code of Expropriation No. 2942 (Expropriation Turkey or repatriation of proceeds from Turkey Law) enables the state to expropriate immovable (net of applicable taxes). Foreign investors property (wholly or partially) of a physical can freely transfer abroad net profits, dividends, person or a private legal entity without the proceeds from the sale or liquidation of all or any owner’s consent if it is necessary for a public part of an investment, compensation payments, purpose or to provide public services. Under the amounts arising from license, management and Law on Procedure for Nationalization of Private similar agreements, and reimbursements and interest Undertakings Providing Public Services in Cases payments arising from foreign loans through banks of Necessity Due to Public Interest No. 3082 or special financial institutions licensed in Turkey. (Nationalization Law), the state can nationalize an Banks are required to notify the Central Bank of undertaking (including its immovable and movable Turkey of all overseas transfers exceeding US$50,000 property) providing services or products that satisfy (or the equivalent foreign currency) within 30 days a public need, if the need cannot be otherwise following the transfer, excluding import, export and satisfied. These laws apply equally to foreign and invisible transactions (an invisible transaction is domestic investors. one that does not involve the circulation of goods, Both the Expropriation Law and the rather involving the import and export of services). Nationalization Law require a public purpose Proceeds arising from Turkish residents’ export for the action to be lawful. Both laws also mandate transactions are required to be directly transferred fair compensation in a timely manner. Under the to the intermediary bank immediately upon the Expropriation Law, the amount of compensation importer’s payment. The proceeds must be brought for expropriations is negotiated between the parties into Turkey within 180 days as of the actual export to decide a real fair market value of the property. If transaction and at least 80% of the proceeds must be the parties cannot agree on a real value, the courts converted into Turkish lira. can intervene. Under the Nationalization Law, In 2018 several measures were taken in order to compensation must be equivalent to the real value/ protect the value of the Turkish currency against fair market value of the undertaking, determined by volatility. The Turkish government amended its a council of experts appointed by the government. laws to introduce a ban on Turkish residents who do The owner of the undertaking may object to the not have foreign exchange income, on (i) utilizing amount in court. Both laws establish due process and foreign currency and foreign currency indexed loans require multiple administrative bodies’ approval. (FX Loans) and (ii) foreign currency and foreign The State can implement an “urgent expropriation” currency-indexed payments for certain transactions procedure in certain circumstances, as when: between Turkish residents (FX Payments). For the (i) expropriation is necessary for national defense, | 16 2019 INVESTMENT POLICY AND REGULATORY REVIEW – TURKEY purpose of these amendments, “Turkish residents” n on a case-by-case basis to be determined by the refers to all physical persons and legal entities Ministry of Treasury and Finance. residing or incorporated in Turkey. Since the ban on FX Payments applies to contractual liabilities A new exception was introduced regarding the between Turkish residents only, contracts between FX Loan of Turkish subsidiaries of multinational Turkish residents and foreign persons or entities companies. Fully owned (directly or indirectly) are not subject to the ban. Notably, (i) non-Turkish Turkish subsidiaries of multinational companies resident branches, representative offices, liaison can utilize FX loans from other group companies offices, bureaus and funds (to the extent these funds resident abroad without being subject to the FX are operated or managed by Turkish residents) of Loan restrictions. To obtain the exemption, they are persons who are resident in Turkey, and (ii) non- required to provide the companies’ share ownership Turkish resident companies in which Turkish documents to the intermediary bank. Exemptions residents hold 50% or more of the share capital to FX Payments ban include the following types of (directly or indirectly) are considered Turkish transactions: residents for the purpose of the the FX Payments n Employment agreements (i)that are performed ban. There are, however, exceptions. The following abroad; or (ii) where the employee is not a types of loans can be extended to Turkish residents Turkish citizen; and (iii) that are made by even if they do not have FX income: (a) non-Turkish residents’ Turkish branches, n FX loans are to be utilized by public authorities representative offices, liaison offices; (b) Turkish and institutions, banks and financial leasing companies in which a non-resident person companies, factoring companies and financing directly or indirectly holds 50% or more of the companies; share capital or management control solely or jointly; and (c) free zone companies, only for n FX loans are to be utilized by Turkish residents their activities in the free zone, provided that whose FX loan balances are US$15 million or such persons act as the employer; more at the time of the utilization; n Agreements regarding the sale, purchase and n FX loans are to be utilized by Turkish residents, leasing of movable properties (except for cars); whose utilization of such a loan is envisaged within an investment incentive certificate and n License and service agreements regarding FX loans are to be utilized for the financing of hardware and software produced/developed certain machines and devices; abroad; n FX loans are to be utilized by Turkish residents Management/lease n agreements regarding who won an internationally announced domestic tourism facilities certified by the Ministry of tender, or by Turkish residents undertaking Culture and Tourism; defense industry projects that are approved by the Undersecretariat of Defense; n Lease agreements for duty-free stores; n FX loans are to be utilized by Turkish residents n Lease and sale agreements of engineering appointed to carry out projects within the context vehicles. of a public-private partnership; Dispute Settlement Mechanisms n FX loans are to be utilized by Turkish residents who do not have FX income in the last three Foreign investors in Turkey can generally fiscal years and who do not exceed the amount of avail themselves of dispute settlement through their predicted income in foreign currency that is domestic courts, or domestic or international certified, on the condition that their connections arbitration. Turkey’s bilateral investment treaties regarding export, transit trade, sales and deliveries mostly do not include a mandatory recourse to deemed export, FX earning services and domestic courts before referring the dispute to transactions and possible FX income is certified; international arbitration. In most cases investors 2019 INVESTMENT POLICY AND REGULATORY REVIEW – TURKEY | 17 have the option to choose between the domestic is shaped by the Constitution, international court and international arbitration under the treaties. agreements, codes, by-laws, court judgments and administrative transactions and decisions. An Ombudsman Institution is available to For instance, during the course of a competition address issues between foreign investors and investigation conducted by the Turkish Competition the State prior to their escalation into formal Authority, an investor has the right to attend legal disputes. The decisions of the Ombudsman the oral hearing, submit petitions and present Institution are non-binding. However, government information and documents, and seek recourse if a agencies that do not act in compliance with the regulator violates due process, as provided for in decisions must explain their reasons for non- Turkey’s competition statute. Therefore, after an compliance. Agencies that do not comply with the administrative transaction is conducted, subject Ombudsman’s decisions are disclosed to the public to the relevant legislation, the investor may be in an annual report published by the Ombudsman able to apply for administrative remedies for the Institution at the end of each year. reconsideration of the transaction. Certain types of Turkey does not have an omnibus administrative legal remedies are also available against acts and law statute. Instead, administrative law in Turkey transactions of government agencies. | 18 2019 INVESTMENT POLICY AND REGULATORY REVIEW – TURKEY 5. INVESTMENT INCENTIVES In its main investment incentives legislation, The Ministry of Industry and Technology’s official the Decree on Subsidies in Investments of 2012 website serves as a repository of the tax and (Incentive Decree), Turkey provides investment financial incentives available to both foreign and incentives under five schemes: i) General Scheme; domestic investors. ii) Regional Scheme; iii) Priority Investment Scheme; iv) Large-scale Investments Scheme; and Eligibility Criteria and Approval Process v) Strategic Investment Scheme. These incentives are made available to both domestic and foreign The granting of tax and financial incentives by investors. the Turkish Government to foreign investors is generally contingent upon the satisfaction of the The General Scheme provides exemptions relevant eligibility criteria and demonstration of from value-added tax (VAT) and customs tax, a business case for the incentive to be granted. The and income withholding support. The other eligibility criteria for the relevant tax and financial four schemes are broader. In addition to VAT and incentives are set out in the Incentive Decree customs tax exemptions, they include: (a) partial available at the online portal, above, maintained by corporate income tax reduction; (b) social security Ministry of Industry and Technology. premium support for employer’s share; (c) land allocation; (d) interest rate support; (e) social The Incentive Decree provides a list of activities security premium support for employee’s share; that cannot be supported or that can only be (f) income tax withholding support; and (g) for supported under specific conditions within the strategic investment scheme only, a VAT refund. scope of the Incentive Decree. All investment The Incentive Decree does not cover cash grants, projects, which are outside of the scope of this list public sector equity participation, performance- and which meet the minimum fixed investment based incentives, or reduced rates for utilities and amounts required under the Incentive Decree, are transportation. eligible for incentives under the General Scheme without being subject to any regional or sectoral In the Regional Investment, Priority Investment restrictions. In the Strategic Investment Scheme, and Large Investment Schemes, the terms and there is no sectoral or regional restriction provided rates of incentives vary depending on the region that the prescribed criteria are met. and sectors where the investment will be made. Turkey’s provinces are divided into six different The Project-based Scheme does not impose regions based on socio-economic development any sectoral or regional restrictions. Under this levels, with each region having targeted sectors for scheme, the Ministry of Industry and Technology investment. will first evaluate the investment projects by taking into account the designated criteria such as In addition, a new Project-based Incentive addressing Turkey’s current and prospective critical Scheme was introduced in 2016. Under this needs, and the project’s strategic value and use of scheme, the Council of Ministers (now the new technologies in production. The Ministry will Presidency) is entitled to grant one or more tax and then submit the approved investment projects to financial incentives for investment projects with the Council of Ministers (now the Presidency). a minimum fixed investment amount of US$100 Generally, the criteria set out for project-based million, depending on the characteristics of the incentives are less objective than the incentives investment project. provided under other schemes pursuant to the Incentive Decree. 2019 INVESTMENT POLICY AND REGULATORY REVIEW – TURKEY | 19 Applications for the grant of applicable upon assessing their sectoral, financial and technical incentives are made to the Ministry of Industry proposals and considering macroeconomic and Technology. The Ministry considers them on programs and supply-demand balance. The names a case-by-case basis. They are not automatically of recipients of investment incentives are published granted upon fulfilment of the express eligibility in the Official Gazette. The Ministry of Industry criteria or conditions. The Ministry issues an and Technology also publishes the recipients list on investment incentive certificate for eligible investors its official website and updates the list every month. 6. INVESTMENT LINKAGES For the purpose of this section, research was The Law on Supporting Research and focused on the availability of incentive schemes Development Activities provides support and to increase local sourcing, technology transfer incentives (applicable until December 31, 2023) and measures to improve information exchange targeted at increasing technology transfers. between foreign investors and domestic It provides incentives for technology centers suppliers. There is no specific investment scheme established by the Directorate of Small and Medium in place to encourage foreign investors to increase Industry Development Organization, R&D and local sourcing or build capacity of local suppliers design centers, R&D projects, design projects (or potential local suppliers), but incentives in and pre-competition cooperation projects and that regard are included as part of the Regional technopreneurship capital. Taxpayers operating Investment Incentive Scheme under the Incentive within the scope of the Technology Development Decree. The Decree divides Turkey’s provinces Zones Law may also benefit from many tax incentives into six different regions based on socio-economic for eligible activities undertaken in technology development levels and provides a higher amount development zones until December 31, 2023. of incentives for least developed regions to increase local sourcing. | 20 2019 INVESTMENT POLICY AND REGULATORY REVIEW – TURKEY 7. OUTWARD FOREIGN DIRECT INVESTMENT For this section, research was focused on the framework of the provisions of customs whether there are any legal instruments legislation, for the purpose of establishing specifically covering outward investment and if companies, participating in partnerships and there are, whether they impose any restrictions opening branches in order to make investments on outward investment. In Turkey, both state- or to conduct commercial activities abroad; owned and private sector enterprises can undertake investments abroad. The state-owned enterprises n residents in Turkey are allowed to establish may establish companies abroad and participate liaison offices, representative and similar in companies established abroad pursuant to the offices abroad and to transfer organizational and approval of the President of the Republic of Turkey operational expenses through banks; and and in accordance with the conditions established n banks and customs authorities must inform by the President to this effect. State owned entities the Central Bank of Turkey about residents in in regulated sectors are also permitted to invest Turkey who transfer capital for investment or overseas subject to sector-specific regulations. For commercial activities abroad within 30 days example, the Turkish Radio and Television Authority following the date of each transaction. can invest abroad through creation of partnerships, participation in or acquisition of companies abroad, Sector specific regulations may apply to regulated subject to the sectoral regulator’s approval. private-sector entities investing overseas. For example, Turkish banks are required to obtain There is no omnibus legislation focused on the banking regulator’s approval to establish new private sector outward foreign direct investment. subsidiaries in Turkey or abroad, to acquire any Generally, under Turkish law, shares of domestic or foreign companies, or to open n residentsare allowed to transfer cash capital offshore branches or representative offices abroad, through banks and in-kind capital within subject to certain exceptions. 8. RESPONSIBLE INVESTMENT For this section, research was focused on whether foreign investment law and policy do not include an there are any measures within the country’s explicit reference. These other laws apply to foreign investment legislation that are specifically investors as well, and may serve to ensure public targeted to ensure responsible investment. While health protection, preserve the environment, and to there are responsible investment measures in other ensure products produced comply with national and laws and regulations of the country, Turkey’s international standards. 2019 INVESTMENT POLICY AND REGULATORY REVIEW – TURKEY | 21 9. RECENT POLICIES ON NEW TECHNOLOGIES This section considers Turkey’s recent policy (i) the preparation of legislation with regard to measures on new technologies that may affect legal obligations of cloud service providers; (ii) both domestic and foreign investors. putting in place accreditation schemes for cloud Internationally, policy measures on new service providers; (iii) introducing regulations in technologies tend to focus on the enabling (sectoral) regard to the security of cloud services parallel to regulatory framework, as well as on incentives, the European Union; and (iv) offering incentives to digital standards, and clusters. At the same time, companies that will provide cloud infrastructure, countries have taken measures that highlight their such as tax exemptions for equipment and software, changing approaches to national security. Other energy, and so forth. emerging policies that, though not directly related to investment nevertheless impact investments, are Data Localization data localization requirements as well as rules and regulations concerning the treatment and use of At present, Turkish law does not generally digitized information. impose any data localization requirements, except with respect to customer data in regulated Turkey has begun to orient its strategy towards sectors, such as banking, electronic payment the promotion of new technologies. In the Strategic and telecommunications. However, in 2018 new Plan (2019-2023) published by the Information “on-soil” (that is, manadatory storage of data in the Technologies and Communications Authority, country) requirements were introduced Turkey’s priorities in relation to new technologies are set as follows: (i) expand fiber infrastructure and n for companies that are publicly registered and broadband internet access; (ii) initiate the use of 5G subject to information systems independent communication technologies; (iii) increase national audits pursuant to the Communiqué on cybersecurity measures; and (iv) incentivize the Management of Information Systems (the scope provision of machine-to-machine and internet-of- of which is narrowed down to publicly listed things services. companies that are subject to independent audits through Capital Markets Board decision of While there are no specific rules regulating the March 8, 2018 of 2018/10); and provision of cloud services in Turkey, in the National Broadband Strategy and Action Plan n for financial leasing, factoring and financing (2017-2020), the Turkish government adopted companies pursuant to the Communiqué on several objectives to increase reliance on Management and Audit of Information Systems national cloud service providers. These include of Financial Leasing, Factoring and Financing Companies. | 22 2019 INVESTMENT POLICY AND REGULATORY REVIEW – TURKEY 10. CITY SPECIFIC REVIEW—ISTANBUL All investment-related federal legislation applies For example, investments in the following to Istanbul. The laws of the Republic of Turkey sectors that meet the prescribed fixed minimum are unified and do not differ at subnational levels. investment amounts or capacity conditions are Unless otherwise stated, the laws enacted by the eligible for incentives designated for Region legislative body apply to all cities and regions. 1 city of Istanbul: However, the legislative body has the power to geographically limit the scope and the enforceability n Tannery — applicable only to the investments of the laws, and specific regulations can be set for within (i) the Organized Industrial Zone for regions taking into consideration their geographical leather processing and (ii) the Organized differences and demographic needs. Industrial Zone in Tuzla — minimum investment: TL 1,000,000; As noted above, the Incentive Decree establishes various incentive schemes differing at regional n Manufacturing of chemical- and herbal- levels by their socio-economic development. originated products used in pharmaceutics and The schemes differ in the type of incentives they medicine — TL 4,000,000; offer, the type of sectors they apply to, and the n Industrial mold — TL 4,000,000; fixed investment amount and specific capacity conditions they request. Pursuant to the Incentive n Manufacturing of office-related, financial Decree, the cities are grouped under six different and information processing machines — TL regions benefiting from different incentives. The 4,000,000; targeted or priority sectors to be supported in each region are determined in accordance with regional Manufacturing n of radio, television, potential and the scale of the local economy, while communication equipment and devices — TL the quantity of support varies depending on the 4,000,000; level of development in the region. n Manufacturing of medicinal and optical All investments directed to the sectors designated machines — TL 1,000,000; for Istanbul (Region 1) are eligible for various n Dormitories — 100 students capacity; incentives under different schemes. This includes VAT exemption, customs duty exemption, 50% n Educational services (excluding education of tax reduction until the total amount of reduced for adults, including pre-school educational tax reaches 15% of the amount of contribution services) — TL 1,000,000; to investment, social security premium support (employer’s share) up to 10% for 2 years, and land n Hospital and old people’s home — TL 1,000,000, allocation. old people’s home: 100 patients; n Waste recycling and disposal facilities — TL 1,000,000. 2019 INVESTMENT POLICY AND REGULATORY REVIEW – TURKEY | 23 11. COMPETITION LAW & POLICY For the purposes of this section, research Per Article 5 and 7 of Communiqué 2010/4, was focused on merger control and leniency foreign investors are required to file for pre- frameworks in the country. merger clearance when directly or indirectly acquiring total or partial shareholding in a firm The primary law governing competition in to start operations in the country. A notification Turkey is Law No. 4054 on the Protection of is triggered if there is a change of control and the Competition of December 13, 1994 (Competition relevant turnover thresholds are met, regardless Law). It finds its underlying rationale in Art. 167 of of whether the parties have existing assets or the Turkish Constitution of 1982, which authorizes established presence in Turkey. A detailed account the state to take appropriate measures to secure of what would constitute control is provided the functioning of the markets and to prevent the under relevant guidelines (Guidelines on Cases formation of monopolies or cartels. Considered as a Merger or an Acquisition and The The Turkish Competition Authority (Competition Concept of Control). The term “control” is defined Authority or CA), established in 1997, is the main as rights, contracts or other means which, either body charged with implementing competition law separately or in combination, and in all the factual and policy in the country. and legal circumstances, confer on the acquirer the ability to exercise decisive influence on an undertaking. Control may be held by one party A. Merger Control alone (sole control) or by several parties acting The primary legislation governing merger jointly (joint control). A fully functioning joint control in Turkey is the Competition Law and venture also triggers a merger notification. the Communiqué 2010/4 Concerning Mergers and Acquisitions Calling for the Authorization of Pre-notification Meetings the Competition Board (Communiqué 2010/4). The current merger control regime does not It sets forth the types of mergers and acquisitions provide for any process for a merger party to that are subject to the Competition Board’s consult or seek guidance from the Competition approval. The Competition Board is a part of the Authority on whether a merger would infringe CA. In addition, the CA has published the following the Competition Law or should be notified to relevant guidelines: the CA. However, in complex transactions, parties n The Guideline on Cases Considered as Mergers may meet with the Authority’s officials in advance and Acquisitions and the Concept of Control; to obtain their unofficial views. n The Guideline on the Assessment of Horizontal Fast Track Procedure and Information Mergers and Acquisitions; Requests n The Guideline on the Assessment of Non- There is no formal fast track procedure, but Horizontal Mergers and Acquisitions; certain sections of the Notification Form (that is, sections 6, 7 and 8) are not required to be filled n The Guideline on Market Definition; under specific circumstances. This is the case if: n The Guideline on Undertakings Concerned, a) a party acquires sole control over an undertaking Turnover and Ancillary Restrictions in Mergers in which it previously had joint control, b) the and Acquisitions. combined market share of the parties is less than 20% for horizontal relationships, and the market share of one of the transaction parties is less than | 24 2019 INVESTMENT POLICY AND REGULATORY REVIEW – TURKEY 25% in any vertically related market. The decisions Third parties can lodge complaints or provide resulting from such a fast track review are shorter input. To facilitate such participation, the CA and more concise than those resulting from a full announces filed transactions to the public on its filing review as they include only brief information website in the form of a brief paragraph (drafted by on (i) the transaction structure, (ii) transaction the parties and contained in the notification form) parties, (iii) their field of activities, (iv) relevant describing the transaction, parties and industry. market definitions (if necessary) and (v) a very brief assessment of why the transaction does not result Substantive Assessment in anti-competitive concerns. The CA may submit The CA’s merger review involves defining multiple information requests to the parties. Such the relevant markets, counterfactual scenario written information requests by the CA restart the building, and consideration of coordinated and 30-day review period (See Publicity and Deadlines unilateral market effects. The test is whether for Merger Decisions) and clock as of the date on a merger would create or strengthen a dominant which the responses are submitted. position that would significantly lessen competition in the relevant product market. Dominance is Remedies understood to mean the power to act independently from competitors and purchasers in determining The merger parties may propose an undertaking economic parameters such as the amount of to perform or refrain from a certain action in production, distribution, price and supply. Where order to address any competition concern arising the market shares do not suggest any competitive from the anticipated merger. The CA may accept concerns, or the need for an in-depth review, the from the merger parties an undertaking to perform CA analysis will often be quite brief and high level. or refrain from doing any action the CA considers A robust theory of harm may be constructed where appropriate. Further, the CA can accept or impose the CA has at least some initial concern. both structural and behavioral remedies. The CA may submit multiple information requests to the parties. Such written information requests by the Penalties and Appeals CA restart the 30-day review period (See Publicity Failure to notify or implement a transaction and Deadlines for Merger Decisions) and clock as without approval can trigger an administrative of the date on which the responses are submitted. fine of 0.1% of the parties’ annual gross revenues. Annual gross revenue is defined as “the File Access and Third-Party Intervention net sales in the uniform chart of accounts, or if this cannot be calculated, the revenue closest to the net File access depends on the phase of review. For sales, which is to be determined by the Competition Phase I review (initial check), there is no official Board.” However, the fine to be imposed cannot be mechanism that provides access to the merger file. less than TL 26,027 (as of January 1, 2019). While However, where the transaction proceeds to a Phase the legislation permits the CA to take the total II review (detailed assessment), and a statement annual gross revenues/turnover of the parties as a of objections is issued by the CA, the parties can basis, in practice the CA tends to take the Turkish access the case file. The CA is legally obliged to turnover of the parties as a basis for the relevant keep confidential any business secrets submitted fine, particularly where the transaction parties are with the filing. Other government agencies may foreign companies. potentially obtain access to the file upon special request. Third parties cannot obtain access to In case parties refrain from complying with the confidential information. It is advisable to highlight commitments set out by the CA in the conditional confidential sections in the filing form so that clearance decision, they could be subject to a daily confidential information regarding a transaction administrative fine to force compliance with the would not be inadvertently published by the CA CA’s decision. Additionally, the implementation of due to an oversight. the transaction without the remedies can be deemed 2019 INVESTMENT POLICY AND REGULATORY REVIEW – TURKEY | 25 a breach of Article 7 of the Act on the Protection of B. Leniency Program Competition 1994 (which contains the applicable dominance test). In this case, the CA can launch an Secondary legislation specifying the details of investigation and seek to (i) unwind the transaction the leniency mechanism are the Regulation on and (ii) impose a fine of up to 10% of the parties’ Active Co-operation for Discovery of Cartels annual gross revenues in the preceding year based (Leniency Regulation) of 15 February 2009 and on the substantive competition law violation. the Guidelines on Clarification of Regulation on Managers or employees may face an administrative Leniency (Leniency Guidelines) of 19 April 2013. fine up to five percent of the penalty imposed on A leniency regime is available with respect to the undertaking or association of undertakings as cartels. An applicant may apply for leniency only well. Finally, the conditional approval of the CA until the investigation report is officially served. can be deemed “null and void” and thus the gun- Depending on the application order, total immunity jumping fine in the preceding paragraph may also from or reduction of administrative fine may be be imposed on the parties. granted. Leniency is available for both undertakings The CA’s decision is appealable before independent and individuals who have engaged in cartel activities. tribunals (that is, administrative courts in Ankara). A sliding scale of fine reductions is available to subsequent applicants for leniency. This scale is provided under the Leniency Regulation published Publicity and Deadlines for Merger by the CA (between 33% and 50% for undertakings Decisions and 33% to 100% for managers/employees). Publicity of a merger decision follows a two-step Total immunity may be granted if (i) the leniency process. The CA first issues a short form decision applicant submits an application before the CA has where it briefly provides its final conclusion on the launched a preliminary investigation on the issue merger file. Following that, the CA also publishes or, (ii) the first applicant provides information about a reasoned decision in which its substantive the cartel which was not already possessed by the assessment of the file is provided in a more CA. However, the leader of a cartel can only benefit detailed manner. from a second-degree reduction of fine. Individuals (such as employees of a cartel undertaking) are There is no “overall” deadline for merger afforded the same level of leniency as is granted to decisions, and the process can take up to eighteen an undertaking. months. Once the filing is made, there is an implied approval mechanism where a tacit approval is Generally civil and administrative remedies deemed if the CA does not react within 30 calendar are available against cartel activities. However, days upon a complete filing. However, in practice, certain antitrust violations, such as bid-rigging in the CA almost always reacts within the 30 calendar public tenders may trigger criminal consequences. day period by either sending a written request Immunity or leniency does not stop the criminal for information or (rarely) by already rendering proceedings. The immunity granted by the CA does its decision within the original 30-calendar-day not mitigate damages suffered by third parties. The period. The CA, upon its preliminary review (Phase final decision is delivered by the CA, which can be I) of the notification decides either to approve, or to appealed within 60 days of receipt of the reasoned investigate the transaction further (Phase II). The decision. investigation (Phase II) takes about six months. If deemed necessary, this period may be extended Marker System only once, for an additional period of up to six months by the CA. After this period, the transaction There is no express marker system under the parties are entitled to two additional defenses, for relevant legislation. However, the Leniency which they would have 30 days each (though the Regulations stipulate that a document recording deadlines may be extended for an additional 30 the date and time of the application (in addition to days). Overall, the process can take up to eighteen any grace periods granted to provide the required months if all Phase II extensions are availed of. information) will be provided to the applicant. | 26 2019 INVESTMENT POLICY AND REGULATORY REVIEW – TURKEY Leniency applications can be made in person, submit all information/documents requested by a via e-mail, fax or phone, orally or in writing. The Turkish court. Information/documents submitted applicant is required to disclose all information/ as part of a leniency application can be subject to documents/evidence they possess on the cartel. discovery orders in the Turkish courts, which can There is no requirement under Turkish competition consider them if and to the extent they amount to law obligating the CA to return the application legitimate evidence. documents to the applicants. Cooperation with other competition Confidentiality authorities The identity of the applicant for leniency is kept The current leniency regime does not expressly confidential until the final decision is reached and provide for cooperation with other competition the investigation report is served. Considering authorities. However, the CA works with other Turkey’s general law principles, the public prosecutor agencies, including the European Commission. may access the leniency statement, provided that it is They are also signatories to bipartite cooperation ordered by a competent court or judge. The Turkish agreements with agencies in other jurisdictions, courts can subpoena documents/information from including (but not limited to) Romania, South all public or private authorities and bodies, including Korea, Russia, Croatia and Portugal. the CA. The CA is constitutionally required to 2019 INVESTMENT POLICY AND REGULATORY REVIEW – TURKEY | 27 ENDNOTES 1 The WTO services sectoral classification list Services are categorized into 12 sectors: (W/120) is a comprehensive list of services sectors and sub-sectors covered under the GATS. It was 1. Business services compiled by the WTO in July 1991 and its purpose 2. Communication services was to facilitate the Uruguay Round negotiations, ensuring cross-country comparability and 3. Construction and related engineering services consistency of the commitments undertaken. The 160 sub-sectors are defined as aggregate 4. Distribution services of the more detailed categories contained in 5. Educational services the United Nations provisional Central Product Classification (CPC). The list can be accessed 6. Environmental services under the following link: http://www.wto.org/ english/tratop_e/serv_e/mtn_gns_w_120_e.doc. 7. Financial services 8. Health related and social services 9. Tourism and travel related services 10. Recreational, cultural and sporting services 11. Transport services 12. Other services not included elsewhere | 28 2019 INVESTMENT POLICY AND REGULATORY REVIEW – TURKEY 2 For the purpose of this research, 32 sectors have been identified. This is not an exhaustive list of all sectors of the economy. Primary: Services: 1. Agriculture, Hunting, Forestry, and Fishing 18. Electricity, Gas, and Water 2. Mining, Quarrying, and Petroleum 19. Alternative Energy 20. Construction Manufacturing: 21. Wholesale and Retail Trade 3. Agro-processing, Food Products, and Beverages 22. Hotels and Restaurants 4. Textiles, Apparel, and Leather 23. Other Travel and Tourism-related Services 5. Chemicals and Chemical Products 24. Logistics, Transport, and Storage 6. Rubber 25. Telecommunications 7. Plastic Products 26. Computer and Software Services 8. Pharmaceuticals, Biotechnology, and Medical Devices 27. Financial Services including Insurance 9. Metals and metal products 28. Real Estate 10. Non-metal mineral products 29. Business Services 11. Wood and wood products (other than Furniture) 30. Professional, Scientific and Technical Services (Engineering, Architecture, and 12. Furniture so on) 13. Paper and paper products 31. Health Services 14. Printing and publishing 32. Media and Entertainment 15. Automobiles, Other Motor Vehicles, and Transport Equipment 16. Information Technology and Telecommunications Equipment 17. Machinery and Electrical and Electronic Equipment and Components 2019 INVESTMENT POLICY AND REGULATORY REVIEW – TURKEY | 29 LIST OF REFERENCE MATERIALS Primary Sources 11. Turkish Code of Obligations No. 6098 published in the Official Gazette No. 27836, 1. Turkish Constitution, dated November 7, 1982 dated November 11, 2011 2. Foreign Direct Investments Law No. 4875 12. Civil Aviation Law No. 2920 published in the published in the Official Gazette No. 25141, Official Gazette No. 18196, dated October 19, dated June 17, 2003 1983 3. Regulation on the Implementation of the 13. Cabotage Law No. 815 published in the Foreign Direct Investment Law published in Official Gazette No. 359 dated April 29, 1926. the Official gazette dated August 20, 2003 14. Airline Transport Operations Regulation 4. Code of Expropriation No. 2942 published published in the Official Gazette dated in the Official Gazette No. 18215, dated November 16, 2013 November 8, 1983 15. Land Registry Law No. 2644 published in the 5. Law on Procedure for Nationalization of Official Gazette No. 2892, dated December 29, Private Undertakings Providing Public 1934 Services in Cases of Necessity Due to Public Interest No. 3082 published in the Official 16. Law on Establishment and Broadcasting Gazette No. 18592, dated December 1, 1984 Services of Radio and Televisions No. 6112 published in the Official Gazette No. 27863, 6. Law Amending Some of the Affiliated Offices dated March 3, 2011 of the Presidency No. 5523 published in the Official Gazette No. 18592, dated December 1, 17. Tourism Promotion Law No. 2634 1984 18. International Labor Law No. 6735 published 7. Decree—Law No. 703 published in the in the Official Gazette No. 29800, dated Official Gazette No. 30473, dated July 7, 2018 August 13, 2003 8. 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Decision No 1/95 Of The EC-Turkey (http://taxsummaries.pwc.com/ID/Turkey- Association Council Of 22 December Individual-Foreign-tax-relief-and-tax-treaties) 1995 On Implementing The Final Phase Of The Customs Union (https:// eur-lex.europa.eu/legal-content/EN/ TXT/?uri=celex:21996D0213(01)) | 32 2019 INVESTMENT POLICY AND REGULATORY REVIEW – TURKEY This Investment Policy and Regulatory Review presents information on the legal and regulatory frameworks governing foreign direct investment and competition that affect businesses and foreign investors. Since legal and regulatory frameworks are constantly evolving, a cut-off date was set for the research. This country review therefore covers information available as of May 31, 2019, unless otherwise indicated in the review. IPRRs are available for the following middle-income countries: Brazil, China, India, Indonesia, Malaysia, Mexico, Nigeria, Thailand, Turkey, and Vietnam.