Investing in Turkey

Establıshıng A Company In Turkey And Advantages Of Investıng In Turkey

1. What are the types of companies that can be established in Turkey?

According to the Turkish Commercial Code, there are 5 types of companies that can be established in Turkey. These companies are joint stock companies, limited liability companies, limited liability companies, limited partnership companies (ordinary limited partnership companies and limited partnership companies with capital divided into shares) and cooperatives.

What are the characteristics of these company types?

Joint stock companies, limited liability companies and limited partnership companies with capital divided into shares are examples of capital companies. In capital companies, shareholders have a liability limited to the amount of capital they have subscribed.

Ordinary limited partnership companies and collective companies belong to the category of sole proprietorships. In these types of companies, the partners have second degree and unlimited liability for the debts of the company.

The establishment, basic characteristics and functioning of these types of companies are regulated in detail in the Turkish Commercial Code No. 6102. For cooperatives, the Cooperatives Law No. 1163 is primarily applicable.

Joint stock companies and limited liability companies are the most common types of companies in Turkey. Limited liability companies account for approximately 82% of all companies, followed by joint stock companies (13%) and cooperatives (4%). Collective and limited partnership companies combined account for approximately 1%.

1.1 What is a Joint Stock Company? What are the Characteristics of Joint Stock Companies in Turkey?

A joint stock company is defined as a capital company. This type of company, which has large forward-looking goals in any sector and engages in economic activities, is a special type of company that can be managed on a majority basis and can issue securities such as stocks and bonds.

Joint stock companies, which have a specific title, divide their share capital into shares. They also have a structure that is only linked to the assets of the partners due to their debts and limited by the share of capital subscribed by the partners.

Joint stock companies carry certain legal obligations and have to follow certain procedures to fulfill these obligations.

1.1.1 Characteristics of Joint Stock Companies in Turkey

• A joint stock company is a type of company that has a certain capital and divides this capital into shares, and is liable for its debts only with its assets.
• Joint stock companies may be established for any economic purpose and subject not prohibited by law.
• Generally, the transfer of shares does not require the approval of the general assembly. Shareholders may freely transfer their shares to others.
• Joint stock companies may issue both registered and bearer share certificates to represent shares. They may also issue bonds and similar debt instruments.
• Joint stock companies may be established with a single shareholder and the shareholders are liable to the company only for the capital shares they have subscribed.
• A joint stock company shall have an articles of association in writing and registered with the trade registry in the place where its head office is located.
• Joint stock companies are the only type of company whose shares can be offered to the public and traded on the stock exchange.
• Joint stock companies must have at least 1 partner
• For joint stock companies, the minimum share capital must be TRY 50,000. The amount of registered capital that is not publicly traded cannot be less than 100.000 TL
• The activities of joint stock companies cannot be contrary to the law, morality and decency.
• Joint stock companies acquire legal capacity upon registration

1.1.2 What are the Organs of Joint Stock Companies?

Joint stock companies in Turkey are composed of two bodies: the General Assembly and the Board of Directors. While the General Assembly is a body where all shareholders of the company are represented and authorized to take important decisions, the Board of Directors is charged with the management and representation of the company.

There is no obligation for the members of the board of directors to be located in Turkey and to be Turkish citizens.

1.1.3 What is the General Assembly in Joint Stock Companies? What Does It Do?

In joint stock companies, the body where all shareholders come together to make decisions is called the General Assembly; this body is the highest level decision-making body. Ordinary general assembly meetings are held at least once a year within three months after the company’s accounting period, while extraordinary general assembly meetings are held when necessary. The General Assembly has certain duties, which can be listed as follows amending the articles of association of the company, deciding on the termination of the company, electing, replacing and dismissing the company organs, deciding on the issuance of shares and bonds, auditing and discharging the activities of the members of the board of directors, approving the balance sheet, profit and loss accounts, deciding on the election or dismissal of the liquidators in the event of a liquidation decision, and generally auditing the company.

1.1.4 What is the Board of Directors in Joint Stock Companies? What does it do?

The board of directors is a body responsible for the management and representation of the company. The members of the board of directors elected by the general assembly constitute the most important body after the general assembly in terms of their duties and powers. The members of the board of directors are generally elected from real persons and appointed from among the shareholders. Legal entity shareholders cannot hold board membership, but real persons who are representatives of the legal entity can be appointed to this position.

The responsibilities of the board of directors include convening the general assembly, appointing and dismissing company executives, auditing the company, preparing annual reports, preparing balance sheets and profit and loss statements, proposing dividend distribution, keeping the books of the company, electing new board members, registration and announcement procedures. They are also authorized to take necessary measures when the financial situation of the company deteriorates.

1.1.5 How is a joint stock company established in Turkey?

A joint stock company may be established by a single person or by more than one person. The founders of a joint stock company may be natural persons or legal entities.

The first step in the process of establishing a joint stock company is to determine the areas in which the company will operate, its trade name, its main center and how much capital it will be established with. Once these details are determined, the articles of association must be prepared. Pursuant to Article 339 of the Turkish Commercial Code, the articles of association must be in writing and the signatures of all founders must either be notarized or signed in the presence of the trade registry director or his/her deputy.

Once these steps are completed, the company is incorporated; however, it has not yet acquired legal personality. Pursuant to Article 355 of the Turkish Commercial Code, “The company acquires legal personality upon registration in the trade registry.” Companies at the stage before the registration process is completed are called “pre-incorporated companies”.

During the incorporation of a joint stock company, if the founder is a real person, he/she or his/her proxy who has given power of attorney for the incorporation of the company must carry out the incorporation. If the founder is a legal person, the representative of the legal entity can carry out the establishment procedures.

It is very important to get professional support during the establishment of a joint stock company. A possible mistake during the establishment of the company may cause major problems. For this reason, we recommend that you get support from a lawyer who is an expert in company establishment in the field of corporate law for the establishment of a joint stock company.

1.1.6 What are the Matters to be included in the Articles of Association of Joint Stock Companies? What are the Articles of Association of Joint Stock Companies in Turkey?

Some issues must be included in the articles of association of a joint stock company. We can list these issues as follows:

• The trade name of the company and the location of its headquarters
• Company’s field of activity
• If the company is limited to a certain period of time, the determination of this period
• Types and amounts of capital shares subscribed
• Company’s accounting period
• The share capital of the Company and the nominal value of each share and the method of payment
• Whether the share certificates are registered or bearer shares
• Privileges granted to certain shares and transfer restrictions
• The value of assets contributed as capital other than money, the amount of shares corresponding to these assets
• Amount of remuneration or reward to be paid to those who served in the establishment of the company
• Number of board members and their signature authorizations
• Benefits to be provided to founders, board members and other persons
• How the general assembly is called and voting rights

1.2 What is a Limited Liability Company? What are the Characteristics of Limited Liability Companies in Turkey?

A limited liability company is a type of company established by natural or legal persons under a title. Limited liability companies can carry out activities other than banking and insurance activities; their share capital consists of the sum of the shares of their share capital.

This type of company is a suitable option for medium-sized businesses. The identity of the shareholders is more distinct, they have a more closed structure than joint stock companies and share rights are not offered to the public as in joint stock companies.

Limited liability companies can be established with a single partner or a maximum of 50 partners. Partners may be real persons or legal entities. The company’s share capital is at least 10,000 Turkish Liras, and the cash capital can be fully paid within 24 months after the registration of the company. The payment schedule may be determined by the directors or may be regulated in the articles of association.

Limited liability companies, whose capital is fixed and divided into shares, are liable for their debts only with their assets. The shareholders are not liable for the debts of the company, but for the payment of their subscribed capital shares. They are also responsible for fulfilling the ancillary performance and additional payment obligations specified in the company agreement. If public debts cannot be collected from the company, the shareholders assume their responsibilities in proportion to their capital shares.

1.2.1 Characteristics of Limited Liability Companies in Turkey

• A limited liability company is a company whose capital is fixed and divided into shares and which is liable for its debts only with its assets.
• Limited liability companies may be established with a single partner, but the number of partners may not exceed 50. Partners of a limited liability company may be natural persons or legal entities
• The limited liability company has a company agreement in writing and registered in the trade registry of the place where its head office is located
• Limited liability companies may not sell shares publicly.
• The shareholders are obliged to pay only their subscribed capital shares and to fulfill the additional payment and ancillary performance obligations specified in the company agreement. Shareholders may be liable in proportion to their capital shares if public debts cannot be collected from the company
• The share capital of a limited liability company is at least 10,000 Turkish Liras. The entire capital brought in cash can be paid within 24 months after the registration of the company
• The payment schedule may be set out in the company agreement or determined by the directors
• Transfer of limited liability company shares is subject to the approval of the general assembly

1.2.2 What are the organs of a limited liability company?

Limited liability companies have two organs: the general assembly and the board of directors.

The general assembly is the body where all shareholders are generally represented and is the only body authorized to take important decisions regarding the company (e.g. amendment of the articles of association, election of directors, election of auditor, dissolution of the company, etc.).

In limited liability companies, the board of directors is the body generally responsible for the management and representation of the company. The company may have only one director, but at least one director must be a shareholder of the company. The directors are not required to be Turkish citizens or residents of Turkey.

1.2.3 What can be included as capital in limited liability companies? Can Limited Liability Companies in Turkey be capitalized with other than cash?

Limited liability companies can be capitalized in cash. The vast majority of established companies prefer to use cash capital.

In cases where certain conditions are met, in-kind capital can also be contributed to the company. As capital in kind, assets, including intellectual property rights, virtual media and names, which are not subject to limited rights in rem, attachment or injunction, and which can be valued and transferred in cash, may be contributed. However, acts of service, personal labor, commercial reputation and outstanding receivables are not eligible for contribution to the company capital.

Assets offered as capital in kind must not be subject to any limited real rights, liens or injunctions. In addition, they must be of a nature that can be valued and transferred in cash.

At least twenty percent of the subscribed share capital of the limited liability company must be paid before the registration of the company. The remaining subscribed capital may be paid within twenty-four months following the registration date of the company.

1.2.4 How to Establish a Limited Liability Company in Turkey?

The process of establishing a limited liability company is as follows step by step:

1. First, the trade name of the company is determined. When choosing the trade name, it is important to choose a name that is unique and appropriate for the area in which the company will operate.

2. Next, the documents containing the trade name and the titles of the authorized signatories are notarized. These documents specify the officially defined officials of the company and their duties.

3. A certain percentage of the company’s capital is deposited into the Competition Authority account. This step is important to ensure the financial strength of the company.

4. The articles of association of the company are prepared in four copies, the original and three copies. The articles of association contain the basic rules of the company, rights and responsibilities between the partners, capital shares and other important details. The articles of association are registered with the trade registry office authorized in the region where the company will operate. A notarized signature declaration is also submitted during this process.

5. The registration declaration containing the information specified in Article 511 of the Turkish Commercial Code is submitted to the trade registry office.

6. The assets of the company to be accepted as capital in kind are registered with the trade registry office with the court expert determination decision and the court-approved expert report, provided that there are no limited rights, liens or injunctions on them.

7. Finally, the company shall be registered with the chamber of commerce or chamber of commerce and industry in the region where the business operates, together with the necessary documents for tax and social security records. In addition, the announcement indicating the registration of the company and its trade name is published in the Turkish Trade Registry Gazette.

By following these steps, the establishment process of the limited liability company is completed and the company officially starts its operations.

However, the establishment of a limited liability company requires care and professionalism. For this reason, we recommend that you get support from a lawyer who is an expert on company incorporation in Turkey and proceed with the process in a more accurate and error-free manner.

1.3 What is a Sole Proprietorship? What are the Features of Sole Proprietorship in Turkey?

Sole proprietorships, which are extremely simple to manage, can be established with one or more partners and are generally intended for small or medium-sized businesses. From this perspective, we can say that sole proprietorships are individual companies with a smaller structure compared to joint stock and limited liability companies.

In sole proprietorships with unlimited liability, if a partner considers transferring or selling his/her share of the partnership, the other partners must also approve this transfer or sale. If any partner does not approve this situation, the person who wants to transfer or sell cannot leave the partnership. In addition, the partners are unlimitedly and jointly liable for the debts of the company with all of their assets.

Ordinary companies have no legal personality. No assets separate from the owner of the firm

is the simplest company model and is covered by the Code of Obligations.

Collective companies are established by natural persons and shareholders are liable for all company debts.

They are unlimitedly liable for their own assets. They have legal personality.

Limited partnerships can be established with the partnership of at least two real persons. Some of the partners

Some of them are liable for the debts of the company in an unlimited manner, while others are liable in a limited manner. Legal entities

are available.

1.3.1 What are the Characteristics of Sole Proprietorships?

• It is a type of business that is extremely simple to establish.
• There is no minimum capital requirement.
• Sole proprietorship can be established by one or more than one person.
• All partners are income tax payers.
• Partners are directly responsible for both losses and profits.
• In case of any debt of the company, the partners have unlimited and joint and several liability with all of their assets.
• When one of the partners wants to transfer or sell his/her share in the company, this is only possible with the approval of the other partners. Therefore, the transfer of partnership is a rather complex process.
• Contracts can only be amended by unanimous vote; all partners have equal voting rights.

1.3.2 How to Establish Sole Proprietorships in Turkey?

To establish a sole proprietorship, the first point of contact will be the tax office after the necessary documents have been collected. The incorporation of the company can be carried out personally or by a lawyer to whom you have given power of attorney. After being subject to the inspection of the inspectors appointed by the tax office, the company will be established within a few days if the conditions are found to be appropriate. The stages of establishing a sole proprietorship are as follows:

                Necessary information such as residence information, photocopy of the founder’s identity card, signature circular and signature registration declaration are collected.

• Company registration is realized.
• Application is made for a tax account number.
• Necessary books are obtained and notarized
• Tax account number is obtained.
• Tax plate and cash register plate are obtained.
• Expense voucher, delivery note and invoice documents are issued.
• An announcement is made in the registry newspaper and registration is made with the relevant chamber of commerce.

2. Can Foreigners Establish a Company in Turkey? Which Companies Can Foreigners Establish in Turkey?

Foreigners have the opportunity to establish companies in Turkey. There is a Foreign Direct Investment Law No. 4875 for foreign investors operating in Turkey. This law generally adopts the principles of freedom of investment, equal treatment and encouragement of foreign investors.

Therefore, it is possible for foreigners to establish companies in Turkey and they are supported by the state. However, it is very important for foreign investors to get support from lawyers specialized in company formation in Turkey in this complex process.

Can Foreign Companies Open Branches in Turkey? How can foreign companies open a branch in Turkey?

Branches in Turkey of commercial enterprises headquartered outside Turkey are registered as domestic commercial enterprises, without prejudice to the provisions of their home countries regarding trade names. For these branches, a fully authorized commercial representative whose domicile is in Turkey is appointed. If the commercial enterprise has more than one branch, the branches to be opened after the registration of the first branch shall be registered as branches of domestic commercial enterprises. The documents required to be submitted by a foreign company wishing to register a branch in Turkey are as follows

• A certified copy of the company’s current registry records and a certified copy of the company’s articles of association and a Turkish translation of each copy
• All documents required for the registration of the branch in the country of origin
• A letter from the competent authority indicating that the conditions required by the law of the country of origin where the company’s head office is located for the registration of the branch office are fulfilled and the documents required to be submitted for the registration of the branch office and a copy of its Turkish translation
• In the decision to open a branch, the person or persons who will represent the branch in Turkey with full authority before private institutions and public institutions and organizations, including courts, and if the authority granted to them is not specified, the original and one copy Turkish translation of the power of attorney issued on these matters
• For branches whose opening is subject to the permission or approval of the Ministry of Commerce or other official institutions, this permission or approval letter
• Original and one copy Turkish translation of the decision of the authorized body of the company on opening a branch and appointing a fully authorized representative resident in Turkey to the branch
• The original and one copy Turkish translation of the declaration signed by the authorized persons of the head office, including the trade name, type, field of activity, type and amount of capital, date of establishment, registration number, law it is subject to, whether it is a member of the European Union or not, its website, the title of the branch and the amount of capital allocated to the branch, the name and surname, identification number and place of residence of the person or persons who will represent the branch with full authority before private and public institutions and organizations, including courts, and the address of the branch.
• Signature declarations of the persons who will represent the branch

How Does a Foreign Investor Buy a Share in a Turkish Company? Foreign Investor Becomes a Shareholder in a Turkish Company

Foreign investors have the opportunity to invest by acquiring shares in a company operating in Turkey instead of directly establishing a company. They can also leave the company partnership by transferring the shares they have taken over to others.

In joint stock companies, share certificates may be issued in registered or bearer form. While the transfer of bearer share certificates is realized through the transfer of possession, the transfer of registered share certificates is realized through endorsement and transfer to possession. Except for exceptional circumstances, the transfer of shares in joint stock companies cannot be restricted. At the same time, the transfer of shares in joint stock companies is not subject to registration and announcement.

The transfer of shares in limited liability companies involves certain processes mandated by law. These processes include the following steps:

• Signing and notarization of the share transfer agreement between the parties,
• Unless otherwise stipulated in the articles of association, the general assembly of the company approves the transfer of shares,
• The share transfer agreement and the resolution of the general assembly approving the transfer, and the registration and announcement of the share transfer.

Advantages of Investing in Turkey

Turkey is one of the leading developing countries in the world, offering investors unique opportunities. Over the last decade, Turkey has become a profitable destination for investors due to its dynamism in the foreign exchange market. In addition, the government offers a number of incentives and benefits that make it easier to invest in Turkey. Those who are going to invest in Turkey or establish a company employing at least 50 people can apply for Turkish citizenship. For more information on Turkish citizenship, please see our related article. Therefore, it makes sense for investors to focus on the fact that Turkey is one of the most attractive countries in the world and the advantages of investing here.

Depending on the type of investment you will make by the state in Turkey, different supports and incentives are applied. You can get support from our expert lawyer team to learn about government incentives and supports in line with your project.

What are the Tax Rates for Investments in Turkey? Tax Deductions for Investors in Turkey

Tax deduction means that income or corporate tax is applied at a reduced rate until the determined investment contribution amount is reached. This support is provided within the scope of incentive certificates issued within the framework of strategic investments, large-scale investments and regional incentive schemes.

Income distributed by partners of limited liability companies, partners and commanders of business partnerships and cooperatives are subject to Income Tax and are considered as income from movable capital. The tax rate on dividend distribution in companies in Turkey has been reduced from 15% to 10% as of 2022.

In Turkey, all earnings of joint stock and limited liability companies are subject to corporate tax and the corporate tax rate is set at 25% as of 2023. This rate is 30% for banks, electronic payment and money institutions, authorized foreign exchange institutions, asset management companies, capital market institutions, insurance and reinsurance companies and pension companies.

In corporate tax practice, a 75% discount is applied for cash capital transferred from abroad. In addition, different incentives may be applied depending on the type of investment.

In addition, Article 13 of the VAT Law provides incentives to foreign investors in terms of VAT. In the said article, “Real estate sales made as the first delivery to non-resident foreign individuals and institutions in Turkey are exempt from VAT.” The provision is included.

Due to the wide range of incentives on the taxation of companies, especially companies with foreign capital, it is very important for foreign investors to get legal support in this regard. It is very important to get support from a team of lawyers who have a good command of Turkish law in the management of your investment process.

You can contact us to guide your investments and get more comprehensive information about the incentives applied.

What are the Responsibilities of Company Directors in Turkey? Public Liability of Company Directors and Liabilities Arising from Debts to Private Persons

In Turkey, the responsibilities of company directors are regulated by the Turkish Commercial Code. The responsibilities of company directors are regulated under the following headings in the relevant law:

In the event that the documents, commitments, declarations and guarantees related to the establishment of the company, increase or decrease of its capital, merger, division, change of type are false, fraudulent, forged, untrue, those who issue the relevant documents or make declarations and those who participate in such documents and declarations will be held liable for the damages arising from the concealment of the truth and other legal violations.

Misrepresentation of Capital and Knowledge of Insufficiency of Payment Those who represent the company’s capital, which is not fully subscribed, as subscribed, will be deemed to have subscribed for these shares and will be liable to pay the damages incurred by the company together with interest on these shares. The principle of fault liability has been adopted for company officials. Therefore, company officials may escape liability by proving that they are not at fault in the violation of the article.

Corruption in Valuation Valid for incorporation and capital increase. Grounds for liability include excessively high valuation, misrepresentation of the nature or condition of the business and assets, or other forms of fraud.

Liability of Company Directors for Public Debts

Liabilities arising from public debts that cannot be collected from limited liability companies make the legal representatives personally liable together with the legal entity of the company, together with the partners.

Article 10 of the TPL regulates the responsibility of legal representatives as follows: “In case legal entities are taxpayers or tax liable, their duties shall be fulfilled by their legal representatives. Taxes and related receivables that cannot be collected in whole or in part from the assets of taxpayers or tax liable persons due to the failure of legal representatives to fulfill these duties shall be collected from the assets of those who do not fulfill their legal duties.”

According to this provision, if the tax and other debts of the limited liability company cannot be collected by the tax administration due to the failure of the managers to fulfill their tax obligations, these debts can be collected from the assets of the managers. However, in order to be relieved from tax liability, the director must prove that the tax liability did not arise from his/her own fault.

On the other hand, the Constitutional Court has stated that it is contrary to the principle of the rule of law for legal representatives who fulfill their tax and financial obligations in a timely and complete manner to be held jointly and severally liable for an act that occurred during a period when they were not in office. For this reason, the company director is only liable for the acts committed during his/her own period.

The AATHUK regulates that the director of a foreign legal entity shall be liable with the assets of the legal entity. In addition, no amount limit is stipulated for the liability of legal representatives or company officials for public debts.

3.3 How to Acquire Turkish Citizenship through Investment? Acquiring Citizenship in Turkey through Investment

• Fixed Capital Investment is possible with an investment of at least USD 500,000 or its foreign currency equivalent. The details of the investment are determined by the Ministry of Industry and Technology and may take the form of a full acquisition of a non-publicly traded company or a certain shareholding. The amount corresponding to the shareholding purchased by the investor must be at least USD 500,000 or equivalent foreign currency.
• Another option is the purchase of real estate or the execution of a Contract of Promise for the Sale of Real Estate. In this case, the person who purchases the immovable property amounting to at least USD 400,000 or its equivalent in foreign currency can apply for Turkish citizenship, provided that the title deed is annotated that it will not be sold for three years. It is not mandatory to purchase the immovable property; it is also possible to acquire citizenship through a sales promise agreement.
• Creating Employment is another option. If employment of at least 50 people is created, persons determined by the Ministry of Labor and Social Security can apply for Turkish citizenship.
• Depositing Money in a Deposit Account is another alternative to obtain Turkish citizenship. Individuals who hold deposits of at least USD 500,000 or equivalent foreign currency for three years can obtain citizenship if they are identified by the BRSA. When assessing whether the investor meets the requirements, the total deposit amount of all accounts opened in banks in Turkey will be taken into account. It is sufficient for the total amount to be USD 500,000 or equivalent foreign currency.
• Investing in Government Debt Instruments, Participating in Real Estate Investment Funds or Venture Capital Investment Funds, and Investing in the Private Pension System are other options available to investors who wish to apply for Turkish citizenship.

As Güneş & Güneş Law Firm, with our 25 years of experience, we serve our clients in Antalya, Istanbul, Izmir, Ankara, Adana, Bursa, Mersin and all over Turkey.

In this direction, we are happy to provide quality service to our foreign clients who want to invest in Turkey with our team of specialized lawyers. Our foreign clients who want to invest in Turkey:

• Managing the incorporation of Joint Stock Companies, Limited Liability Companies and all other types of companies in Turkey,
• To register their companies in Turkey
• Opening bank accounts for their companies or individuals in Turkey,
• Providing legal support for the investments they plan to make in Turkey,
• To provide information on the incentives and supports that are in place for the investments they will make in Turkey,
• We offer many services such as following the legal processes of the established companies.

To get support from our team of lawyers specialized in investment and company formation in Turkey, you can contact us via our WhatsApp contact line…