Turkey is one of the largest emerging markets in the world, and a highly-regarded target for investors with its young working population, rich natural resources, expatriate-friendly culture, and a domestic market of over 70 million people. It is also an important base for delivery of products and services via land transportation, sea-shipment, etc., with its unique location that enables access to a wide range of markets from Europe, the Middle East, Gulf, Mediterranean, Black Sea, and Turkish republics of Asia.
Investments have gradually developed since the 1980s after the liberalization of markets. As of the 2000s, the share of Turkey in the worldwide investments increased annually.
To put aside the advantages of the investment environment in Turkey, we specify some of the complexities investors may face here as follows;
– While Turkey has made significant progress in the investment area, the matter of “enforcement of law” is a concern. There are still certain measures to take, in order to strengthen the rule of law and enforce the law effectively.
– Although Turkey has accomplished strong economic growth in the recent years, regional development has not spread throughout the country equally. Currently, Turkey’s business center and investment destination focuses on Istanbul.
Assessment of Turkish legal framework for foreign investors The main regulatory legal framework regarding foreign investments consists of the Commercial Code, Foreign Direct Investments Law, and international treaties.
Turkey has started to overhaul its investment climate, adopting a series of measures. The new Turkish Commercial Code was entered into force on July 1st, 2012, with an aim of modernizing commercial law. A new investment incentives scheme was also introduced to encourage investment in the country’s underdeveloped cities.
Mergers and acquisitions in Turkey
According to the new Commercial Code; there are two ways for the merger of companies;
Merger through incorporation of a new company: In this method, first a new company is established and merging companies dissolve without liquidation process.. Shareholders of the merging companies will become shareholders to the new company, by operation of law. This method of merger is not common in practice.
Merger by way of acquisition: One or more companies merge(s) into another, as a result of which, the merging company dissolves and the acquiring company takes over all its assets by succession and remains as one company.
The new Turkish Commercial Code also provides for “simplified merger,” provided that;
• The transferee company owns all the shares of the assignee company, which provide voting rights.
• The company (or companies) owns the shares of two merging companies with voting rights.
• The transferee company owns 90% of the shares of the assignee company, which provide voting rights.
Mergers and acquisitions in Turkey are subject to certain competition rules. Turkish Competition Law is mainly governed under the Law on the Protection of Competition and relevant regulations, where it is set forth that certain transactions are subject to the Competition Board approval after certain monetary thresholds.
As per the Labor Law perspective of mergers and acquisitions; according to Turkish Labor Code, in case a company is transferred to another partially or wholly as a result of a legal transaction, employment contracts will pass on to the transferee side, with all the related rights and obligations.
Sectors with more investment opportunities in the upcoming years
Turkey offers opportunities for investors in many sectors as below:
• More than $100 billion investment is expected in the energy area by 2020, to meet the rising demand for energy. We have been very busy with clients from the energy sectors in Germany, China, the US, and Spain last year, and as a result, awarded as “Energy Law Firm of the year in 2014 in Turkey by CorpIntl.”
It is likely that foreign investors’ attraction to the energy field will increase within 2015. The IRRS are remarkably high and the legal scheme is attractive compared to with Europe and the Middle East. The Turkish government also provides incentives when investing in solar, wind, and geothermal energy.
• Real estate and construction will keep offering great opportunities for investors. The latest entry of global actors and foreign property buyers have increased the competitiveness in the market.
• Global automotive companies have established factories here such as Fiat, Renault, and Citroen. Turkey now ranks among the biggest manufacturers in the world, in the production of motor vehicles and commercial vehicles. However, the industry has needs in areas of qualified suppliers for all kind of parts.
• Turkey is one of the top-visited tourist destinations with its seaside, skiing centers, thermal springs, and golf courses. The target of the tourism sector is to be among the top five in the world by 2023. Turkey is also among the top countries in convention tourism.
• The Turkish financial sector has experienced a radical transformation since the 2001 crisis. As a positive consequence, Turkish banking and finance system is considerably stronger than in Europe, which survived the recent crisis. There are opportunities for investors in the fields of asset management, private pension schemes, and Islamic finance.
• The technology and IT sector appears to be a promising sector. Consumer electronics is one of Turkey’s fastest growing sectors.
Business environment and recommendations for investors
Turkey has indeed become an investor-friendly jurisdiction and we are very pleased to contribute to the FDI flow into Turkey by advising foreign investors.
Turkey is rapidly emerging as a high-growth market in various sectors, as defined above. With its young workforce and geographical importance, it is an attractive destination for investment and already one of the largest economies in the world.
The ongoing EU accession negotiations are also a key factor for the development of business environment.
We can sincerely advise the potential investors to enter the Turkish market, considering that it is a gateway to several markets worldwide, European business ethics and modern management practices are implemented in the business life, use of English in business is increasing, and the population is the youngest and fastest growing in Europe. Potential investors should also consider the benefits they may enjoy here i.e. incorporating a company and starting business in Turkey takes an average of six to seven days.
On the other hand, there are certain subjects to be paid attention. Problematic issues may also arise in the intellectual property area such as counterfeit products. Culture of trademark protection still needs to be strengthened. Another negative aspect is that the court procedures in Turkey may take a very long time and in matters of technical issues, the judges or court experts may fail to make a justifiable evaluation in line with the technical developments. Therefore, when assisting our clients, we always give priority to settle the disputes outside the court, if possible.
To avoid the above-mentioned risks, we advise the investors to work with lawyers from the early stages of investment and consult each transaction they will carry out with third parties, contractors, and employees, to a legal professional.