The Turkish Government considers foreign capital as an essential factor in its efforts to rank among the top economic powers of the world at the end of 20th century.

Flexible foreign investment policies have been introduced as a part of the liberalization of Turkish economy. The foreign investment legislation provide a secure environment for foreign capital via support from several bilateral and multilateral agreements and organizations, granting such capital the same rights and obligations as local capital, while guaranteeing the transfer of profits, fees and royalties, and the repatriation of capital. At present, there are more than 4600 enterprises with foreign partnership in operation in various sectors. Among the major investors, one can find familiar names such as Toyota, Honda from Japan, Ford, P&G, Philip Morris from USA, Renault, Cement Française from France, Bosch, Mercedes, Siemens from Germany, Pirelli, Fiat from Italy and so on. These companies are just some of the many international firms poised to take advantage of Turkey's favorable investment policies. The result of the liberalization policies and promotion measures adopted have appeared as increased direct foreign investment flows into the country. While the cumulative foreign capital approvals between 1954-1980 was 280 million US $, this amount has reached to 23.8 billion US $ at the end of 1998. The leading investors in Turkey are France, USA, Netherlands, Germany, Switzerland, United Kingdom, Italy and Japan.

The General Directorate of Foreign Investments (GDFI) operates as a one stop agency within the Undersecretariat of Treasury to assist the foreign investors. The GDFI is authorized to

Guide and assist foreign investors in exploring investment opportunities in Turkey

Receive and process foreign investment applications and grant investment incentives

Register license, know-how and management agreements

Review and authorise work permits for expatriates

Negotiate bilateral investment promotion and protection agreements

In Turkey, developments in foreign investments accelerated since January 1980, when there were dramatic changes in the economic and social structure of Turkey. The deregulation of interest rates, establishment of organised financial markets for money, foreign exchange, stocks and securities, liberalization of capital movements and reforms in the banking sector are just some of the major economic policy changes during this period. One of the major policy decisions was the adoption of liberal and flexible foreign investment policies. As a result of the changes in the Foreign Investment legislation, the investment climate was made more efficient and suitable for potential investors, starting with the 1980s.

The legislation for foreign investment consists of a Law, a Framework Decree and a Comminuque as follows :

Law Concerning the Encouragement of Foreign Capital
Law No : 6224 Date : 18 Jan 1954
Date of Official Gazette : 24 Jan 1954

Foreign Capital Framework Decree
Decree no : 95/6990 Date : 7 June 1995
Date and no. of Official Gazette : 23 July 1995, 22352

Communique concerning the the decree on the framework for foreign investment (as amended by communique no : 3 published in the official gazette on 27 June 1996)
Date of Official Gazette : 24 August 1995

The main features which are explained in these texts can be summarised as follows :

National Treatment Principle : With taking the permissions within the scope of Law No: 6224, the firms and branch offices established according to Turkish Commercial Code and registered to Turkish Trade Registry are considered as Turkish firms and branch offices.

Field of Activity : Real persons and legal entities residing abroad may engage in all types of industrial, commercial, agricultural and other fields aimed at the production of goods and services, which are also open to Turkish private sector.

Form of Capital : Foreign capital to be brought in turkey can be in the form of

Capital in cash in the form of convertible or effective foreign currency bought and sold by Central Bank of Turkey.

Machinery, equipment, tools and similar goods approved by Undersecretariat of Treasury (UT), General Directorate of Foreign Investments (GDFI)

Assets and receivable of foreign nationals under Foreign Exchange Legislation approved by GDFI

Intellectual property such as patent rights and trade marks approved by GDFI

Minimum Capital Requirement : Real and legal persons resident abroad must bring a minimum 50.000.- USA Dollars per person to establish corporations, become partners in existing companies and opening branch offices. In the case of that the number of foreign shareholders is above one, the participation amounts of foreign partners in total capital can be arranged freely. If it is requested, the foreign exchanges transferred from abroad, without being converted into Turkish Liras, can be kept in Banks at the foreign exchange deposits accounts to be opened in the name of the company to be established or the shareholders who transfers his/her shares or the company which increases its capital and, can be paid to the beneficiary as foreign partner's capital share.

Participation Ratios : There is no limitation in participation ratios of local and foreign partners a company can be 100% foreign owned.

Forms of Companies : Real persons and legal entities residing abroad can establish a joint-stock company (minimum 5 partners), limited liability company (minimum 2 partners), or branches in compliance with the Turkish Commercial Code for the purpose of making investments and carrying out commercial activities in Turkey. They can also establish liaison offices which cannot carry out commercial activities and must be funded by the parent company abroad.

Participations : Real persons and legal entities residing abroad shall apply to GDFI to purchase shares from existing companies in Turkey. In transfer of shares, the value of shares are freely determined between the parties. The transfer of shares between the foreign shareholders are realised freely without any further authorisation.

Portfolio Investments : Real persons and legal entities residing abroad (including investment trusts and investment funds abroad) can freely purchase and sell all sorts of securities and other capital market instruments through banks and intermediary institutions authorised by the Capital Market Legislation without any need for further permission from the GDFI. But, when a person living abroad who owns 10% or more equity of a company established in Turkey, wishes to participate in a directors or shareholders meeting of that company, the GDFI must be informed of the participation.

License, Know-How, Technical Assistance, Management and Franchising Agreements : Public and private sector enterprises shall apply to the GDFI for the registration of license, know-how, technical assistance, management and franchising agreements to be made with persons and legal entities residing abroad. These agreements shall become effective only after the registration by GDFI.

Capital Increases : In case the existing foreign capital companies wish to increase their capital if the participation ratios between the foreign and local partner do not change, application shall directly be made to the Ministry of Industry and Trade without a need for further permission from GDFI.

Transfer of Profits, Dividends and Capital Shares : Following the deduction of the taxes in accordance with the current tax laws, from the profits and dividends corresponding to the shares of foreign shareholders of foreign capital entities, the net amount can be transferred abroad via banks freely. In the case that shares of foreign shareholder of enterprises with foreign capital are either partially or wholly sold to the persons and legal entities resident in Turkey, the amounts received or liquidised in case of liquidation, will be transferred through banks concerned, provided that the permission for sale or liquidation is obtained from GDFI.

In addition to these legislative features, Turkey has been a party to several international organizations and bilateral and multilateral agreements to provide a more securable investment environment for foreign investors like

Turkey is a member of OECD, WTO, IMF/World Bank and organisations like MIGA of the World Bank and prospective Multilateral Agreement on Investment of the OECD, whose negotiations has been paused for the moment.

Protection and Promotion of Investment Agreements has been signed with 56 countries and 34 of them has entered into force.

Avoidance of double taxation Agreements has been signed and came into force with 39 countries.

Turkey has been a party to OECD Codes of Capital Movements and Invisible Transactions, convention on ICSID (International Center for Settlement of Disputes).

Turkey has been a party to investment-related agreements on WTO platform like TRIMs (Trade Related Investment Measures) and TRIPs (Trade Related Intellectual Property Rights)

Investment Incentives

The current legislation concerning the investment incentives is shaped by the decree published at 25th of March 1998, and its related communique published at 6th of May, 1998. According to this legislation, the incentive tools granted to investors are

Exemption from customs duties and fund levies

Investment allowance

VAT (Value Added Tax) exemption for imported and locally purchased machinery and equipment

Exemption from taxes, duties and fees

Exemption from customs duties and fund levies : This incentive measure ensures that the imported machinery and equipment for the investment can be brought to the country with the exemption of customs duties and fund levies. The machinery and equipment which are to be imported under this measure must be included in the import machinery and equipment list to be approved by GDFI. Within this context, raw materials and intermediate goods cannot be imported.

Investment allowance : Investment allowance is a corporate tax exemption applied to taxpayers. Of the expenses incurred within the scope of investment incentive certificate, those relating to buildings, machinery, equipment, freight and installation are entitled to benefit from the investment allowance. The current allowance rate is 100%, which means that an amount equal to the fixed investment cost can be deducted from the future taxable profits. Investment allowance amounts are also entitled to readjustment for inflation. The allowance rate has been 200% for investments over 250 million US $, starting from 1999.

VAT exemption for imported and locally purchased machinery and equipment : The Value Added Tax, which is due to be paid for both the imported and locally purchased machinery and equipment, shall be exempted by this incentive measure. The imported machinery and equipment, which are included in the import machinery list approved by GDFI, can be brought to Turkey without paying Value Added Tax. The locally purchased machinery and equipment should also be included in the locally purchased machinery list to be approved by GDFI. With this approved machinery list, the investor can purchase the local machinery without paying the VAT to the seller.

Establishing a company

Increasing capital within the investment period

Receiving investment credits whose terms are at least one year

Registration of land and properties as capital-in-kind

The general incentive regime is applied varying to the location, scale and subject of investments. In terms of application of general incentives, Turkey is divided into three types of regions :

Developed Regions : The city boundries of Istanbul and Kocaeli and the municipality boundries of Ankara, Izmir, Bursa, Adana and Antalya)

First priority regions : 50 cities determined by the Council of Ministers

Normal Regions : The remaining cities

The above incentive measures are applicable for all types of investments in the normal and first priority regions, but only the following investments can be qualified for incentives in the developed regions:

Electricity production (including autoproducers)

Infrastructure investments

Investments under the BOT and/or BOO scheme

Investments related to R&D, design and producing new products or models

Investments for environmental protection

Priority technology investments determined by the Higher Council of Science and Technology

Electronic sector investments

Boat and yacht construction

Shipyard investments

Technoparks, information technology, education, health and tourism and telecommunication investments

Capacity increase, modernization, quality improvement and integration investments

Projects which are over 50 million US Dollars with at least one of the following requirements high-tech, increasing employment, high level of value added and increasing tax revenues.

Certain service sector investments

To be eligible for these incentive measures, the minimum amount of fixed investment must be 50 billion TL for the normal and developed regions, and 25 billion TL for the first priority regions, together with the following minimum equity rates:

Investments in the first priority regions 20%

Ro-Ro and air cargo transportation 25%

Boat and yacht construction or boat and plane imports 15%

Investments held by the leasing companies 10%

For more and detailed information about investment in Turkey, you can visit the web page of General Directorate of Foreign Investments as seen as resource below.