| Investing
In Turkey: Incentives, Conditions, Getting Started |
| Ever thought of investing
in Turkey? This ancient land of stunning natural beauty and abundant resources
is now actively trying to revive its historic role as the commercial link
between east and west. |
|
| Besides its choice geographical
placement, Turkey seems to have it all: a rich agricultural heartland,
heavy industry, huge stretches of coastline on three different seas, as
well as great tourism potential, not to mention a very favorable relationship
with the United States. |
|
| Especially now that plans have
been approved for the long-anticipated Baku-Ceyhan oil pipeline, Turkey
is developing into a hot emerging market. The government is actively
seeking out foreign investors on huge privatization programs in the fields
of energy, telecommunications and infrastructure projects. The Turkish
Constitution has also been amended to allow for international arbitration-
a previous lack that had scared off potential investors. All in all, the
situation is becoming increasingly favorable. Yet this mysterious country,
hampered as it is by bureaucracy and poverty, remains somewhat inaccessible
to the potentially interested Western investor. |
|
|
|
|
|
| Nothing is impossible,
however. Cutting through the red tape, we can lay out very simply the benefits,
costs and restrictions that come with investing in Turkey, from the legal
perspective. Armed with this knowledge (derived from several Turkish
government documents which lay out the rules for foreign investment),
the savvy Western businessman can get a jump on the competition. |
|
| Getting
Started: Rules, Procedures and Limitations |
|
| To start a corporation in Turkey,
or participate in an existing one, a minimum of $50,000 must be brought
in from the outside for each investor. Once finances have been prepared,
certain documents and applications must be submitted to the GDFI
(General Directorate of Foreign Investments). This application process
can be divided into three steps. |
|
| For businesses and legal entities,
a Certificate of Activity approved by the related Turkish consulate must
be submitted first of all. In the absence of a consular report, the business
must apply in accordance with Turkey’s Abolition of the Requirement for
Approval of Foreign Official Documents Agreement. Next, the entity must
also submit an Activity Report covering the year prior. |
|
|
| For individuals, a notary-certified
copy of passport must be provided, along with a detailed summary of personal
commercial and industrial background, and the relevant verifying documents.
Also in this first stage, the investor must submit a letter of intent,
which declares that each foreign partner will bring in at least $50,000
as company capital. The draft articles of the future company must also
be submitted. Further, power of attorney must be given to the individual
who will represent the shareholders and serve as contact person during
the application process. Finally, investors must fill out an application
provided by the Turkish government. |
|
| The second step is to publish
the new company’s establishment, and this must be done through direct
application to the Ministry of Industry and Trade. The third step, which
concerns endorsement of permission certificate, is also done through direct
application (to the GDFI). |
|
| In this application, both
the original of the permission certificate and the Trade Registry Gazette
which published the company’s establishment must be provided. Finance
receipts are also required at this point. If foreign capital brought in
has already been converted into Turkish Liras, Foreign Exchange Purchase
Receipts must be submitted. If the cash is being held in foreign exchange
deposit accounts, related bank documents should be provided. Both of these
must include the names of the foreign capital company and the foreign partner,
the country of original transference, and the currency amount in USD and
TL. These documents must state that the currency was brought in as company
capital. |
|
| Generally, Turkey tries to encourage
foreign investment by making most sectors open to foreign as well as domestic
investors. In the interests of national security and health, however,
some fields are restricted. For example, a foreign investor can only constitute
20 percent equity participation in broadcasting, and up to 49 percent in
aviation, maritime transportation, port services and value-added telecommunications
services. |
|
|
|
|
|
| Real estate trading and fishing
are currently off-limits. Special official permission is required to get
involved with finance, petroleum and mining. |
|
| In an effort to reduce bureaucratic
unpleasantry, the government now pledges that new companies can be registered
in three weeks or less. The government also promises now that it only takes
1-15 days to obtain land use, planning or building permits, and that the
cost of such permits is “negligible.” |
|
| Investment
Incentives |
|
Part of Turkey’s economic strategy
is to create conditions amenable to foreign investors.
The country thus provides generous
incentives in various ways. Besides a speedy promised application process,
there is a wide-open playing field (in terms of the relatively open
sectors of activity). There are no conditions for approval of foreign
credit acquisition, nor for approval of licenses, technical assistance
or managerial agreements. There are no limitations regarding participation
of foreign capital, nor regarding the number of foreigners who may be employed
as managers and staff. Profits, fees, royalties and repatriation of capital
(in the event of sale or liquidation) are also free and guaranteed.
Further, there is no ceiling on licensing fees and royalty rates. |
|
|
| Another major (and classic)
incentive is tax exemption. There is a catch, however, in that one must
invest a certain amount of money to get them. Here, the magic number is
relative, changing to reflect the economic importance of the region where
the investment is being made. For this purpose, the government has divided
Turkey’s territory into three economic categories. It is therefore important
to know precisely where you are planning on investing. |
|
| First of all are the “developed”
regions (the cities of Istanbul and Kocaeli, and the municipalities
of Ankara, Izmir, Bursa, Adana and Antalya). For incentive benefits,
minimum required investment here is 600 billion TL. The second area is
known as the “first priority regions,” and constitutes the next
fifty largest cities in Turkey (exact list to be determined by the Turkish
Council of Ministers). Here, the minimum investment is 400 billion
TL. Finally come the “normal regions,” which are made up of all
the remaining (the more sparsely populated) areas. The minimum investment
requirement here is 200 billion TL. |
|
| Currently, foreign investors
are exempt from customs duties and funds levies, and are also exempt from
VAT on machinery and equipment, whether imported or purchased within Turkey.
Investment allowance also applies. |
|
|
| The first exemption is designed
to encourage investors to bring in the high-quality, technologically advanced
equipment they might need, without being burdened by customs taxes.
Of course, raw materials are not allowed to be imported, and machinery
must be listed in advance, for registration with Turkey’s GDFI. The VAT
exemption also aims to encourage investors needing to import or purchase
locally needed equipment. Again, this equipment must be listed with the
GDFI. |
|
| Investment allowance is a corporate
tax exemption which deals with investment-related expenses. Chiefly, investment
allowance benefits derive from buildings, machinery, freight and installation. |
|
| Other considerations |
|
| Despite the attractiveness of
these incentives, there are still risks associated with doing business
in Turkey. The Anatolian sub-continent sits along major fault lines,
and is inhabited partially by Kurdish separatists in the southeast. A major
earthquake in Izmit killed 20,000 people in 1999, and scientists predict
an even more devastating quake sometime over the next thirty years for
Istanbul. Turkey has occasionally hostile relations with neighboring Syria,
and also borders on Iraq. The political fragility of its national institutions
(realistically speaking, Turkey’s power lies within the military)
could be tested if the EU tries to force the status quo in Cyprus. And
all this before even considering the economic picture. |
|
| Last year’s recession was the
severest in decades, and saw the country’s GDP halved: $107.7 billion,
down from $202 billion in 2000. The lira is still prone to fluctuation
and devaluation. Since 1995, the Turkish Central bank has been devaluing
the Lira in line with WPI inflation, so that a 25-50 percent incremental
rate change has occurred every year, from 1995, when $1 USD equaled 45,
986 TL, through 2000, when the dollar equaled 624,958 TL. Figures are not
available for last year, but the WPI inflation jump (from 32.7 percent
in 2000 to 57.6 percent in 2001) tell a good deal of the story. |
|
| Analysts hope that the boat has
righted since then, and that Turkey is on course for a revitalized economic
future. It has begun World Bank and IMF-backed privatization efforts,
and with the promise of the pipeline is hoping to tackle its chronic energy
shortages. These bodies, as well as the US government, are tiring of yet
more economic bailouts to shore up the Turkish economy. Yet the political
reality- that the US cannot allow major changes in the Turkish government’s
policies, orientation and accessibility- also means that there is an artificially-imposed
limit beyond which the Turkish economy cannot sink. Although the somewhat
volatile nature of Turkey’s “wild east” will surely scare off some, its
great opportunities, huge market and modernization developments also make
it a unique and tempting destination for the intrepid foreign investor. |
|
 |
|
|
