In Türkiye, foreign investors’ business activities and incorporation procedures are mainly regulated by Foreign Direct Investment Law no. 4875 of 17.06.2003. This law facilitates foreign investment since foreigners no longer require approval from the Directorate General of Foreign Capital to invest in Türkiye, which was otherwise necessary under Law no. 6224 for Encouragement of Foreign Capital Investments. The Law mainly concerns freedom of investment, equal treatment and encouragement of foreign investors. In addition to Law no. 4875, the applicable laws for foreign investors include Turkish Commercial Code no. 6102, Turkish Code of Obligations no. 6098, and Law on the Work Permit for Foreigners no. 4817. While investing in Türkiye, foreign investors should consider the type of company that they will establish based on their planned activities and investment volume, as well as the type of incentive to benefit from and how to apply for it.
Incorporation Process for Foreign Investors in Türkiye
Pursuant to paragraph 2 of Article 3 in Law no. 4875, foreign and domestic investors must be treated equally. According to Turkish Commercial Code no. 6102, an investor may choose their company type that will be more advantageous for them to establish based on the characteristics of various company types.
A foreign natural person needs two things to establish an ordinary partnership, which is not a legal entity, in Türkiye: Notarized passport translation and tax identification number. Provided that the preliminary stage is completed, a person may create a system registration request with their tax number and passport registration via MERSİS (the central registration system). Following the registration on MERSİS, the company’s articles of association must be also registered since the same process applies to foreign natural persons, local investors, and Turkish citizens.
However, in equity companies, the shareholders are only liable with respect to their shares; therefore, partners favor the establishment of a joint stock company or a limited liability company. For joint stock companies, the original capital, i.e. the capital declared in the articles of association, may not be less than ₺50,000. In this type of company, all the shareholders can be foreigners, and the board members do not have to be Turkish citizens or reside in Türkiye. Limited liability companies can be incorporated with a single shareholder. There is also an upper limit for the number of shareholders. Accordingly, the number of shareholders in a limited liability company may not exceed 50, and they can be natural or legal persons. As for joint stock companies, there is no upper limit on the number of shareholders.
Another difference between the two types of companies is that shareholders of joint stock companies are only liable for their capital debts, not for public debts, whereas shareholders of limited liability companies are also accountable for SSI premiums, tax debts and other public debts in proportion to their invested capital. Therefore, if a foreign investor planning to establish a company has no restrictions on the amount of capital that they will contribute during incorporation, they can choose to establish a joint stock company, without overlooking other aspects related to their business activities.
Incentives for Foreign Investors
Foreign investors can also benefit from certain exceptions and exemptions with an Investment Incentive Certificate to be obtained with an application to the Turkish Ministry of Industry and Technology. These advantages include VAT exemption, customs duty exemption, and tax relief. Foreign companies’ branches in Türkiye, as well as real persons, ordinary partnerships, and equity companies are eligible to obtain an Investment Incentive Certificate. Thus, foreign investors can benefit from the relevant incentives like Turkish citizens.
The investment incentive system consists of four different types of incentives. These incentive types differ from one another for 6 different investment regions around the country. The incentives are as follows:
I. General Investment Incentives
II. Regional Investment Incentives
III. Large-Scale Investment Incentives
IV. Strategic Investment Incentives
Therefore, the type of incentive depends on the region of investment. The minimum fixed investment amounts for General Incentives are as follows:
- ₺3 million in the first and second regions,
- ₺1 million 500 thousand in the third, fourth, fifth and sixth regions,
- While the minimum fixed investment amount for a Strategic Investment is ₺50 million.
As for Regional Incentives, the minimum investment amount is ₺1 million 500 thousand, with specific limits depending on the supported industry and province. In regional incentives, VAT exemption and customs duty exemption, which are among the relevant incentives and exemptions, are applicable to all the regions; however, the number of years that tax relief and the insurance premium support for employers will be granted varies among regions.
Foreign capital is a crucial source of funding in developing countries. The influx of foreign capital has a favorable effect on a country’s capital market, creating new job opportunities and contributing to foreign currency inflow. Law no. 4875 supports the effective and consistent arrival of foreign investments in Türkiye by ensuring an equal treatment for foreign and Turkish investors, as much as possible, in terms of their rights and obligations. Furthermore, the Investment Incentive Certificate received through an application to the Turkish Ministry of Industry and Technology offers a wide range of opportunities for both foreign and Turkish investors. Thus, to establish a company and benefit from the relevant incentives, foreign investors who wish to invest in Türkiye must seek guidance from professionals that will assist them throughout the investment process.