Establishment of a Company by Foreigners in Turkey

Turkey being at the intersection point of Europe and Asia offers many opportunities to its investors in terms of “accessibility”, which is one of the important elements that an investor should have. Thanks to the fact that three sides of Turkey are surrounded by seas, it has sea route advantages. Besides, all of Europe and the Middle East is a maximum of 4 hours away by airways.

According to TURKSTAT (Turkish Statistical Institute) data for 2020, Turkey, whose population is approaching 84 million, has a young population with a growing and improving average age of 32.7, unlike Europe. However, the rate of the working age population is 67.7%. In addition, Turkey, which has the lowest minimum wage in the European region, is also investor-friendly in terms of „employee expenditure“, which is one of the expenditure items for the investor.

Turkey, which cares about foreign investments, has also made the necessary regulations in the field of law. The most important of these is the Foreign Direct Investment Law, which came into force in 2003. With this law, Turkey aims to encourage investments, protect the rights of investors and achieve international standards. According to the data of the Central Bank of the Republic of Turkey, foreign direct investment, which was 15 billion US dollars between 1980 and 2002, increased by 15 times between 2003 and 2020 and reached 225 billion dollars.

So, when a foreign investor decides to establish a company in Turkey, what is the process? What types of companies will the investor be able to establish in Turkey?

First of all, we think that it is useful to define the concept of „foreign investor“. Normally, people who are not citizens of Turkey are considered as foreigners and the investments made by these people are called “foreign investments”. However, the Foreign Direct Investment Law also defines the citizens of the Republic of Turkey as foreign investors in some cases, e.g. Turkish citizens who do not reside in Turkey have the same status.

Since the Foreign Direct Investment Law is based on the principle of equal treatment, international investors are equal to local investors in terms of rights and obligations. This means that international investors can establish all types of companies specified in the Turkish Commercial Code like a Turkish investor.

According to the Regulation for Implementation of Foreign Direct Investments Law, foreign investors will be able to establish companies regulated in the Turkish Commercial Code and ordinary companies regulated in the Turkish Code of Obligations

Although there are so many types of companies in the TCC (Turkich Commercial Code), in practice, limited liability and joint stock companies are in the foreground due to their institutional structures. The minimum capital amounts determined for these two types of companies are 50,000 Turkish liras for a joint stock company and 10,000 Turkish liras for a limited liability company. However, each foreign investment is unique and it is of great importance to choose the most appropriate type of business according to the type of activity, and then to prepare the company’s articles of association.

However, companies that will be established in some fields of activity must obtain pre-approval from the Ministry of Trade at the establishment stage and before determining the articles of association (For example, insurance companies, joint stock companies established as holdings, banks).

Establishment of a Sole proprietorship by a Foreign Natural Person

It is possible for a foreign real person to establish a sole proprietorship. However, it is not very common in practice. Becauseat the end of the period when the foreign real person acquires the competence to establish a sole proprietorship, she/he can also apply for Turkish citizenship. It should also be noted that some professions are specific only to the citizens of the Republic of Turkey. For instance lawyers, veterinarians, dentists are examples of these professions. It is not possible for a foreign real person to establish a company for these professions without being a Turkish citizen and without providing the necessary professional competence.

Foreign Natural and Juridical Person to Establish a Capital (Stock) Company

As we mentioned above, foreign investors and local investors are equalized in the establishment of a company. According to the TCC, it is possible for a natural person to establish a joint stock and limited company. For example, if a joint stock company is to be established, a foreign natural person may be the only one partner. However, if the foreign investor is a natural person in the establishment of a capital company or becomes a partner in a company through share transfer, two additional documents are required to be submitted. The first of these is the notarized copy of the passport translation, and the other is the potential identity number.

The conditions for establishing a company and transferring shares for foreign juridical person are the same as for Turkish citizens who are local investors. The international investor will be able to establish all companies forms defined in the TCC. However, the documents required by foreign juridical person are more than foreign natural persons.

The documents required for each type of company formation differ. First of all, the title of the company, the scope of its field of activity, its headquarters, and who the manager/representative will be should be determined. Afterwards, the articles of associaton should be prepared in accordance with the company types specified in the TCC. The articles of association are prepared by the partners or their proxies in the Central Registry Number System (MERSIS) and sent to the approval of the relevant trade registry manager and an appointment should be made for the establishment procedures with the application number defined by MERSIS. It should be noted that the company articles of association will be the most important document in the establishment. Afterwards, the signature statements of the company officials should be prepared. This process is carried out at the trade registry office.

It should also be noted that the foreign juridical person must also obtain a potential tax number like a natural person. The important difference here is that the tax identification number is obtained by hand by going to the tax office on behalf of the foreign juridical person. Foreign natural person can get it online within minutes.

In joint stock companies, 25% of the shares committed in cash must be deposited into a bank account opened in the name of the company. There is no such requirement in limited companies. It is sufficient to pay the committed capital for a limited company within 24 months following the establishment of the company.

Upon the application of the founders or persons authorized by proxy to Trade Registry Office with the relevant documents, Trade Registry Office completes the registration process. In addition, in the establishment of joint stock and limited companies and cooperatives, the account books they will keep are certified by the trade registry directorate. The company will gain legal personality upon registration with the Trade Registry Office.

As mentioned above, according to the Foreign Direct Investment Law, a foreign investor is treated the same as a citizen of the Republic of Turkey. In this context, foreign investors will also benefit from government grants for investment.

Advantages of Foreign Investor Establishing a Company in Turkey

According to the Foreign Direct Investment Law, foreign companies have equal treatment with local companies in Turkey. They can even be advantageous at some points. According to Article 3 of the relevant code, these advantages are granted to foreign investors. Some of these are:

– Nationalization or expropriation of foreign investments is restricted

– Thanks to the investment, the assurance of being able to freely transfer abroad the profit and income obtained as a result of the activities in Turkey has been given.

– Due to a possible legal problem, it is possible to apply to arbitration, which is an alternative dispute resolution method.

– Facilitation has been granted in the employment of foreign employees.

In addition to the advantages in this code, Turkey is a party to international agreements to prevent double taxation. In this way, it will be possible to tax only once on the revenue.

Summary

In summary, two inferences can be made according to the relevant code:

“Foreign direct investment in Turkey by foreign investors is free.”

“Foreign investors are treated equally with local investors”.

Even with these two inferences, it is obvious that establishing a company and investing in Turkey is quite easy. It is possible to complete the establishment procedures of the company in Turkey within one hour if the necessary documents are submitted to the relevant trade registry office. Another convenience is that it does not bring much financial burden on the organization. Namely, company establishment in Turkey is exempt from duty. Domestic investors and foreign investors are equalized in terms of rights obligations and investment incentives. Necessary facilities were even provided for employing foreign workers. Therefore, it is not difficult and complicated for a foreign investor to establish a company, contrary to popular thoughts.

Att. Ahmet Said Tastekin

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