| COUNTRY PERSPECTIVES
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TURKEY |
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How to invest in Turkey? |
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How to invest in Turkey? |
Turkish authorities recently took measures to improve the investment climate, under a new legal framework governed by law n°4875 of June 2003 replacing law n°6224 of 1995 on foreign investment. This legislation dictates that foreign investors be treated in a non-discriminatory manner, with no limit on foreign holdings in corporate capital except in certain sectors such as media (for which the share of foreign holdings is limited to 25 percent) and air transport, telecommunications, maritime transport, harbour services, and processing of fishery products (limited to 49 per cent). Banks, insurance companies, and the mining sector are governed by legislation specific to these activities and a special permit is required to do business in these sectors..
Foreign investors can acquire land in Turkey under condition of reciprocity, but purchase of more than 30 hectares requires the prior authorisation of the Council of Ministers (law n°2644 concerning land registry). Trade in real estate remains limited to Turkish concerns. Turkish investors who want to invest more than 5 million dollars abroad must also obtain authorisation from the Under-Secretary of the Treasury’s office.
Legislation governing investment provides for all kinds of companies. There is no limit on capital holdings and management and licensing agreements no longer require prior authorisation from the Treasury. The right of foreign investors to international arbitration and protection against expropriation is recognised and international arbitration law n°4686 of July 2001 provides for recourse to international arbitration for dispute settlement in the area of public utilities. Other major innovations have strengthened this legal framework and thus improved the business environment. Law n°4817 of March 2003 governs work permits for foreign workers and simplifies the procedures for recruitment of foreign personnel. Moreover, Parliament recently adopted a law simplifying the process for setting up a company. Today it is possible to create a business in 24 hours (compared to 53 days previously) by registering at the trade registry, with only three authorisations required instead of 19. Tax rates are expected to drop in 2006 to 20 percent, down from 30 percent.
In the framework of privatisation, the Turkish government treats FDI and local investments in the same manner, even if restrictions apply to some strategic sectors. Foreign investors also get equitable treatment for incentives such as reduced corporate income tax, exemption from VAT on machinery and equipment bought locally or imported for the needs of the investment initiative, loans at a subsidised interest rate for research and development, etc.
Except for tax cuts on profits, which are granted automatically, investors must get a “certificate of investment” from the Treasury Department in order to be eligible for incentives. The duration and level of exemptions and other assistance vary, on the basis of geographic and sectoral factors and the amount of the investment. Financial legislation governs portfolio investment at the Istanbul Stock Exchange (ISE).
Turkey represents a large market of 72 million consumers. It has been negotiating its adhesion to the European Union since 2005. A customs union with the EU has been in effect since January 1, 1996, dealing with industrial and manufactured agricultural products. Industrial products of European origin or from EFTA countries enter Turkey free of customs duties. It also applies to EU common customs tariffs with respect to third-party countries, except for a number of products considered “sensitive”. On average, custom duty on imports from third party countries (which are not members of the EU) is charged at 5 percent. The protection rate in 2005 was 4.20 percent for industrial products and 56 percent for agricultural products, which are subject to high tax rates (135 percent on sugar, 145 percent on green tea, 150 to 170 percent on certain dairy products and 225 percent on meat).
Customs duties are calculated on the basis of CIF prices. The average VAT rate is 18 percent on industrial products, on top of customs duties. Equipment and machinery are entirely exempt from customs duty and VAT, while there are special rules for import of foodstuffs. To export products and services, companies based in Turkey must be members of one of the thirteen export associations. The requirement also holds for imports. There are a number of export incentives and aids, such as Eximbank credit and export promotion aid. Additional tax cuts and customs incentives are granted to companies operating in any of the country’s 21 offshore zones. Activities allowed in these zones are production, purchase-sale, assembly-disassembling, maintenance-repair, banking, insurance, leasing, office rental, etc. |
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