January 2008
FOREIGN INVESTMENTS IN TURKEY AND TYPES OF COMPANIES
Since the amendment of the Direct Foreign Investment Law on the 17.06.2003, there have been some changes in the existing system of corporate law. Differing from previous adjustments, obligations concerning permissions and minimum amount of capital are regulated in order to promote foreign investment. According to the Direct Foreign Investment Law; foreigner investors who directly make foreign investments are;
- Foreign citizens
- Turkish citizens who are residents in a foreign country
- Legal entities and international enterprises which are established under a foreign country's law. Foreign investors are entitled to establish new companies and branch offices or they can be partners to companies settled in Turkey on condition that they fulfill their registration obligations.
It's possible for foreign investors to establish all types of companies that are regulated in the Code of Obligations and in the Turkish Commercial Code. However, the most preferred company types in Turkey are limited company and joint stock company.
Direct Foreign Investment is an economic value that is imported by foreign investor from a foreign country, such as;
- Cash capital in a currency bought and sold by the Central Bank of the Republic of Turkey
- Company shares (except for government bonds)
- Machines and equipment
- Intellectual and industrial property rights or;
Benefits to be produced within the domestic territory, such as;
- Profits, proceeds, outstanding money or other rights related to investment to be operated in reinvestments.
- Rights which are related to research and mining out of natural resources.
2. COMPANY TYPES IN TURKEY
The companies that can be established according to the System of Turkish Corporate Law are;
- Open company
- Commandite company
- Limited company
- Joint Stock company
- Cooperative
- Ordinary partnership which has no legal status (regulated in the Code of Obligations)
Open Company
A minimum capital amount is not provided for open company. Partners are jointly and severally liable. At least two partners are required for establishment of the company.
Commandite Company
In commandite company; as in German Law, dormant partner's responsibility is limited by a definite amount of capital and active partner's liability is unlimited.
Limited Company
Limited company can be established by minimum two real persons or legal entities. Minimum amount of capital required is 5000 YTL (equal to approximately 3000 Euros). Limited company partners are liable from the amount of capital that they pledge. Limited companies cannot go public and their shares cannot be operated in stock market.
Joint-Stock Company
Joint stock company can be established by minimum five real persons or legal entities. Minimum amount of capital required is 50.000 YTL (equal to approximately 30.000 Euros) Liability of partners is limited by pledged capital. As in German Law, there are two types of Joint stock company; open joint stock company and close joint stock company. Mandatory corporate bodies are the same as in German Law;
- Board of directors which consists of at least three shareholders (if required, a manager can be appointed)
- Supervisory board which consists of maximum five shareholders (if there is one supervisor he/she should be Turkish citizen. If there are more than one supervisor, nominal majority of them should be Turkish citizens)
v- General assembly is the supreme body that takes decisions related to company's policies.
Joint stock company is regulated in the Turkish Commercial Code and in the Securities Exchange Act. In some sectors (such as banking, insurance and factoring), permission by the Ministry of Industry and Trade has to be granted before the establishment of a joint stock company.
3. Establishment
Establishment procedure varies between the establishment of a company and of a branch office. Foreign investors are also allowed to establish representative offices by taking less risk and investing less capital for studying the market conditions where they want to enter, clients' profile and competition conditions. Therefore, we will study below three types of establishment procedures as establishment of a company, establishment of a branch office and establishment of a representative office.
4. Company Establishment
In Turkey, establishment procedure of company is simplified. Insofar, it is possible to establish a company even in a few business days. Establishment of a company consists of these steps;
- Singing of articles of associations by all partners.
- Authentication of signatures by notary
- Preparation of the petition and form of company establishment
- Preparation of following documents: If there is a foreign real person among founders, a photocopy of his/her passport if presented with its original or a notary certified copy of the passport. In the case of legal persons, legal entity's Commercial Activity Certificate to be prepared by a competent court or chamber of commerce to which the company is registered and to be approved by the related Turkish Consulate according to The Hague Conference on Private International Law (with an apostille stamp on it) and its notary certified translation.
- Together with all these documents and an invoice that shows that minimum amount of capital is paid and a list of authorized signatures, application is filled to the register office for registration. After the registration, filling an application to the tax office is required.
- Registration shall be published in the Trade Registry Gazette.
After the registration, company can start the business operations. But the important point is that filling application to the tax office must be done in the same day with the. Otherwise a fine is given because of irregularity.
3.2 Establishment of Branch Office
Foreign people can easily establish branch offices in Turkey with a little expense. To establish a branch office, it is mandatory to nominate a branch representative whose residence shall be in Turkey and to get an authorization from Ministry of Industry and Trade. Branch offices have no separate legal personality and they are not registered in the commercial register.
The necessary documents to establish a branch office are as follows;
- Translation of the articles of association with apostille stamp.
- Permission by the Ministry
- Letter of authority on behalf of the branch representative
- List of authorized signature of branch representative
- If the branch office representative is a Turkish citizen, a notary certified copy of his/her identification card. If he/she is a foreign citizen, a notary certified copy of his/her passport, work permit and residence permit are required.
In general, branch office establishment constitutes the first stage of company establishment. Because establishing a branch office gives advantages in the sense of tax regulations, labor law and granting of working permits. Branch office representative can sign agreements or set up commercial relations which on behalf of the mother company abroad. But it should be noted that in such contracts, any dispute would be settled by Turkish courts if not agreed otherwise.
3.3. Representative Office
Foreign national investors can open representative office for studying the market conditions where they want to enter or establishing business relations. Representative office's operations for commercial purposes are forbidden. Establishment of a representative office would have the purpose of establishing a company in Turkey or carrying out some jobs such as to control the quality of the production of a supplier in Turkey. After filling the required forms for the application, the permit for establishing a representative office is granted in 5 days.
4. Residence and Working Permits
The regulation of working permits for foreign persons in Turkey was enacted in the beginning of the 2003. Competent authority for this issue is the Ministry of Labour and Social Security and the Turkish Consulates abroad.
Four types of working permit are provided by the law;
1. Limited work permit
Limited work permit is granted by considering the most recent developments in the labor market and sectoral and economic conjuncture changes. It is granted for one year maximum in accordance with the length of the stay permit, the duration of the work or the expiration date of the labor contract for a definite work place or a definite entity and for a definite job. The work permit can be extended after the term of one year provided in the Act.
Limited work permit can be granted to the spouse and dependent children of a foreign citizen provided that they stay in Turkey continuously for five years together with the applicant foreign citizen.
2. Transit work permit
Transit work permit can be granted without being subject to the examination of the developments in the labor market and sectoral and economic conjuncture changes, or to any professional, administrative or geographical limitation for foreign people who resided in Turkey continuously and legally for eight years and worked with permission for six years.
3. Independent work permit
Differing from German Law, foreign person who will work in Turkey independently shall also have to take work permit. Independent work permit can be issued by the Ministry for foreign person who will work independently, on condition that the foreign person has been residing legally and continuously in Turkey at least since 5 years. In the past, an efficiency test used to apply to foreign people who ask for an independent work permit.
4. Exceptional Work Permit
a. Work permit can be given to some people without considering the time limits provided by law. Exceptional work permit can be granted to persons who born in Turkey or come to Turkey before the age of capacity, who graduate from training school, college or university, who marry a Turkish citizen or who is considered to be a key person in direct investment. High level managers for foreign investments such as a foreign administrator or a foreign branch office representative can be appointed this way. Working permission must be obtained from Turkish consulates before arriving to Turkey.
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