Protection of Foreign Investment

Domestic Legislation on Foreign Investments

The Foreign Direct Investment Law, which entered into force on 17 July 2003, has brought extensive changes in favour of foreign investors and liberated the foreign investment climate by, in particular, abolishing the approval system and introducing a more liberal system based on the principles of equal treatment and the free expatriation of proceeds. Prior to the FDI Law, investors were required to obtain prior written consent of the Undersecretaries of Treasury to establish a company, acquire shares in an existing company and/or open a branch or liaison office. Increase of share capital and change in the scope of activity or shareholding structures were also subject to prior written consent of the Undersecreteriat of Treasury.

The FDI Law also introduced some other principles which are vital for fostering a successful foreign investment environment such as the freedom to invest, valuation of non-cash capital and the employment of foreign personnel. Foreign investors can freely establish an entity, open a branch and/or acquire shares of an existing company1 and conclude know-how/technical assistance agreements with domestic companies.

Under the FDI Law, companies with foreign shareholding which are established in line with the Turkish Commercial Code are treated equally to companies with local shareholding. In line with this principle, foreign investors may establish a company with 100% foreign shareholding or acquire all of the shares of an existing Turkish company. However, exceptions to this equal treatment principle exist, including for acquisitions by companies with foreign shareholding of real property in Turkey. There are also restrictions on investment in certain strategic sectors such as TV broadcasting, maritime and civil aviation by companies with foreign shareholding.

International Treaties Regarding Foreign Investments

Turkey has become a party to several bilateral and multilateral investment treaties. Importantly, Turkey has also concluded double-taxation treaties with over 80 countries. Turkey has been active in concluding bilateral treaties for the promotion and protection of investments since its irst bilateral investment treaty was signed with Germany in 1962. As of August 2016, Turkey has signed bilateral treaties with 98 countries. 81 out of those 98 bilateral investment treaties have been ratiied and entered into force so far. Turkey is also interested in several multilateral investment treaties for the purpose of reinforcing economic collaboration with other countries. In this regard, Turkey is a party to the World Trade Organization’s Agreement on Trade Related Investment Measures, the United Nations Convention on Contracts for the International Sale of Goods and the Energy Charter Treaty.

International Dispute Resolution

Foreign investors may benefit from domestic arbitration or international arbitration, to the extent there is an arbitration clause in their investment agreement. Domestic arbitration is governed by the Code of Civil Procedure, whereas for international arbitration, the parties may freely choose any institutional rules of arbitration, including without limitation the rules under the Turkish International Arbitration Law or the rules of the Istanbul Arbitration Centre. If the seat of arbitration is in Turkey but the parties have not agreed on the applicability of any institutional rules of arbitration, the rules and principles set out in the Turkish International Arbitration Law shall apply, to the extent that there is a foreign element involved in the dispute. Istanbul Arbitration Centre serve its clients in Turkish, English, French and German languages.

Since Istanbul Arbitration Centre’s arbitral awards are final, binding and enforceable just like court decisions, and Turkey is a party to the New York Convention, Istanbul Arbitration Centre’s arbitral awards are enforceable not only in Turkey, but also in other countries that are party to the New York Convention. In addition, Turkey is also a contracting state to the ICSID Convention. Consequently, for disputes arising out of or relating to an investment, between the Turkish State and a national of another contracting state, the parties may also opt in for arbitration under ICSID.