NEW FOREIGN DIRECT INVESTMENT LAW AND WHAT'S NEW ABOUT THE LAW?

Law 6224 on Encouragement of Foreign Capital enacted on January 18, 1954 was a quite liberal law compared with the legislations of some OECD countries of those times. The term  "encouragement" in the name of  Law 6224 derived from the presence of  some principles that were intended as real incentives, such as : "free transfer" and "national treatment". However,  notions, definitions and applications concerning foreign  direct investments have changed so rapidly that  Law 6224  lagged  behind  the contemporary demands  of both foreign investors and Turkey . As a result  the need for a  new Foreign Direct  Investment Law emerged.
Law 4875 emphasises the key elements of the liberal investment environment in Turkey.  We believe that  foreign investment legislation of any country is the representative of the nation's attitude towards international investments. With Turkey's new Foreign Direct Investment Law, our equal (level playing field) and liberal approach to international investments is clearly reflected . Our new law is the  "legal guide"  to international investors about their rights and obligations,  with explicit messages.

I.        International Standards
"Foreign direct investment" and "Foreign investor" terms are defined within international standards in order to clarify the field of application of the Foreign Direct Investment Law.  Within this scope: 

a) Foreign Investor is defined as:
1) Real persons who possess foreign nationality and Turkish nationals resident abroad,
2) Foreign legal entities established under the laws of foreign countries and international institutions,
who make foreign direct investment in Turkey.

b) Foreign direct investment is defined as :
i)  Establishing a new company or branch of a foreign company
ii) Share acquisitions not by means of capital markets, and share acquisitions through capital markets where the foreign investor owns 10 percent or more of the shares or voting power,
By means of but not limited to the following economical assets:
1) Assets acquired from abroad by the foreign investor:
    -Capital in cash in the form of convertible currency bought and sold by the Central Bank of Turkey,
-          Stocks and bonds of foreign companies (other than government bonds),
-          Machinery and equipment,
-          Industrial and intellectual property rights
2) Assets procured from Turkey:
-          Reinvested earnings, revenues, financial claims, or any other investment-related rights of financial value
-          Commercial rights for the exploration and extraction of natural resources.

II. Abolishing Permits
With this Law, all permits granted by the General Directorate of Foreign Investment are abolished. As a result, all transactions for establishing a company with foreign capital will be the same as with local companies. Since all companies established in Turkey within the framework of the Turkish Commercial Code are accepted as Turkish companies, all duties and responsibilities are equal regardless of the nature of capital formation.

III. Informing Investors About Their Existing Rights
National Treatment
The National Treatment,  the major principle  of foreign investment policy of Turkey,  was emphasized in the new law.

Protection against Expropriation
Principles stated in the Constitution and the Expropriation Law are stated in the new law, as in the  bilateral investment agreements and other international agreements. Therefore  it is clarified that expropriation can not take place with any reason other than the above-mentioned regulations.

Guarantee of Transfers
In the new Law, the right of free transfer of profits, dividends, proceeds from sale or liquidation of all or any part of an investment, amounts arising from license, management and similar agreements, reimbursements and interest payments arising from foreign loans, banks or special financial institutions is clearly stated.

Access to Real Estate 
Legal entities with foreign capital, established and registered under rules of Turkish Commercial Code can acquire real estate with the same principles as Turkish nationals. The principle of reciprocity  is still valid for foreign real persons.

International Arbitration
According to the new law, for the settlement of disputes arising from investment agreements subject to private law and disputes  arising from conditions and contracts made with the administration under which concessions concerning public services are granted, foreign investor can apply, beside the authorised local courts, to national or international arbitration, or other means of dispute settlement, provided that the conditions in the related regulations are fulfilled and the parties agree thereon.

Employment of Expatriates
Foreign personnel can be employed for investments in Turkey.  Considering its importance to foreign to foreign investors, employment of expatriates is explicitly mentioned in this Law.

IV. The New Role of  Undersecretariat of Treasury
Foreign Investment policy of Turkey has changed from screening  system to monitoring system. With this new scope, Undersecretariat  of Treasury will collect any kind of data concerning the foreign investments and determine the foreign investment policy of Turkey .

10 QUESTIONS REGARDING THE NEW LAW

1 - Why has Turkey introduced a new Foreign Direct Investment Law now?
The new Law is an integral part of a broader national reform program that is laying the foundation for sustainable growth and development, driven by private investments in a transparent marketplace fully open to the world and supported by a smaller but more effective State. To ensure that Turkey’s bold fiscal adjustment and ambitious structural reforms translate into substantial investments, the Government of Turkey is focusing on improving the investment climate as one of the main pillars of its economic program.  In addition to the introduction of a more investor-friendly new Law, the Government of Turkey has established by decree an inter-governmental Coordination Committee for the Improvement of the Investment Climate (YOIKK), composed of high-level representatives of relevant ministries, the private sector and NGOs to help remove remaining bureaucratic obstacles to investment. The Government of Turkey also intends to set up a well-funded new Investment Promotion Agency simultaneously able to work inside government and draw on private sector knowledge and market skills, to carry out a multi-year strategy to promote investment in Turkey.

2 - What is ‘new’ about the Foreign Direct Investment Law?
Key features of the new Foreign Direct Investment Law include:
·         Freedom to invest by dropping all former FDI-related screening, approval, share transfer and minimum capital requirements;
·         Reassurance of existing guarantees to foreign investors of their rights in one transparent and stable document;
·         Upgrading to accepted international standards for definitions of ‘foreign investor’ (broadened to include Turkish national residents abroad and international organisations) and ‘foreign direct investment’ (broadened to include all possible types of assets); and
·         A policy shift from ex-ante control to a promotion and facilitation approach with minimal ex-post monitoring to continuously improve an investor-friendly climate for growth and development.

3 - What rights do foreign investors have under the new Law?
The new Law guarantees national treatment and comprehensive investor rights. All companies established with a foreign capital contribution and under the rules of the Turkish Commercial Code (existing and newly established foreign companies) are regarded as a Turkish company. Therefore equal treatment both in rights and responsibilities as stated in the Constitution and other laws is applicable to all such companies (including national treatment, a guarantee against expropriation without compensation, transfer of proceeds, access to real estate and to expatriate personnel, and international arbitration or any other means of dispute settlement).

4 - Will investors be exempted from  permits formerly granted by GDFI?
Yes,  previous pre-permits issued by the Undersecretariat of Treasury’s General Directorate of Foreign Investment (GDFI) are abolished. However, all foreign companies established or to be established in Turkey are still responsible for obtaining those local licences required for a comparable Turkish company.

5 - Which permits formerly granted by GDFI will not be issued from now on?
·         Company and Branch establishment Pre-Permits
·         Foreign partner participation Pre-Permits
·         Investment Permits
·         Permits regarding changes in field of activity of foreign companies
·         Permits regarding capital increase or sale of shares of foreign companies
·         Indirect participation Permits
·         Registrations of license, know-how, technical assistance and similar agreements

6 - What is new for establishing a company in Turkey for foreign investors?
Entry conditions are the same as for comparable local Turkish companies.
·         There is no minimum amount of capital required. It is no longer obligatory to bring a minimum of $50,000 in share capital.
·         Any form of company included in the Turkish Commercial Code is acceptable. It is no longer obligatory to establish either a limited liability company or joint stock company.

7- Do foreign investors have access to real estate in Turkey ?
Companies having a legal entity with foreign capital in Turkey have the same rights to own or use land as domestic investors. The new Law reassures these rights. However, the principle of reciprocity is still valid for foreign real persons.

8 - Is there a new regulation for liaison offices?
No, there are no additional requirements. The establishment procedure of liaison offices has not changed.

9 - Is there a new regulation for establishment of branches of foreign companies?
Yes, pre-permits issued by General Directorate of Foreign Investment are abolished.   These branches can be established under rules of Turkish Commercial Code with the permit of Ministry of Industry and Trade.

10 - What will happen to foreign companies established in Turkey under the provisions of the previous Law No. 6224?
All companies with foreign capital established under Law No. 6224 (dated 18 January 1954) are subject to the new Law, with their previously-granted rights grandfathered. Therefore they will no longer require any approvals from GDFI, though they will now have to send yearly information forms (just like newly-established foreign companies) based on procedures to be determined by new regulations

Source: Undersecretariat

FOREIGN DIRECT INVESTMENT LAW

Law No. 4875                                                                      

Date of Passage: 5 June, 2003

Date of Official Gazette: 17 June, 2003

OBJECTIVE AND SCOPE

Article 1. The objective of this Law is to encourage foreign direct investments; to protect the rights of foreign investors; to define investment and investor in line with international standards; to establish a notification-based system for foreign direct investments rather than screening and approval; and thus regulate the principles to increase foreign direct investments through established policies. This Law establishes the treatment to be applied to foreign direct investments.

 DEFINITIONS

Article 2. The terms used in this Law shall have the following meanings:
a) Foreign investor:

1) Real persons who possess foreign nationality and Turkish nationals resident abroad, and

2) Foreign legal entities established under the laws of foreign countries and international institutions,

who make foreign direct investment in Turkey. 

b) Foreign direct investment:

i)       Establishing a new company or branch of a foreign company,

ii)      Share acquisitions, where the foreign investor owns 10 percent or more of the shares or voting power,

by means of, but not limited to the following economic assets:

1) Assets acquired from abroad by the foreign investor:

 -  Capital in cash in the form of convertible currency bought and sold by the Central  Bank of Turkey,

-          Stocks and bonds of foreign companies (excluding government bonds),

-          Machinery and equipment,

-          Industrial and intellectual property rights;

 2) Assets acquired from Turkey:

-          Reinvested earnings, revenues, financial claims, or any other investment-related rights of financial value,

-          Commercial rights for the exploration and extraction of natural resources.

c)The Undersecretariat: The Undersecretariat of Treasury.

PRINCIPLES CONCERNING FOREIGN DIRECT INVESTMENTS

 Article 3.

a) Freedom to Invest and National Treatment

Unless stipulated by international agreements and other special laws:

1.      Foreign investors are free to make foreign direct investments in Turkey,

2.      Foreign investors shall be subject to equal treatment with domestic investors.

b) Expropriation and Nationalisation

Foreign direct investments shall not be expropriated or nationalised, except for a public purpose and upon compensation in accordance with due process of law.

c) Transfers

Foreign investors can freely transfer abroad: profits, dividends, proceeds from the sale or liquidation of all or any part of an investment, amounts arising from license, management and similar agreements, and reimbursements and interest payments arising from foreign loans through banks or special financial institutions.

d) Access to Real Estate

Companies may freely acquire real estate or limited rights in rem through a legal entity in Turkey established or with participation by foreign investors, provided such acquisitions are permitted for Turkish citizens.

e) Dispute Settlement

For the settlement of disputes arising from investment agreements subject to private law and disputes arising from conditions and contracts made with the administration and under which concessions concerning public services are granted, foreign investors can apply either to the authorised local courts, or to national or international arbitration or other means of dispute settlement, provided that the conditions in the related regulations are fulfilled and the parties agree thereon.

f) Valuation of Non-cash Capital

Non-cash capital is valued within the regulations of Turkish Commercial Law. However, stocks and bonds of companies residing abroad will be accepted as foreign capital share of foreign investors and the values determined by the courts of the home country, or other relevant authorities in the home country, or any other international institutions performing valuations will be accepted.

g) Employment of Expatriates

Foreign personnel working permits are issued by Ministry of Labour and Social Security for foreign personnel to be employed in the companies, branches and entities established within the scope of this Law.

In a Regulation to be prepared jointly by the Undersecretariat of Treasury and the Ministry of Labour and Social Security, according to Article 23 of the Law on Foreign Personnel Working Permits No. 4817 dated 27 February 2003, the companies and entities with foreign capital which shall be in the context of the Regulation, the definition of the key personnel in the scope of the Regulation and other special procedures and principles concerning the work permits of key personnel will be determined.

Provisions stipulated in Article 14, paragraph 1, sub-paragraph (b) of Law No. 4817 will not be applicable to personnel to be employed within the context of this Regulation. The conditions under which the provisions stipulated in paragraph 1 of Article 13 of Law No. 4817 are to be applied to key foreign personnel employed will be specified in the Regulation.

h) Liaison Offices

The Undersecretariat is authorised to permit foreign companies established under the laws of foreign countries to open liaison offices, provided that they do not engage in commercial activities in Turkey.

DETERMINATION OF POLICIES AND DATA COLLECTION

Article 4. Taking into account the development plans, annual programs, general economic status of the country, trends in international investments and the opinions of related public institutions and private sector professional organisations, the Undersecretariat is authorised to determine the general framework of policies concerning foreign direct investments, and for this purpose, participate in the activities of other organisations. The consent of the Undersecretariat shall be taken before any amendment or enactment of a regulation related with foreign direct investments.

For the purpose of establishing and developing an information system related to foreign direct investments, the Undersecretariat is authorised to request statistical information on investments from all public institutions and private sector professional organisations.

Foreign investors shall submit the statistical information on their investments according to the procedures and principles to be determined by a regulation to be enacted by the Undersecretariat. Such information cannot be used as evidence or for any means other than for statistical purposes.

 OTHER PROVISIONS

Article 5.

a) Existing Companies with Foreign Capital

All companies with foreign capital established pursuant to Law No. 6224 dated 18 January 1954 shall be subject to this Law, reserving their granted rights.

b) Regulations

The implementing procedures for this Law will be determined in a regulation to be prepared by the Undersecretariat within one month of the publication of the present Law.

c) Repealed Provisions

The Law for Encouragement of Foreign Capital No. 6224 dated 18 January 1954 is repealed. The references made to Law No. 6224 and its regulations and amendments are considered as referring to this Law.

d) Any alteration concerning the articles of this Law is only regulated by means of amending and appending provisions to the present Law. 

PROVISIONAL ARTICLE 1. The provisions of the decrees, communiqués and circulars in effect, which are in conformity with this Law, shall remain in force until new regulations to regularise the implementation of this Law take effect.

EFFECTIVENESS

Article 6. This Law shall come into force on the date of its publication.

ENFORCEMENT

Article 7. The Council of Ministers is entrusted with the enforcement of this Law.