THE REPUBLIC OF TURKEY :
LEGAL ASPECTS OF DOING
BUSINESS
Presented by Me Ali T. Argun
Montreal, May 4, 2011
Board of Trade of Metropolitan Montreal
• GENERAL
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The Republic of Turkey was founded on October 29, 1923.
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Turkey is a parliamentary democracy, a secular state (division of
church and state), and a constitutional republic.
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Turkey has a population of approx. 71.5 million (according to a
2008 census)
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Turkey’s currency is the Turkish Lira (TL) and its value is
determined by free market factors.
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The Turkish peninsula has been, for centuries, a center for
commerce and trade. Turkey’s geographic location alone testifies
to the leading role that this civilization has played in commercial
transactions: Turkey is the only country that bridges 2 continents,
Europe and Asia.
• GENERAL (continued)
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Turkey has strong ties with both the Western and Eastern worlds,
as can be seen by its membership in various organizations, such
as:
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NATO (North Atlantic Treaty Organization);
World Trade Organization;
United Nations;
Council of Europe;
OECD (Organization for Economic Co-operation and Development, holds 30
countries which accept the principles of representative democracy and free
market economy);
The G-20 major economies;
ECO (international organization involving Asian and Eurasian nations whose
objective is to improve development and promote trade and investment
opportunities);
Turkey has also reached a Customs Union Agreement (in 1995)
with the European Union (EU).
• ECONOMY
• According to the World Bank Report (2008), Turkey is the 17th
biggest economy in the world and is one of the world’s 10 “Big
Emerging Markets”.
• The GDP growth rate from 2002 to 2007 averaged 7.4% (source:
Turkish Statistical Institute “GNP and GDP as of September 2006”
2006-12-11), which has made Turkey one of the fastest growing
economies in the world.
• Foreign investment is on the rise
• ECONOMY (continued)
• “A series of large privatizations, the stability fostered by the start of
Turkey’s EU accession negotiations, strong and stable growth, and
structural changes in the banking, retail, and telecommunications
sectors have all contributed to a rise in foreign investment (Source:
Jorn Madslien “Robust economy raises Turkey’s hopes” BBC 2006-12-12)
• Turkey has taken advantage of the customs agreement with the
EU, which sought to increase its industrial productions (destined
for exports). Turkey has, likewise, benefited from EU foreign
investment into its economy. (Source: World Bank “Turkey’s
evolving trade integration into Pan-European Markets” 2006-05-01)
• POLITICS / LEGAL
• Turkey is a parliamentary representative democracy and has a
strong tradition of secularism.
• Elections are held every 5 years.
• The President is the Head of State.
• The Prime Minister and the Council of Ministers exercise executive
authority.
• The Turkish Constitution governs the legal framework of the
country and, much like the Canadian Constitution, sets out the
principles and rules of the state’s responsibility towards its citizens.
• The Turkish Constitution establishes a separation of powers
between the legislative, executive and judicial branches.
• POLITICS / LEGAL (CONTINUED)
• The Turkish Constitution includes a Bill of Rights which guarantees
“fundamental rights and freedoms” including freedom of religion,
freedom of thought and opinion, inviolability of the domicile
amongst others.
• The legal system in Turkey has been influenced by various
traditions: the administrative law is similar to the French system,
Turkish criminal law has its roots in the Italian legal system and
both the Turkish Commercial and Civil Codes are based on the
German and Swiss legal systems.
• The legal framework for commercial activities is found in the
Turkish Civil Code and the Code of Obligations. The Commercial
Code deals with commercial activities such as insurance, maritime
trade, companies, checks and bonds, etc.
• POLITICS / LEGAL (CONTINUED)
• As in Canada, Turkish law both prohibits and sanctions unfair
competition.
• In 2003, the Foreign Investment Law came into force. This law
encourages foreign investments, applies international standards to
the definition of “investor” and, most importantly, protects the rights
of foreign investors.
• This law guarantees national treatment and comprehensive
investor rights (i.e.: foreign companies are treated as Turkish
companies) = the law does not distinguish between Turkish and
foreign companies; both are treated equally.
• POLITICS / LEGAL (CONTINUED)
• This law therefore ensures that foreign companies benefit from:
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Freedom to invest;
National treatment of foreign companies;
Guarantee against expropriation without compensation;
Transfer of proceeds;
Access to real estate;
Possibility to expatriate personnel;
International arbitration and other means of dispute settlement
• POLITICS / LEGAL (CONTINUED)
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Different forms of legal persons are recognized in Turkey:
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Companies
Partnerships
Joint Ventures
Individuals/ Sole traders
Branch Companies
The rights, obligations, and liabilities vary depending on which
form of entity is chosen
(Source: “Doing Business in Turkey” Ernst & Young (2005) page 494 et seq.)
• POLITICS / LEGAL (CONTINUED)
COMPANIES :
 Business structures with limited liability consist primarily of joint
stock companies and limited liability companies
 independent legal entities;
 capital represented by shares and partnership rights;
 shareholders are not required to be Turkish;
 may be 100% foreign owned;
 minimum capital to be contributed to limited liability and for joint stock
companies;
 the Turkish Commercial Code (TCC) requires that joint stock
companies and limited liability companies maintain two legal
reserves;
 legal reserves protect the rights protect the rights of third parties by
increasing the amount of owners’ equity.
• POLITICS / LEGAL (CONTINUED)
COMPANIES : (Joint stock companies)
 a corporation having its own trade name and a predetermined amount of
capital divided into shares;
 liability of the shareholder is limited to his capital;
 structure and organization of joint stock companies are subject to the
regulation of the Turkish Commercial Code;
 a minimum of five shareholders are required (real persons or legal
entities);
 capital is divided into shares of equal value, which are treated as
negotiable commercial paper;
 the shares may be either registered or to the bearer;
 the General Assembly of the shareholders has ultimate control of a joint
stock company;
• POLITICS / LEGAL (CONTINUED)
COMPANIES (Joint stock companies)
 a General Assembly must be held at least once a year within three
months following the end of the fiscal year and there is a formal
procedure for convening it;
 the executive body of a joint stock company is the Board of Directors,
composed of at least three members who may also be foreigners.
Limited liability companies
 require a minimum of two shareholders, but may have no more than 50
shareholders;
 may not issue shares in the capital markets;
 the three permissible types of corporate shares include share certificates,
privileged share certificates and redeemed share certificates;
• POLITICS / LEGAL (CONTINUED)
PARTNERSHIPS :
Ordinary partnership
 not a legal entity, but a group of entrepreneurs who have concluded an
agreement;
 may not have their own trade name, nor may they appear in the Register
of Commerce or the Register of Title Deeds;
 the partners of an ordinary partnership have equal rights and obligations,
jointly own the assets of the partnership, have unlimited liability for
partnership debts.
• POLITICS / LEGAL (CONTINUED)
PARTNERSHIPS :
Partnership regarded as a commercial company
 a legal entity with a legal personality independent from its partners;
 may be either a limited or general partnership;
 in a limited partnership, one or more of the active general partners is liable for
the partnership’s debts without limitation, while one or more of the limited
partners is liable only up to the amount of the partner’s capital contribution to the
partnership;
 in a general partnership, the company is the first party liable for the partnership
debts, followed by the general partners;
 for partnerships that are regarded as commercial companies a written
agreement is mandatory.
• POLITICS / LEGAL (CONTINUED)
Joint Ventures
 are formed between legal entities and/or individuals to complete a certain
project within a specified time according to a written agreement;
 one of the partners to a joint venture must be a company that is subject
to corporation tax;
 joint ventures are separately subject to corporation tax, VAT and
withholding tax, but they do not have legal personalities or ownership
rights.
• POLITICS / LEGAL (CONTINUED)
Sole traders
 a commercial business;
 individual owner is the ultimate employer and manager of the firm;
 must be registered with the Chamber of Commerce;
 the results of operations are reported in the sole trader’s individual
income tax return.
• POLITICS / LEGAL (CONTINUED)
• Branches of Foreign companies
 foreign investors may choose to operate through “Branches of
Foreign Companies”;
 the name that will be used must indicate that the entity is a branch;
 the branch must be registered with the local Chamber of commerce
and the local Trade registry;
 a non-resident company that intends to do business in Turkey (and
that wishes to form a branch) must inform the Foreign Investment;
General Directorate (FIGD) of the Undersecretariate of the Treasury;
 Liability: includes both branch capital and parent company’s assets;
 Branches are considered, for tax purposes, to be “non-residents” and
are only taxed on the profits that are generated in Turkey.
• POLITICS / LEGAL (CONTINUED)
• Foreign investors find Turkey attractive for a number of reasons:
 the government maintains a liberal policy towards all forms of
foreign investment;
 energy costs are low;
 the labour force is abundant and relatively cheap;
 due to the size of the Turkish population, there is a large
market.
(Source: “Turkey” February 2003 by Deloitte & Touche)
• POLITICS / LEGAL (CONTINUED)
• Those wishing to do business in Turkey may expect:
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A political system similar to Canada and Quebec;
Political stability;
A judicial infrastructure similar to Canada and Quebec;
A legal framework similar to Canada and Quebec;
A commercial framework similar to Canada and Quebec;
Interesting Tax Incentives;
Sustainability;
Fair competition;
A large, hardworking labour force;
A large, expanding market.
Some Useful Tips:
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Be sure to conclude a written contract that includes:
 clear definitions of the parties respective rights and obligations;
 proper insurance provisions;
 clear payment terms, conditions & guarantees;
 a dispute resolution mechanism and the rules that shall be
applicable
 the Courts of a particular jurisdiction;
 binding arbitration;
 I.C.C., A.A.A., Rules of Arbitration of the Civil Code of Quebec;
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 a determination of the law that shall govern the contract;
 a determination of where any dispute shall be heard;
 reliable written notice provisions.
Resist the temptation to cut and paste from other contracts
Protect your intellectual property (patents, trademarks, copyright,
industrial designs)
Consult qualified professionals (lawyers, accountants)
Use the resources at your disposal
Acknowledgements
For his invaluable assistance in the preparation of this presentation, I wish to thank:
M. Sylvain Boucher
Partner
Ernst & Young
800, boul. René Lévesque Ouest,
Suite 1900,
Montreal, Quebec
H3B 1X9
Tel: 514-874-4393
Fax: 514-871-8713
sylvain.boucher@ca.ey.com
Me Ali T. Argun
Partner
Morency, Attorneys LLP
500 Place d’Armes, Suite 2420
Montreal, Quebec
H2Y 2W2
Tel: 514-845-3533 (Ext. 202)
Fax: 514-845-9522
atargun@morencyavocats.com