Over the past few years, several different developments, both transnational and domestic, have had effect of making capital investment in Turkey a more desirable and approachable prospect for foreign investors. These developments range from global socio-political changes to internal economical issues Turkey has been experiencing these past several years, making it an affordable and attractive place for foreign investors to make capital investments, mainly due to the low initial investment costs and the geographical location of Turkey.
2. FOREIGN CAPITAL INVESTMENT IN TURKEY
There are relatively few capital restrictions imposed upon capital investment in Turkey, and Turkey has also taken steps to ease the complexities and procedures the foreigners need to go through in order to incorporate and/or relocate into Turkey. It is important to note that foreigners are allowed to freely make capital investment in Turkey and are even allowed to have full/sole ownership of a capital company.
Although the procedures for incorporation have been simplified over the years, foreign investors may still find it difficult to understand and navigate the rules, procedures and the bureaucratic red tapes that they may come across when trying to bring their capital investments in Turkey. The summary below should shed some light on what potential investors should expect when investing in Turkey.
a) Choosing the Right Company Type
Although the legislation does allow for the incorporation of “personal companies” (where company owners are fully liable with their personal assets for any and all company debts), capital companies are the most common form of business entities in Turkey utilized by both local and foreign investors. The Joint Stock Companies (JSC) and Limited Liability Companies (similar to ‘LLC’ or ‘LLP’s around the world) are the two most common types of capital investments in Turkey. The two main differences between these company types is as follows:
b) Capital Investment in Turkey – What to Expect?
Although Turkey has been taking steps to simplify the incorporation procedures since 2018, it can still seem complex to the uninitiated. The below image provides a brief visual summary of the main steps required to incorporate a company in Turkey:
- Step 1 – Drafting: This stage is the initial preparation stage where the investor needs to decide on the type of investment (the company). It is important for the investor decide on the correct company type that suits the needs and requirements of the planned investment. Making an informed decision here will be crucial for the investor to save valuable time and costs.
- Step 2 – Bank Account: As shown above, there is a crucial difference between the two company types, which is the requirement to deposit the initial company capital before incorporation. For LTD’s, no initial payment of company capital is required, and therefore this step 2 and the following step 3 can be skipped entirely to be handled after incorporation. However, for JSC incorporations, a capital blockade account will need to be opened at a local bank following the initial submission of documents. This is can be the most problematic step depending on the nationality of the investor as well as the person(s) who will be appointed as directors / managers to the company to be incorporated in Turkey.
- Step 3 – Depositing Capital: As noted in detail in step 2, this step will only be required for JSC incorporations. Accordingly, at least ¼ of the committed company capital needs to be deposited to the capital blockade account of the company before the final submission step.
- Step 4 – Final Submission: Once all documents are ready, all documents needs to be physically submitted to the relevant Trade Registry, where the shareholders of the company will also be required to sign the newly incorporated company’s Articles of Association (this can also be handled remotely with designated power of attorneys). The Trade Registry will review the application and will approved the incorporation if all documents are in order. Once the trade registry approves, the company will be formally incorporated.
- Step 5 – Tax Submissions: This is another crucial step and one missed by many first-time foreign investors. Following the approval of the trade registry and incorporation of the company, it is crucial for the company to submit the relevant tax office and social security registration applications as soon as possible, to avoid paying monetary fines to these institutions.
3. WHY INVEST IN TURKEY?
Turkey’s unique geographic location coupled with low investment costs make it an attractive place for foreign capital investment. It’s customs union with the EU allows direct access to the EU market.
Due to its unique geographic location, Turkey can also act as a hub, offering easy access to 1.3 billion people in Europe, MENA and central Asia within a 4-hour flight radius.
Turkey has a wide global market access at the crossroads between Europe, Africa and Asia, making it an efficient hub to access international markets around the world. Turkey also has a strong manufacturing infrastructure, ranging from the automotive sector to machinery & electronic equipment, defense, and agriculture & fresh produce. Turkey’s exports grew to $225 Billion in 2021, according to the Turkey Investment Office, which further highlights its production capacity.
Although this article aims to summarize the rules and procedures governing capital investment in Turkey, it should by no means treated as a full and complete guide to company incorporation. There are numerous issues that needs consideration when deciding which options suits best for the planned invest, and any wrong handling of the preparation or the submission processes can cause the investors to lose valuable time and money. To avoid such a drastic outcomes it highly advised that foreigner investors seek professional assistance for their capital investment in Turkey. Further information regarding corporate tax and tax cycles can be accessed here.