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Investing
In Turkey:
Incentives,
Conditions, Getting Started
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by Christopher
Deliso
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| 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. |
 Christopher
Deliso is a freelance writer covering emerging stories in the areas
of travel, investment, and politics. He has recently covered breaking news
on Serbian banking reform, expat life in Macedonia, and Macedonian health
care. He has numerous publications as a UPI Business Correspondent. He
has been submitting articles to Escape from America Magazine since 2000.
He is currently on sabbatical in Greece and Bulgaria, undoubtedly keeping
his eyes and ears open for more news from that region of the world.
.
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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). |
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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, |
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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. |
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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. |
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Contact
Christopher Deliso
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