2022 INVESTMENT POLICY AND REGULATORY REVIEW Türkiye © 2022 The World Bank Group 1818 H Street NW Washington, DC 20433 Telephone: 202-473-1000 Internet: www.worldbank.org All rights reserved. This volume is a product of the staff of the World Bank Group. The World Bank Group refers to the member institutions of the World Bank Group: The World Bank (International Bank for Reconstruction and Development); International Finance Corporation (IFC); and Multilateral Investment Guarantee Agency (MIGA), which are separate and distinct legal entities each organized under its respective Articles of Agreement. We encourage use for educational and non-commercial purposes. The findings, interpretations, and conclusions expressed in this volume do not necessarily reflect the views of the Directors or Executive Directors of the respective institutions of the World Bank Group or the governments they represent. The World Bank Group does not guarantee the accuracy of the data included in this work. 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Photo Credits: Shutterstock.com TABLE OF CONTENTS ACKNOWLEDGEMENTS 2 GLOSSARY 3 1. INTRODUCTION 5 2. OVERVIEW OF INVESTMENT POLICY FRAMEWORK 7 A. Domestic Legal Instruments Regulating Foreign Investment 7 B. International Legal Instruments Regulating Foreign Investment 8 C. Key Institutions for Investment Promotion 11 D. Foreign Investment Promotion Strategy 12 3. INVESTMENT ENTRY AND ESTABLISHMENT 13 4. INVESTMENT PROTECTION 17 5. INVESTMENT INCENTIVES 20 6. INVESTMENT LINKAGES 23 7. OUTWARD FOREIGN DIRECT INVESTMENT 24 8. RESPONSIBLE INVESTMENT 24 9. CITY SPECIFIC REVIEW — ISTANBUL 25 10. FDI IN THE DIGITAL ECONOMY 26 ENDNOTES 35 LIST OF REFERENCE MATERIALS 37 2022 INVESTMENT POLICY AND REGULATORY REVIEW – TÜRKIYE |1 ACKNOWLEDGEMENTS The report was prepared by a core team led by Legal research for the preparation of this report was Priyanka Kher comprising Peter Kusek and carried out by the international law firm Kilpatrick Maximilian Philip Eltgen. The report benefited Townsend, in collaboration with a country-based from valuable inputs and support from J. Humberto law firms. Lopez, Hans Anand Beck, Stefka Slavova, Gunhild Berg, Erdem Atas, Etkin Ozen, Pinar Yasar, Umut The team would like to thank Aichin Jones for Kilinc, Claire Honore Hollweg and Harald Jedlicka. providing design, layout, and production services. The team would like to thank Asya Akhlaque, Mario The report was prepared under the Analyzing Guadamillas and Ivan Nimac for their guidance. Barriers to Investment Competitiveness Project, supported with funding from the Prosperity Fund of the United Kingdom. | 2 2022 INVESTMENT POLICY AND REGULATORY REVIEW – TÜRKIYE GLOSSARY BRSA Banking Regulation and Supervision Agency CPC Central Product Classification CSR Corporate Social Responsibility DTAA Double Taxation Avoidance Agreements E-TUYS Electronic Incentive Application and Foreign Investment Information System EPA Economic Partnership Agreement FDI Foreign Direct Investment FET Fair and Equitable Treatment FIE Foreign-Invested Enterprise FX Foreign Exchange GATS General Agreement on Trade in Services ICSID International Centre for Settlement of Investment Disputes IIA International Investment Agreement IMF International Monetary Fund IPR Intellectual Property Rights IPRR Investment Policy and Regulatory Review ISDS Investor-State Dispute Settlement M&A Mergers and Acquisitions MFN Most-Favored-Nation NT National Treatment OFDI Outward Foreign Direct Investment OIC Organization of the Islamic Conference RDA Regional Development Agencies SMEs Small and Medium enterprises SOE State-Owned Enterprises TIP Treaty with Investment Provision 2022 INVESTMENT POLICY AND REGULATORY REVIEW – TÜRKIYE |3 TL Turkish Lira TRIMs Agreement on Trade-Related Investment Measures TRIPS Agreement on Trade-Related Aspects of Intellectual Property Rights UNCTAD United Nations Conference on Trade and Development VAT Value-Added Tax WTO World Trade Organization | 4 2022 INVESTMENT POLICY AND REGULATORY REVIEW – TÜRKIYE 1. INTRODUCTION This Investment Policy and Regulatory Review based on a review of currently applicable policies, (IPRR) presents information on the legal and laws and regulations. In some cases, consultations regulatory frameworks governing foreign direct with regulators were conducted to collect up to date investment (FDI) in Türkiye. Since legal and information. regulatory frameworks are constantly evolving, a cut-off date was set for the research. This country The research was guided by a standardized review therefore covers information available as of questionnaire, covering a limited set of December 31, 2021, unless otherwise indicated in topics, including foreign investment entry, the review. IPRRs are available for the following establishment, protection and select dimensions middle-income countries (MICs): Brazil, China, on FDI in the digital economy. The questionnaire India, Indonesia, Malaysia, Mexico, Nigeria, focused on de jure frameworks as generally Thailand, Türkiye, and Vietnam. applicable to a foreign investor, not located in any specialized or preferential regime (such as special The research for preparing this IPRR was economic zones). It primarily focused on national, undertaken by the international law firm economy-wide (rather than sector-specific) laws Kilpatrick Townsend, in collaboration with and regulations. For the purpose of the research, it a local law firm, under the supervision of the was assumed that the foreign investor is a private World Bank Group. The research was primarily multinational company with no equity interest or Figure 1. Overview of Topics Covered in IPRR ■ Key institutions for investment policy/rule making, implemention and FDI promotion ■ Key legal instruments ■ FDI Restrictions ■ Transparency/consultation in laws and ■ IPRs ■ Intermediate Liability Main Policy & regulations ■ Data Governance Legal Instruments ■ Content Access and Institutions ■ E-commerce ■ Prohibited and Restricted FDI in Digital Investment Entry Sectors ■ Equity ceiling Economy and ■ Minimum investment Sectors Establishment requiremeent ■ FDI approval IPRR ■ R&D, local sourcing, Questionnaire employment, quantitative, geographic, export ■ Schemes to Increase Other Areas Local Sourcing and (Linkages, OFDI, Investment Build Capacity of Local Responsible Protection Suppliers Investment) ■ Restrictions on OFDI ■ Expropriation ■ Transfer of currency Investment ■ Dispute Settlement Incentives ■ Fair administrative conduct ■ Source of Tax and financial incentives ■ Accessibility of tax and financial incentives 2022 INVESTMENT POLICY AND REGULATORY REVIEW – TÜRKIYE |5 management control by the government of its home including the legal instruments regulating country (that is, not state-owned enterprise). foreign investment, key institutions involved in investment promotion, as well as the country’s There are aspects that this IPRR does not foreign investment promotion strategy; it cover. It is not a comprehensive review of also delineates the country’s international the entire legal and regulatory framework investment legal framework, including the affecting investment. Information presented is country’s commitments under the World Trade not exhaustive, but illustrative of the main topics Organization (WTO) and select international and issues covered (for example, it does not investment agreements (IIAs); exhaustively list all available tax and financial incentives in the country). It does not present n Sections 3-6 cover the country’s policies and recommendations on reform areas. Notably, it does domestic legal framework concerning different not capture de facto implementation of laws and dimensions of the lifecycle of an investment: regulations in the country. Given these limitations, entry and establishment (Section 3), protection information presented in this IPRR should be (4), incentives (5) and linkages (6); interpreted and used while keeping in view the overall country context and realities. Further, it n Sections 7-8 explore emerging investment policy contains information in summary form and is and regulatory areas — Section 7 considers therefore intended for general guidance only. It is outward FDI, Section 8 responsible investment; not intended to be a substitute for detailed legal n Section 9 focuses on city-specific investment research. policy and regulatory measures in the largest This IPRR is organized as follows: commercial center; and n Section 2 provides an overview of the n Section 10 focuses on FDI in the digital economy. country’s investment policy framework, | 6 2022 INVESTMENT POLICY AND REGULATORY REVIEW – TÜRKIYE 2. OVERVIEW OF INVESTMENT POLICY FRAMEWORK A. Domestic Legal Instruments Sector Specific Laws Regulating Foreign Investment Foreign investment in Türkiye is also regulated Türkiye has a specific foreign direct investment by sector-specific laws and regulations. For law that governs foreign investment in the example, the Turkish Civil Aviation Law No. country. In addition to this law, sector specific laws 2920 governs investments in the civil aviation and bilateral and international treaties also regulate sector and the Law No. 6112 on Establishment FDI in the country (in addition to the general legal and Broadcasting Services of Radio and framework applying to all businesses). Television Institutions governs investments in the broadcasting sector. Similarly, banking sector related investment activities are governed FDI Law and Regulation by Banking Law No. 5411 and are subject to The primary law governing foreign direct approvals from the Banking Regulation and investment (FDI) in Türkiye is the Law No. 4875 Supervision Agency (BRSA). These sector specific on Foreign Direct Investments, dated June 5, laws and regulations generally apply equally to 2003, as amended (FDI Law). The FDI Law defines both domestic and foreign investors, with a few the concepts of “foreign investor” and “foreign exceptions where restrictions are placed on foreign direct investment” and sets out the principles ownership. For instance, foreign equity ownership applicable to FDI in Türkiye such as freedom of in a broadcasting company is capped at 50%. transfers, non-discrimination, and protections from expropriation and nationalization. More specifically, Public Access to Foreign Investment the FDI Law aims to (i) liberalize and encourage Laws and Policies foreign direct investment in Türkiye; (ii) protect the rights of foreign investors; (iii) align investors and Laws adopted by the Turkish Grand National investments in Türkiye with international standards; Assembly (the Turkish legislative body) (iv) establish a notification-based system rather than need to be published within fifteen days an approval-based system for FDI; and (v) increase of adoption according to Article 89 of the the volume of FDI through streamlined policies Turkish Constitution. They are published daily and procedures. The main principle governing the in the Official Gazette and on the Turkish Grand FDI Law is that it provides foreign investors with National Assembly’s official website. The laws, the same treatment afforded to domestic investors. presidential decrees, regulations, communiqués The FDI Law recognizes a company incorporated and other regulatory administrative procedures in Türkiye as a Turkish entity even if it has foreign announced in the Official Gazette are published in shareholding and such a foreign-owned Turkish the Legislation Information System, a legal archive entity enjoys the same benefits enjoyed by an entity including all the legal instruments prepared by the that has only local shareholding. legislative body. The FDI Law is implemented by the Regulation At the same time, Turkish case law is not always on the Implementation of the Foreign Direct publicly available. Case law is another source of Investments Law, dated August 20, 2003 as law in Türkiye that is used for the interpretation amended (FDI Regulation). The FDI Regulation of written rules and regulations. No centralized provides details on the procedures and principles set database currently exists in the country that provides forth in the FDI Law and regulates data collection public access to Turkish case law. and notifications by foreign investors and the establishment of liaison offices by foreign investors in Türkiye. 2022 INVESTMENT POLICY AND REGULATORY REVIEW – TÜRKIYE |7 Consultation with Stakeholders a draft law to the commission. Third parties (that is, NGOs and experts) may also voluntarily submit Stakeholder consultations are not mandatory in their reviews to these commissions regardless of an the law-making process, but some mechanisms invitation. The agenda for the commission meeting for stakeholder participation exist. Neither and draft law are generally made publicly available the Turkish legislative body nor the government on the Turkish Grand National Assembly’s website are mandated to ensure public or stakeholder when a commission begins deliberations. consultations before a new bill is enacted into law. Instead, during the law-making process only “law-making commissions” established within the B. International Legal Instruments legislative body can offer consultation or comments Regulating Foreign Investment on proposed legislation. These commissions are Türkiye has undertaken legally binding established mainly with the purpose of discussing international investment commitments through draft laws and submitting reviews to the Turkish a variety of international investment agreements Grand National Assembly. The commissions (IIA) — signed at the bilateral, plurilateral are composed of congressional representatives and multilateral level. These commitments and are responsible for various topics (namely, mainly cover entry and establishment conditions, the Environment Commission, the Constitution protection, as well as the legality of specific types of Commission and the Industrial, Trade, Energy incentives (see Table 1.). It is important for Türkiye and Natural Resources, Information Technology to reflect these commitments in their domestic Commission). If the president of a commission legal framework to ensure consistency as well as to finds it necessary, they may invite experts and monitor their compliance. non-governmental organizations (NGOs) to the commission meetings as third party reviewers. The Having been a member of the World Trade commission may disregard the invitees’ comments, Organization (WTO) since 26th of March 1995, but it must submit a report to the Turkish Grand Türkiye has commitments under several WTO National Assembly within 45 days starting from the Agreements. Under the General Agreement on date the Turkish Grand National Assembly refers Trade in Services (GATS), Türkiye grants rights Table 1. Türkiye’s International Investment Framework Agreement(s) as Basis of Commitments Type of Agreement Investment Policy Dimensions Covered WTO GATS Agreements Multilateral Entry and Establishment WTO TRIMs Agreement Multilateral Entry and Establishment, Incentives WTO SCM Agreement Multilateral Incentives WTO TRIPS Agreement Multilateral Protection Treaties with Investment Provisions Plurilateral or May cover Entry and Establishment, (21 signed, 17 in force) Bilateral Protection, Incentives Bilateral Investment Treaties Bilateral May cover Entry and Establishment, (109 signed, 81 in force) Protection, Incentives International Centre for Settlement of Multilateral Protection (Dispute settlement) Investment Disputes (ICSID) Convention Convention on the Recognition and Multilateral Protection (Dispute settlement) Enforcement of Foreign Arbitral Awards (New York Convention) IMF Articles of Agreement Multilateral Protection (Art. VIII Acceptance) Double Taxation Avoidance Agreements Bilateral Taxation (82 treaties in force) Source: World Bank Analysis | 8 2022 INVESTMENT POLICY AND REGULATORY REVIEW – TÜRKIYE to services suppliers from other WTO member committed to not apply certain investment countries. This includes services supplied through measures that restrict or distort trade (local commercial presence (defined as establishment of content requirements, trade balancing a territorial presence), in other words through FDI. requirements, foreign exchange restrictions and These rights are granted through commitments export restrictions). These measures are prohibited undertaken in “schedules”. The “schedules” list both when the obligation for the foreign investors sectors being opened, the extent of market access is mandatory and when it is tied to obtaining an being given in those sectors (for example, whether advantage (that is, an incentive). Incentives are there are any restrictions on foreign ownership), further regulated by the WTO Agreement on and any limitations on national treatment (whether Subsidies and Countervailing Measures (SCM), some rights granted to local companies will not be which among others prohibits certain types of export granted to foreign companies). Türkiye has made subsidies. Under the WTO Agreement on Trade- commitments on Market Access and National Related Aspects of Intellectual Property Rights Treatment in 9 out of 12 services sectors in the (TRIPS), foreign investors’ intellectual property WTO Classification1: (i) Business services, (ii) rights are protected. In case of a violation of any of Communication services, (iii) Construction and its WTO commitments, Türkiye may be sued under related engineering services, (iv) Educational the WTO dispute settlement mechanism. services, (v) Environmental services, (vi) Financial services, (vii) Health related and social services, Türkiye has further entered into obligations (viii) Tourism and travel related services, and (ix) through international investment agreements Transport services. In the 9 sectors, Türkiye has (IIAs) – it has signed 109 Bilateral Investment made partial commitments on market access for Treaties, out of which 81 are in force, and 21 specific services in 24 sub-sectors as well as partial Treaties with Investment Provisions (TIPs), of commitments on national treatment in 5 and full which 17 are in force. The latter category comprises commitments in 16 sub-sectors. “Partial” means treaties that include obligations commonly found in that although commitments have been made, there BITs (for example, a preferential trade agreement are still limitations/reservations, which may differ in with an investment chapter). Table 2. provides an their restrictiveness. For example, foreign persons overview of select Agreements: Türkiye’s latest may only provide primary and secondary education publicly available IIA (Türkiye — Burkina Faso services for foreign students, which significantly BIT, 2019), its IIA with the largest home country restricts market access. On the other hand, to be measured by that country’s share in Türkiye’s total allowed provide computer and related services, FDI stock (Netherlands-Türkiye BIT, 2012), and an computer engineers are merely required to become a IIA with expansive regional coverage (Organization temporary member of the related Union Chambers. of the Islamic Conference (OIC) Investment Agreement, 1988). The reviewed IIAs generally In addition, under GATS every member is contain the main protection guarantees, although the obligated to extend Most-Favored Nation (MFN) OIC Investment Agreement offers less protection treatment unconditionally to service suppliers of since it does not contain a National Treatment and a all other WTO members. However, Türkiye has Fair and Equitable Treatment (FET) clause. It also made reservations in that regard in nine services reserves the right to limit the transfer of up to 50% sectors. It has also made reservations across all of salaries or wages of investors and employees. sectors, for example reserving the right to extend full national treatment for the investments of the Further, Türkiye is a member of treaties covering nationals or companies of specific countries, such as investment arbitration. It is a member of the those from the EU. In other words, the reservation Convention on the Recognition and Enforcement allows Türkiye to provide preferential treatment to of Foreign Arbitral Awards (New York Convention) service suppliers of EU countries vis-à-vis those and the International Centre for Settlement of from other WTO members, which otherwise would Investment Disputes (ICSID) Convention that not be possible under MFN. facilitate the enforcement of arbitral awards, and has to date been a respondent in 15 publicly known Under the WTO Agreement on Trade Related investor-State arbitrations. Two of these have been Investment Measures (TRIMS), Türkiye has settled, seven decided in favor of the State, one 2022 INVESTMENT POLICY AND REGULATORY REVIEW – TÜRKIYE |9 Table 2. Comparison of Türkiye’s Sample IIAs Largest Home Country Latest IIA (date of signing): Expansive Regional IIA (% of total FDI stock): Türkiye – Burkina Faso BIT Coverage IIA: Netherlands-Türkiye BIT (2019) (not yet in force) Organization of the (1989) (in force) Note: Two BITs with Angola Islamic Conference (OIC) and DR Congo were signed at Investment Agreement a later data, but texts for these (1988) (in force) are not publicly available Scope of Application Covers pre-establishment No No No Exclusions from scope No No No Standards of Treatment National Treatment (NT) Post-establishment Pre- and post-establishment No Most-Favored-Nation Post-establishment Pre- and post-establishment Yes Treatment (MFN) Fair and Equitable Yes Yes No Treatment (FET) Full Protection & Security Yes Yes Yes Expropriation Direct and indirect Direct and indirect Direct and indirect expropriation, payment of expropriation, payment of expropriation, payment of compensation compensation compensation Rights to Transfer Funds Yes Yes Yes, but allows for restricting transfer of salaries or wages to 50% Prohibition of No No No Performance Requirements Dispute Resolution State-State Dispute Yes Yes Yes Settlement Investor-State Dispute Yes Yes Yes Settlement Source: World Bank Analysis based on IIAs obtained from United Nations Conference on Trade and Development (UNCTAD) Investment Policy Hub decided in favor of the investor, one discontinued, Türkiye is participating in WTO negotiations and four remain pending. on an agreement on investment facilitation for development. The aim of the agreement is On 7th of August 2019, Türkiye signed the to improve the investment and business climate, United Nations Convention on International by improving transparency, efficiency, and Settlement Agreements Resulting from effectiveness of investment-related administrative Mediation (Singapore Convention), which aims to procedures. This agreement will not cover regulate the enforcement of cross-border settlement market access, investor protection and ISDS. In agreements resulting from mediation, and ratified December 2021, Türkiye together with 111 other it on 11 March 2021. The Singapore Convention WTO members co-sponsored a Joint Statement on promotes mediation as an alternative dispute Investment Facilitation for Development, stating resolution mechanism for international commercial the objective to conclude text negotiations by the disputes and fills in the void for international end of 2022. mediation within the international trade law. | 10 2022 INVESTMENT POLICY AND REGULATORY REVIEW – TÜRKIYE Acceptance of Art. VIII of the IMF Articles n Contributing to reform actions to improve the Agreement requires Türkiye to maintain current investment environment in Türkiye; and account convertibility, enabling investors to transfer certain payments related to their n Determining and applying the investment investments. Türkiye is also party to 82 Double support and promotion strategy on a national Taxation Avoidance Agreements (DTAAs) that are in level. force, influencing its ability to tax foreign investors The Investment Office is an administrative and investments. body funded by and directly reporting to the Presidency. Yet, it has a separate and C. Key Institutions for Investment autonomous budget and administrative structure. Promotion Consequently, its internal management (including Türkiye has a national-level investment the management of its budget) and personnel are promotion agency charged with foreign not controlled by the Presidency. Additionally, investment promotion functions for all economic its employees are regarded as private sector sectors. At the sub-national level, a number of employees, not government officials. The regional development agencies exist that promote Investment Office is composed of four units: and facilitate investments in their respective regions. (i) Chief of Office, (ii) main services units, (iii) advisory, and (iv) ancillary services. National Level Institutions Foreign investment reforms in the country At the national level, the Presidency of the are driven by the chief of the Investment Republic of Türkiye Investment Office Office (Chief of Office). The Chief of Office (the Investment Office) is the main official is directly responsible to the President of the organization for promoting Türkiye’s investment Republic of Türkiye for the general management opportunities to the global business community and representation of the Investment Office in and for assisting investors before, during, and accordance with the objectives, policies and after their entry into Türkiye. In carrying out strategies determined by the President. The Chief of its investment promotion functions, it works with Office (i) prepares the Investment Office’s budget a network of local consultants based in countries and executes, monitors and reports its application such as Canada, China, France, Germany, India, in accordance with the determined purposes, Italy, Japan, Saudi Arabia, Singapore, South Korea, policy and strategy, and (ii) ensures the Investment Spain, the UAE, the UK, and the USA. Office’s cooperation and coordination with public institutions and organizations and non-government The Investment Office is not tasked with organizations. One of the Investment Office’s main any regulatory functions, such as granting objectives is the reporting of all challenges to the FDI approvals, but is focused on promotion, swift enactment of necessary legislation and legal coordination and advocacy. The main functions of amendments and their subsequent implementation, the Investment Office are: including the adoption of any necessary rules or regulations. n Promoting activities and projects to increase FDI; In October 2020, Presidential Decree No. 64 established an administrative body called the n Coordination between domestic and international Industrialization Committee. The Committee, entities (governmental and private sector); under the leadership of the President, consists of the Minister of Industry and Technology, the Minister n Detecting the difficulties faced by foreign of Treasury and Finance, the Minister of Trade, the investors and reporting these to relevant Head of Strategy and Budget and the appointed authorities; Vice President. Some of the duties and powers of n Collecting data and information for supporting the Committee are as follows: the development of FDI in Türkiye; 2022 INVESTMENT POLICY AND REGULATORY REVIEW – TÜRKIYE | 11 n Take necessary measures to facilitate the is to develop regions by improving cooperation investment, production and financing processes between the public sector, private sector and non- of industrialists and technology producing government organizations; by ensuring the effective institutions and organizations in line with the and efficient use of resources; and by encouraging national and domestic industrialization goal. local investment potential. In that context RDAs may engage in promotion activities. For example, n Take measures to ensure that tender specifications the Istanbul Development Agency prepares and and contracts are prepared in a way that will not annually updates an “Istanbul Investment Support prevent localization and that the technological and Promotion Strategy Document”, and annually components required by the sectors are localized. publishes “Istanbul Investment Guides” in several n Render decisions that will enable investments in languages. strategic areas where there is limited domestic RDAs are typically comprised of four units: (i) production. development board; (ii) board of directors; (iii) n Render decisions regarding merger and general secretariat; and (iv) investment support acquisition transactions in companies critical for offices. The main duties of the RDA investment the state, where such transactions may put the support offices are: continuity of domestic production and national n Providing guidance to investors regarding security at risk. regulatory requirements and applications (that n Render decisions that will increase the global is, licenses and permits); competitiveness of the real sector by ensuring n Making direct application before the government inter-institutional coordination in areas such as authorities on behalf of investors, if necessary; finance, customs, environment, infrastructure, and logistics and energy. n Tracking regional investments n Render decisions to guide public practices in order to strengthen the capital structures of The Ministry of Industry and Technology is manufacturing companies, to encourage company responsible for the coordination of the RDAs mergers when necessary, and to design policies to at the national level, and the Investment Office increase efficiency and product diversity. may coordinate with the Regional Development Agencies on an as-needed basis. The scope of the Committee’s authority or the definitions of some important concepts, such as “companies that are critical for the country” and D. Foreign Investment Promotion “changes of controls that may risk the continuity Strategy of domestic production and national security”, There is no specific foreign investment are not clear as of the date of this report. Similarly, promotion strategy document issued by the it is uncertain whether the Committee will have the Turkish government. Rather, Türkiye’s foreign power to approve or disapprove of certain mergers investment promotion strategy can generally be and acquisition transactions (regardless of foreign drawn from the Strategic Plan of 2018-2022, the or domestic investment). There has not been any country’s five-year development plan prepared by subsequent legislation, regulation, or elaboration the Ministry of Trade. In addition, the Presidential on these matters as of the date of this report. Circular on Foreign Direct Investment Strategy of Türkiye (2021 — 2023) numbered 2021/11 was Sub-National Investment Promotion published in the Official Gazette dated 22 June Agencies 2021, providing a strategic direction. It sets a There are 26 Regional Development Agencies target of Türkiye having a share of 1.5% of global (RDA) to facilitate and promote local investment. FDI market by 2023 and increasing knowledge- They are coordinated by the Ministry of Industry intensive, high value-added investment. and Technology. The main purpose of the RDAs | 12 2022 INVESTMENT POLICY AND REGULATORY REVIEW – TÜRKIYE 3. INVESTMENT ENTRY AND ESTABLISHMENT Market Entry and Sectoral Limitations Other examples of sectors permitting 100% foreign participation include agriculture, mining, agro- Türkiye strictly prohibits foreign investment in processing, textiles, chemicals, pharmaceuticals, limited sectors (Prohibited Sectors) and restricts IT and telecom equipment, hotels and restaurants, foreign participation through equity caps in computers and software, among others. certain others (Restricted Sectors). Apart from the Prohibited and Restricted Sectors, the general There is no centralized official list of the position is that 100% foreign equity is permitted Prohibited or Restricted Sectors. There is also no in a sector or sub-sector. FDI in regulated sectors blanket legislation prohibiting foreign ownership of (such as telecommunications, energy, insurance the share capital of Turkish companies. However, and banking) is subject to the sectoral regulators’ there are sector-specific regulations issued by the approval, including for transfer of shares, change relevant ministry or government agencies that may in shareholders and/or activities relating to mergers prescribe prohibition or restrictions on FDI. and acquisitions, even if 100% FDI is permitted in such a sector. For example, companies engaged in Prohibited and Restricted Sectors production and trade in the defense sector either by local or foreigner investors are subject to pre- Table 3 lists the Prohibited and Restricted examination of the Ministry of Trade and pre- Sectors based on various legislation, guidelines, approval of the Ministry of Defense, respectively. and circulars issued by the relevant regulators. Table 3. List of Major Prohibited and Restricted Sectors Prohibited Sectors Scope Electric Power Transmission The Turkish Electricity Transmission Corporation is the sole company in the related business field controlled by the government Railways Republic of Türkiye State Railway is a governmental owned national railway company acting as the sole actor in the related business field Maritime Foreigner ships (as defined under the relevant regulation) are not entitled to carry trade activities and transport goods and passenger between Turkish ports, within the territorial waters of Türkiye Education Schools engaged in Turkish education Real Estate in Military Areas Acquisition of real property in certain areas classified as military zones or security areas Restricted Sectors Restrictions on Foreign Equity Transportation — civil aviation Civil aviation operator company - 49.9% Maritime Shipping company engaged in trading - 49% cap Broadcasting (TV and radio) 50% cap; foreign investor may directly hold shares of maximum of 2 broadcasting companies Real Estate n In accordance with Industrial Zones Law No. 4737, a foreign company can only own real property within the industrial zones, free zones n In accordance with Turkish Petroleum Law No. 6491, a foreign company must hold operatorship rights (for petroleum reserves) in order to own real property Source: Analysis by Kilpatrick Townsend and Stockton based on country’s laws and regulations. Note: The table is based on a review of 32 specific sectors identified for the purpose of this research. The list of sectors is therefore not exhaustive.2 2022 INVESTMENT POLICY AND REGULATORY REVIEW – TÜRKIYE | 13 Given the foreign equity caps in Restricted Türkiye by incorporating joint stock companies, Sectors (for example, transportation, maritime and limited liability companies or liaison offices. broadcasting), a joint venture between a foreign investor and a local partner is required by default Minimum Investment Requirements for foreign participation in these sectors. Further, foreign participation is subject to the prior approval Under Turkish law, there is no minimum of the sectoral regulator. investment requirement for FDI. The Annual Presidency Program reports Quantitative Limits published by the Presidency for 2021 and 2022 indicate that a legislative change is being There are generally no mandatory quantitative prepared for the liberalization of the railways limits on the number of foreign service providers, sector. The scope of the liberalization, whether enterprises or market players that can operate partial or in full, is not explicitly expressed in in a given sector. However, in the media sector the reports. As per the 2022 Annual Presidency foreign investors may only be direct shareholders Program report, it is envisaged that private railroad of a maximum of two media services providers operatorship will be incentivized through the under the relevant legislation. development of secondary legislation, the content and scope of which is unclear. It stipulates that a Restrictions on Expatriate Appointments “Framework Law on Railroads” will be completed, and generally states that the prohibitions in all In Restricted Sectors, special restrictions transportation sectors (including railroads sector) or conditions may apply with respect to the will be eliminated. That being said, no further appointment of expatriates on boards of elaboration is made on the scope or methods by directors or key managerial positions of local which such changes will be implemented. companies. For example, in a Turkish civil air operator company with foreign shareholding, Turkish citizens must comprise a majority of the Restrictions on Non-Equity Contract board of directors. Representatives authorized Based Investments to manage, represent and bind the company Generally, no special restrictions or conditions must also be Turkish citizens. Similarly, in a are imposed on foreign investors regarding television or radio broadcasting company with non-equity contract-based investments such as foreign shareholding, only Turkish citizens may franchising, outsourcing, licensing, and so on. be appointed to hold the key managerial positions in the company or possess controlling influence Forms of Establishment over the company. Again, Turkish citizens must comprise a majority of the board of directors. Foreign individuals and companies can Effective in October 2020, the Law No. 5651 on generally hold any type of shares in a Turkish the Regulation of the Broadcasts in Internet and incorporated company (for example, ordinary Combatting Crimes Committed Through These shares and preference shares). Apart from the Broadcasts was amended, requiring foreign entities Restricted Sectors, there is no statutory prohibition offering social networking platforms having more against the establishment of a wholly foreign owned than 1 million daily access counts from Türkiye to subsidiary, subject to obtaining the necessary designate at least one representative in Türkiye who regulatory approvals, licenses or permits to carry must be a Turkish citizen. Severe penalties would on its business activities in Türkiye. apply to violations of this requirement. Further, no special restrictions apply on the Turkish law permits foreign-owned Turkish legal forms of companies that foreign investors entities to hire foreign employees, but the rule can establish or invest in the country. Foreign is that Turkish entities must employ five Turkish investors mostly carry out their businesses in nationals for each foreign national engaged by | 14 2022 INVESTMENT POLICY AND REGULATORY REVIEW – TÜRKIYE the company. In entertainment and tourism sectors an undertaking declaring that the foreign national the ratio is higher—a Turkish company operating will only manage and supervise engineering, in this sector must employ at least ten Turkish architecture, or urban planning activities and not nationals for each foreign national engaged by actively engage in these activities in Türkiye. the company. A Turkish employer can only hire a Accordingly, their work visa and work permit foreign national engineer/architect/urban planner applications will not indicate their position as if they have already hired a Turkish engineer/ “engineer/architect/urban planner.” architect/urban planner. The process of obtaining expatriate work Local Sourcing and R&D Requirements permits is clearly defined, and the Ministry of There is no overarching national level legal Labor and Social Security (Ministry of Labor) requirement that subjects foreign investors aims to process and approve employment pass to local sourcing requirements or local R&D applications within 30 days of submission of all investments in order to establish businesses required documents. In practice however, work in Türkiye. However, in public tenders for permit applications can take longer to process. government purchases, the government may grant a Once the Ministry of Labor approves the work price preference of up to 15% to products bearing a permit application, it informs the Turkish embassy/ local product certificate, which is issued to products consulate at which the applicant applied. The manufactured in Türkiye with more than 50% of Turkish embassy or consulate, issues a single-entry their content obtained from local raw or semi-raw work visa for the applicant to facilitate their entry materials. into Türkiye. The applicant must visit the Turkish embassy/consulate to collect their single-entry visa Foreign Investment Approval as soon as possible after the application approval. The issuance of the single-entry visa generally takes Türkiye has moved away from a general approval 2 to 4 days. Meanwhile, a work permit card is issued system and towards a notification system. In for the applicant and delivered to the employer’s 2003, the FDI Law abolished the approval system workplace. Eventually, the employee who has been and introduced a more liberal notification system granted a work visa must enter Türkiye within six to record the incoming FDI. Under the notification months starting from the validity date of the work system, there is no FDI scrutiny or approval permit, otherwise, the work permit will be canceled. process other than sector-specific regulatory approvals. For example, mergers and acquisition The Ministry of Labor consults certain (M&A) activity in the mining sector requires prior authorities, e.g., the Ministry of Environment, approval from the Ministry of Energy and Natural Urban Planning and Climate Change and the Resources. Similarly, M&A activities in companies Presidency of the Turkish Chamber of Engineers operating ports and pilotage and tugboat services and Architects, regarding the issuance of work (maritime sector) require approval from the permits for foreign engineers, architects, and General Directorate of Sea and Inland Water. These urban planners. Thus, in comparison to regular regulatory approvals apply equally to domestic and applications, the work permit applications for foreign investors regardless of any turnover or asset foreign nationals wishing to practice their careers as size thresholds. engineers, architects, and urban planners in Türkiye takes a longer time to be reviewed and approved. Foreign investors must notify the Ministry of For foreign nationals who will only manage and Industry and Technology of their investment supervise engineering, architecture, or urban type, capital investment and shareholding planning activities in Türkiye, and not actively structure via an online portal namely the engage in these activities, the abovementioned Electronic Incentive Application and Foreign procedure will not be applied and accordingly, the Investment Information System (E-TUYS) foreign national can directly apply for a work visa. operated by the General Directorate of However, in this case, their employers need to sign Incentives Implementation and Foreign Capital 2022 INVESTMENT POLICY AND REGULATORY REVIEW – TÜRKIYE | 15 within the prescribed time-periods. For example, No particular changes have been made to the when a foreign investor acquires shares in a Turkish country’s FDI laws triggered by the COVID company, an online notification must be filed 19 pandemic. As such, FDI is conducted on a within one month after the acquisition. Similarly, notification-based system instead of an approval- incoming foreign remittances must be notified based system; and no approval or screening within one month of the payments. This notification requirements were implemented within the context of statistical information includes disclosure of of the COVID 19 pandemic. COVID-specific information concerning the Turkish company’s measures such as a ban on the termination of all pre-investment and post-investment ownership employment contracts for a 3 months’ period — structure, and information on the amount and introduced by the Law on Minimizing the Impacts nature of consideration. Opening a liaison office, of the New Coronavirus (Covid-19) Outbreak on however, requires prior approval from the Ministry Economic and Social Life and the Amendment of of Industry and Technology. The application and Certain Laws (7244) and subsequently extended – approval process for a liaison office is described in applied equally to all employers, whether foreign the FDI Regulation. controlled or domestically owned firms. | 16 2022 INVESTMENT POLICY AND REGULATORY REVIEW – TÜRKIYE 4. INVESTMENT PROTECTION Protection Against Expropriation multiple administrative bodies’ approval. The State can implement an “urgent expropriation” The FDI Law protects foreign investors against procedure in certain circumstances, as when: (i) expropriation and nationalization. Pursuant to expropriation is necessary for national defense, (ii) the law, foreign investment cannot be expropriated its urgency is decided by the President, or (iii) there or nationalized unless it is necessary to the public is an extraordinary case where it is required by law, interest and fairly compensated in accordance with subject to the State fairly compensating the owner. due process. There is no definition of public interest in the FDI law. It is generally defined on a case-by- Most sector-specific regulations are mainly in case basis. line with the Expropriation Law, with a few exceptions. For instance, the Regulation on the The Code of Expropriation No. 2942 Expropriation Regarding the Construction of (Expropriation Law) enables the state to Dams regulates the expropriation areas differently. expropriate immovable property (wholly or While the general rule in the Expropriation Law is partially) of a physical person or a private the expropriation of only the necessary areas, the legal entity without the owner’s consent, if it Dam Regulation allows that parcels adjacent to is necessary for a public purpose or to provide the expropriated parcels to be expropriated as well. public services. Under the Law on Procedure for The reasoning behind is that the new water line Nationalization of Private Undertakings Providing after the construction of the dam may cause these Public Services in Cases of Necessity Due to adjacent parcels to change their specifics in terms Public Interest No. 3082 (Nationalization Law), of ability for structuring. While the former example the state can nationalize an undertaking (including is related to the areas subject to expropriation, the its immovable and movable property) providing Regulation on the Financing of the Transformation services or products that satisfy a public need, if and Development Projects of Commercial Sites the need cannot be otherwise satisfied. These laws differs from the Expropriation Law in the terms apply equally to foreign and domestic investors. of process. In addition to the limits and principles Both the Expropriation Law and the set forth by the Expropriation Law, this regulation Nationalization Law require a public purpose brings additional procedures regarding the review for the action to be lawful. Both laws also mandate of the respective Ministry and submission of fair compensation in a timely manner. Under the additional documents when expropriating an area. Expropriation Law, the amount of compensation for expropriations is negotiated between the parties Restrictions on Inflow and Outflow of to decide a real fair market value of the property. If Funds the parties cannot agree on a real value, the courts Türkiye’s foreign exchange regime is generally can intervene. In fact, there are numerous court liberal, and few restrictions or approval decisions wherein the owners oppose the offered requirements apply to the inflow of funds to value and the courts accepted such opposition by Türkiye or repatriation of proceeds from Türkiye considering the fair market value of the properties (net of applicable taxes). Foreign investors similar to the one subject to expropriation. Under can freely transfer abroad net profits, dividends, the Nationalization Law, compensation must be proceeds from the sale or liquidation of all or any equivalent to the real value/ fair market value part of an investment, compensation payments, of the undertaking, determined by a council of amounts arising from license, management and experts appointed by the government. The owner similar agreements, and reimbursements and interest of the undertaking may object to the amount in payments arising from foreign loans through banks court. Both laws establish due process and require 2022 INVESTMENT POLICY AND REGULATORY REVIEW – TÜRKIYE | 17 or special financial institutions licensed in Türkiye. n FX loans are to be utilized by Turkish residents Banks are required to notify the Central Bank of whose FX loan balances are US$15 million or Türkiye of all overseas transfers exceeding US more at the time of the utilization; $50,000 (or the equivalent foreign currency) within n FX loans are to be utilized by Turkish residents, 30 days following the transfer, excluding imports, whose utilization of such a loan is envisaged exports and invisible transactions (an invisible within an investment incentive certificate and transaction is one that does not involve the circulation FX loans are to be utilized for the financing of of goods, rather involving the import and export of certain machines and devices; services). Proceeds arising from Turkish residents’ export transactions are required to be directly n FX loans are to be utilized by Turkish residents transferred to the intermediary bank immediately who won an internationally announced domestic upon the importer’s payment. The proceeds must tender, or by Turkish residents undertaking be brought into Türkiye within 180 days as of the defense industry projects that are approved by actual export transaction and, as of April 2022, at the Undersecretariat of Defense; least 40% of the proceeds must be converted into Turkish lira, raised upwards from 25% in a bid to n FX loans are to be utilized by Turkish residents boost the country’s foreign exchange reserves. appointed to carry out projects within the context of a public-private partnership and shareholders In 2018 some additional measures were taken of the appointed companies, provided that the to limit exchange rate risks. Decree No. 32 on proceeds of the loans be paid into the appointed the Protection of the Value of the Turkish Currency companies’ share capital within the context of introduced a ban on Turkish residents who do not the public-private partnership; have foreign exchange income, on (i) utilizing foreign currency and foreign currency indexed loans n FX loans are to be utilized by Turkish residents (FX Loans) and (ii) foreign currency and foreign who do not have FX income in the last three currency-indexed payments for certain transactions fiscal years and who do not exceed the amount between Turkish residents (FX Payments). For the of their predicted income in foreign currency purpose of these amendments, “Turkish residents” that is certified, on the condition that their refers to all physical persons and legal entities connections regarding exports, transit trade, residing or incorporated in Türkiye. Since the ban sales and deliveries deemed exports, FX earning on FX Payments applies to contractual liabilities services and transactions and possible FX between Turkish residents only, contracts between income is certified on a case-by-case basis to be Turkish residents and foreign persons or entities determined by the Ministry of Finance. are not subject to the ban. Notably, (i) non-Turkish A new exception was introduced regarding the resident branches, representative offices, liaison FX Loan of Turkish subsidiaries of multinational offices, bureaus and funds (to the extent these funds companies. Fully owned (directly or indirectly) are operated or managed by Turkish residents) Turkish subsidiaries of multinational companies of persons who are resident in Türkiye, and (ii) can utilize FX loans from other group companies non-Turkish resident companies in which Turkish resident abroad without being subject to the FX residents hold 50% or more of the share capital Loan restrictions. To obtain the exemption, they are (directly or indirectly) are considered Turkish required to provide the companies’ share ownership residents for the purpose of the FX Payments ban. documents to the intermediary bank. Exemptions to There are, however, many exceptions to these the FX Payments ban include the following types of restrictions. The following types of loans can be transactions: extended to Turkish residents even if they do not n Employment agreements (i) that are performed have FX income: abroad; or (ii) where the employee is not a n FX loans are to be utilized by public authorities Turkish citizen; and (iii) that are made by and institutions, banks and financial leasing (a) non-Turkish residents’ Turkish branches, companies, factoring companies and financing representative offices, liaison offices; (b) Turkish companies; companies in which a non-resident person | 18 2022 INVESTMENT POLICY AND REGULATORY REVIEW – TÜRKIYE directly or indirectly holds 50% or more of the Türkiye’s International Direct Investment share capital or management control solely or Strategy Plan for 2021-2023 promotes the use of jointly; and (c) free zone companies, only for dispute resolution methods, such as international their activities in the free zone, provided that arbitration, settlement, conciliation and such persons act as the employer; mediation for the resolution of investment disputes faced by international investors in n Agreements regarding the sale, purchase and Türkiye. leasing of movable properties (except for cars); An Ombudsman Institution is available to n License and service agreements regarding address issues between foreign investors and hardware and software produced/developed the State prior to their escalation into formal abroad; legal disputes. The decisions of the Ombudsman n Management/lease agreements regarding Institution are non-binding. However, government tourism facilities certified by the Ministry of agencies that do not act in compliance with the Culture and Tourism; decisions must explain their reasons for non- compliance. Agencies that do not comply with the n Lease agreements for duty-free stores; Ombudsman’s decisions are disclosed to the public in an annual report published by the Ombudsman n Lease and sale agreements of engineering Institution at the end of each year. Türkiye’s vehicles. International Direct Investment Strategy Plan for 2021-2023 clearly states that an “investment Dispute Settlement Mechanisms ombudsman system” will be established to Foreign investors in Türkiye can generally specifically adjudicate on investment-related avail themselves of dispute settlement through disputes that may arise between public authorities domestic courts, or domestic or international and the investors. It is expected that with the arbitration. Türkiye’s bilateral investment treaties establishment of the investment ombudsman mostly do not include a mandatory recourse to system, investment processes will be expedited and domestic courts before referring the dispute to investment-related disputes will be resolved in a international arbitration. In most cases investors more efficient way. That said, no clear explanations have the option to choose between the domestic regarding the structure, procedures or differing court and international arbitration under the features from the existing Ombudsman are provided treaties. However, some exceptions to this rule in the Plan. are regulated in Articles 44, 45 and 46 of the Law Türkiye does not have an omnibus on Private International and Procedural Law No. administrative law statute. Instead, administrative 5718. Turkish courts have exclusive jurisdiction law in Türkiye is shaped by the Constitution, on disputes involving employment contracts and international agreements, codes, by-laws, court employment relations under Article 44, disputes judgments and administrative transactions and involving consumer contracts under Article 45 and decisions. For instance, during the course of a disputes involving insurance contracts under Article competition investigation conducted by the Turkish 46. Therefore, in these types of disputes, the parties Competition Authority, an investor has the right to cannot determine the dispute resolution forum in attend the oral hearing, submit petitions and present the framework of contractual freedom. In addition, information and documents, and seek recourse, if Article 20 of the Law on the Execution Proceedings a regulator violates due process, as provided for for the Collection of Monetary Receivables Arising in Türkiye’s Competition Statute. Therefore, after out of Subscription Agreements No. 7155 mandates an administrative transaction is conducted, subject the parties to undergo mediation prior to applying to the relevant legislation, the investor may be to commercial courts to bring a claim for monetary able to apply for administrative remedies for the damages, unless the parties have resorted to reconsideration of the transaction. Certain types of arbitration. If a party files a case before fulfilling legal remedies are also available against acts and this obligation, the court will dismiss the case on transactions of government agencies. procedural grounds. 2022 INVESTMENT POLICY AND REGULATORY REVIEW – TÜRKIYE | 19 5. INVESTMENT INCENTIVES In its main investment incentives legislation, potential of strengthening Türkiye’s international the Decree on Subsidies in Investments of competitiveness. 2012 (Incentive Decree), Türkiye provides investment incentives under four schemes: i) In August 2019, the Ministry of Industry and General Scheme; ii) Regional Scheme; iii) Priority Technology initiated an investment support Investment Scheme; and iv) Strategic Investment program entitled Technology Focused Industry Scheme. These incentives are made available to Move Program (TFIMP) that also supports both domestic and foreign investors. In August specific investments under the Strategic 2019, Presidential Decrees no. 1402 and 1403 Investment Scheme. The objective of TFIMP is to abolished the then-existing large-scale investment increase high-value-added investments, primarily incentive scheme. focused on middle- or high-level technology products with domestic capabilities and to prevent The General Scheme provides exemptions imports of such products to reduce its heavy foreign from value-added tax (VAT) and customs tax trade deficit. TFIMP aims to ease the procedures on machinery and equipment expenditures, to benefit from the existing incentives for priority and income withholding support. The other products, within the scope of both project-based and three schemes are broader. In addition to VAT and general incentives. Priority products are the critical customs tax exemptions, they include: (a) partial products for middle or high technology industries corporate income tax reduction; (b) social security and published by the Ministry of Industry and premium support for employer’s share; (c) land Technology in a Priority Product List. Conditions allocation; (d) interest rate support; (e) social for benefiting from incentives for TFIMP are: security premium support for employee’s share; (f) income tax withholding support; and (g) for n At least TRY 50 million fixed investment amount strategic investment scheme only, a VAT refund. should be made, In the Regional Investment and Priority n Total domestic production capacity of relevant Investment Schemes, the terms and rates of product should be less than the importation incentives vary depending on the region and amount, sectors (such as pharmaceuticals, medical, n Minimum 40% of the added value should be machinery, communications equipment, aircraft) provided by the investment, and where the investment will be made. Türkiye’s provinces are divided into six different regions n Importation of the product realized in the last based on socio-economic development levels, with year should be more than USD 50 million. each region having targeted sectors for investment. The minimum fixed investment amounts under Strategic Investment Schemes provide incentives the General Investment Scheme range between for three types of investments: (i) investments to TRY 500,000 — TRY 1 million, depending on the be made for production of intermediate or final investment location. Similarly, the minimum fixed products, of which more than 50% are supplied investment amounts under the Regional Investment by imports (high import dependence), (ii) energy Scheme range between TRY 500,000 to TRY 4 investments to be made for exclusive use of million, depending on the investment location and such strategic investments, and (iii) investments industry, for example, TRY 1 million in regions I approved by the Technology Focused Industry and II; TRY 500,000 in regions III, IV, V and VI. Move Program, such as those encouraging high- The minimum fixed investment amount determined tech and high-value-added investments with a for Strategic Investments is TRY 50 million. | 20 2022 INVESTMENT POLICY AND REGULATORY REVIEW – TÜRKIYE Certain incentives targeting exports can be Million (or TRY 50 Million for the investments provided by the Ministry of Trade under certain supported under the TFIMP (described below)), conditions such as: (i) international competitiveness depending on the characteristics of the investment enhancement support; (ii) market research and project and production of strategic products that are market entry support; (iii) fair participation support; technology-intensive, have high value added, are (iv) design support; (v) overseas office, brand and import-dependent, are not locally produced, or are promotion activities support; (vi) branding and locally produced but in low quantities. The Ministry “Turquality” support (accreditation support to of Industry and Technology’s official website serves companies to meet international product standards); as a repository of the tax and financial incentives (vii) support on digital activities for entry into the available to both foreign and domestic investors. digital sector and (viii) export refund support for agricultural products. For investments in Türkiye’s investment zones, incentives may go beyond those provided under An additional new Project-based Incentive the four schemes outlined above. There are three Scheme was introduced in 2016. Under this different special investment zones in Türkiye: scheme, the Council of Ministers (now the Technology Development Zones — Technoparks, Presidency) is entitled to grant one or more tax and Organized Industrial Zones (OIZs), and Free Zones financial incentives for investment projects with (see Box 1). a minimum fixed investment amount of TRY 500 Box 1. Incentives in Türkiye’s Investment Zones Technology Development Zones (TDZ) are areas designed to support R&D activities and attract investments in high-technology fields. The following incentives are available: n Profits derived from software development, R&D, and design activities are exempt from income and corporate taxes until December 31, 2023. n Sales of application software produced exclusively in TDZs are exempt from VAT until December 31, 2023. Examples include software for system management, data management, business applications, different business domains, the internet, mobile phones and military command and control systems. n Remuneration for R&D, design and support personnel employed in the zone is exempt from all taxes until December 31, 2023. The number of support personnel covered by the exemption may not exceed 10 percent of the total number of those involved in R&D, though. n Investments for the production of technological products developed based on the outcome of R&D projects conducted in the TDZ may be made in the TDZ if deemed suitable by the operator company and allowed by the Ministry of Industry and Technology. n 50 percent of the employer’s share of the social security premium will be paid by the government until December 31, 2023. n Customs duty exemption for imported products and stamp duty exemption for applicable documents within the scope of R&D, design, and software development projects. Organized Industrial Zones (OIZ) are designed to allow companies to operate within an investor- friendly environment with ready-to-use infrastructure and social facilities. In addition to the general investment incentives scheme in Türkiye, investors operating in the OIZs may benefit from the following advantages: n No VAT for land acquisitions. n Exemption from real estate duty for five years starting from the date of completion of the plant construction. n Low water, natural gas, and telecommunication costs. 2022 INVESTMENT POLICY AND REGULATORY REVIEW – TÜRKIYE | 21 n No tax is payable in cases of merging and/or separation of plots. n Exemption from municipality tax for the construction and usage of the plant. n Exemption from the municipality tax on solid waste if the OIZ does not avail of the municipality service. Free zones (FZ) are special sites deemed outside the customs area, although they are physically located within the political borders of the country. FZs are designed to boost the number of export-focused investments. Legal and administrative regulations in the commercial, financial and economic domains that are applicable within the customs area are either not implemented or partially implemented in FZs. The following incentives are available: n 100% exemption from customs duties and other assorted duties. n 100% exemption from corporate income tax for manufacturing companies. n 100% exemption from value-added tax (VAT) and special consumption tax. n 100% exemption from stamp duty for applicable documents. n 100% exemption from the real estate tax. n 100% income and corporate tax exemption for certain logistics services to be offered at the FZs, provided that they are export-oriented. n 100% exemption from income tax on employees’ wages (for companies that export at least 85% of the FOB value of the goods they produce in the FZs. n Goods may remain in FZs for an unlimited period. n Companies are free to transfer profits from FZs to abroad as well as to Türkiye, without restrictions. n Exemption from title deed fees when acquiring and selling a property. n VAT exemption during construction, design, settlement, and approval processes. n Ready infrastructure exempt from VAT and other taxes. n Import permit for second-hand, used machinery. Source: Presidency of the Republic of Türkiye Investment Office. 2022. Investment Guide. Link: https://www.invest.gov.tr/en/ investmentguide/pages/investment-zones.aspx Eligibility Criteria and Approval Process amounts required under the Incentive Decree, are eligible for incentives under the General Scheme The granting of tax and financial incentives by without being subject to any regional or sectoral the Turkish Government to foreign investors is restrictions. In the Strategic Investment Scheme, generally contingent upon the satisfaction of the there is no sectoral or regional restriction, provided relevant eligibility criteria and demonstration of that the prescribed criteria are met. a business case for the incentive to be granted. The eligibility criteria for the relevant tax and The Project-based Scheme does not impose financial incentives are set out in the Incentive any sectoral or regional restrictions. Under this Decree available on the online portal, above, scheme, the Ministry of Industry and Technology maintained by Ministry of Industry and Technology. will first evaluate the investment projects by taking into account the designated criteria, such The Incentive Decree provides a list of activities as addressing Türkiye’s current and prospective that cannot be supported or that can only be critical needs, and the project’s strategic value and supported under specific conditions within the use of new technologies in production. The Ministry scope of the Incentive Decree. All investment will then submit the approved investment projects projects, which are outside of the scope of this list to the Council of Ministers (now the Presidency). and which meet the minimum fixed investment Generally, the criteria set out for project-based | 22 2022 INVESTMENT POLICY AND REGULATORY REVIEW – TÜRKIYE incentives are less objective than the incentives incentives are published in the Official Gazette. The provided under other schemes pursuant to the Ministry of Industry and Technology also publishes Incentive Decree. the recipients list on its official website and updates the list every month. In addition, within the scope Applications for the grant of applicable of TFIMP, the General Directorate of Development incentives are made to the Ministry of Industry Agencies under the Ministry of Industry and and Technology. The Ministry considers them on Technology publishes announcements, in which it a case-by-case basis. They are not automatically determines certain sectors and products and provides granted upon fulfilment of the express eligibility certain incentives available under other incentive criteria or conditions. The Ministry issues an programs (for instance provides an investment investment incentive certificate for eligible incentive certificate under the Incentive Directive). investors upon assessing their sectoral, financial Conditions may differ for each announcement and and technical proposals and considering the application is made online through the website macroeconomic programs and the supply-demand of the TFIMP. balance. The names of recipients of investment 6. INVESTMENT LINKAGES For the purpose of this section, research was Development Zones Law may also benefit focused on the availability of incentive schemes from many tax incentives for eligible activities to increase local sourcing, technology transfer undertaken in technology development zones until and measures to improve the information December 31, 2023. exchange between foreign investors and domestic suppliers. There is no specific investment In addition, Türkiye’s Scientific and scheme in place to encourage foreign investors Technological Research Council (TUBITAK) to increase local sourcing or build capacity of provides various incentives for research and local suppliers (or potential local suppliers), but development (R&D) activities in the technology incentives in that regard are included as part of the sector undertaken in Türkiye, which are mostly Regional Investment Incentive Scheme under the provided as cash grants for specific projects to Incentive Decree. The Decree divides Türkiye’s be completed within certain periods. TUBITAK’s provinces into six different regions, based on their technology transfer office support program provides socio-economic development levels and provides grants to establish technology transfer offices higher incentives for the least developed regions to (TTO) in Türkiye. It also offers venture capital and increase local sourcing. patent support programs. Türkiye’s Technology Development Foundation (TTGV) provides capital The Law on Supporting Research and loans for R&D projects and/or cover R&D-related Development Activities provides support expenses. At least 15 R&D personnel must be and incentives (applicable until December employed in order to be eligible for R&D center 31, 2023) targeted at increasing technology incentives. At least 10 design personnel must be transfers. It provides incentives for technology employed in design centers. R&D centers and design centers established by the Directorate of Small centers may benefit from the same incentives. and Medium Industry Development Organization, R&D and design centers, R&D projects, design TFIMP initiated by the Ministry of Industry and projects and pre-competition cooperation projects Technology also aims to increase high-value-added and technopreneurship capital. Taxpayers investments, primarily focused on mid- or high- operating within the scope of the Technology technology investments (see further Section 5). 2022 INVESTMENT POLICY AND REGULATORY REVIEW – TÜRKIYE | 23 7. OUTWARD FOREIGN DIRECT INVESTMENT For this section, research was focused on whether the framework of the provisions of customs there are any legal instruments specifically legislation, for the purpose of establishing covering outward investment and, if there companies, participating in partnerships and are, whether they impose any restrictions on opening branches in order to make investments outward investment. In Türkiye, both state-owned or to conduct commercial activities abroad; and private enterprises can undertake investments abroad. The state-owned enterprises may establish n residents in Türkiye are allowed to establish companies abroad and participate in companies liaison offices, representative and similar established abroad pursuant to the approval of offices abroad and to transfer organizational and the President of the Republic of Türkiye and in operational expenses through banks; and accordance with the conditions established by n banks and customs authorities must inform the President to this effect. State-owned entities the Central Bank of Türkiye about residents in in regulated sectors are also permitted to invest Türkiye who transfer capital for investment or overseas, subject to sector-specific regulations. commercial activities abroad within 30 days For example, the Turkish Radio and Television following the date of each transaction. Authority can invest abroad through the creation of partnerships, participation in or acquisition of Sector-specific regulations may apply to regulated companies abroad, subject to the sectoral regulator’s private-sector entities investing overseas. For approval. example, Turkish banks are required to obtain the banking regulator’s approval to establish new There is no omnibus legislation focused on subsidiaries in Türkiye or abroad, to acquire any private sector outward foreign direct investment. shares of domestic or foreign companies, or to open Generally, under Turkish law: offshore branches or representative offices abroad, n residentsare allowed to transfer cash capital subject to certain exceptions. through banks and in-kind capital within 8. RESPONSIBLE INVESTMENT For this section, research was focused on whether foreign investment law and policy do not include an there are any measures within the country’s explicit reference. These other laws apply to foreign investment legislation that are specifically investors as well, and may serve to ensure public targeted to ensure responsible investment. While health protection, preserve the environment, and to there are responsible investment measures in other ensure products produced comply with national and laws and regulations of the country, Türkiye’s international standards | 24 2022 INVESTMENT POLICY AND REGULATORY REVIEW – TÜRKIYE 9. CITY SPECIFIC REVIEW — ISTANBUL All investment-related federal legislation applies n Tannery — applicable only to the investments to Istanbul. The laws of the Republic of Türkiye are within (i) the Organized Industrial Zone for unified and do not differ at subnational levels. Unless leather processing and (ii) the Organized otherwise stated, the laws enacted by the legislative Industrial Zone in Tuzla — minimum investment: body apply to all cities and regions. However, the TL 1,000,000; legislative body has the power to geographically n Manufacturing of chemical- and herbal- limit the scope and the enforceability of the laws, and specific regulations can be set for regions originated products used in pharmaceutics and after taking into consideration their geographical medicine — TL 4,000,000; differences and demographic needs. n Industrial mold — TL 4,000,000; As noted above, the Incentive Decree establishes n Manufacturing of office-related, financial various incentive schemes differing at regional and information processing machines — TL levels by their socio-economic development. 4,000,000; The schemes differ in the type of incentives they offer, the type of sectors they apply to, and the Manufacturing n of radio, television, fixed investment amount and specific capacity communication equipment and devices — TL conditions they request. Pursuant to the Incentive 4,000,000; Decree, the cities are grouped under six different regions benefiting from different incentives. The n Manufacturing of medicinal and optical targeted or priority sectors to be supported in each machines — TL 1,000,000; region are determined in accordance with regional n Dormitories — 100 students capacity; potential and the scale of the local economy, while the value of support varies depending on the level n Educational services (excluding education of development in the region. for adults, including pre-school educational services) — TL 1,000,000; All investments directed to the sectors designated for Istanbul (Region 1) are eligible n Hospitals and old people’s homes — TL for various incentives under different schemes. 1,000,000, old people’s home: 100 patients; This includes VAT exemption, customs duty exemption, 50% of tax reduction until the total n Waste recycling and disposal facilities — TL amount of reduced tax reaches 15% of the amount 1,000,000 of contribution to investment, social security Moreover, investments in Istanbul may also premium support (employer’s share) up to 10% profit from incentives specific to Türkiye’ for 2 years, and land allocation. investment zones, if applicable (see further For example, investments in the following Section 5 – Incentives). sectors that meet the prescribed fixed minimum investment amounts or capacity conditions are eligible for incentives designated for Region 1, City of Istanbul: 2022 INVESTMENT POLICY AND REGULATORY REVIEW – TÜRKIYE | 25 10. FDI IN THE DIGITAL ECONOMY This section examines Türkiye’s legal and FDI-Specific Restrictions regulatory framework impacting investment in digital activities and infrastructure. The first sub- Türkiye permits foreign direct investment in section assesses FDI-specific restrictions that apply the key digital economy areas identified in the to 19 different digital economic sectors or activities Table below. (see Table 4). The following sub-sections review a Other than the equity ceilings in broadcasting, number of legal and regulatory dimensions that may Türkiye has few specific restrictions to FDI in affect both foreign and domestic investments in the the digital economy. There is no separate screening digital economy: intellectual property rights, data process for digital FDI. Rather, the rules applicable privacy, data localization, intermediary liability, to FDI in the traditional sectors described in the content access, and e-commerce. sections above equally apply to FDI in the digital Table 4. FDI Equity Restrictions in Türkiye’s Digital Economy Sectors Digital Activity/Sector FDI Equity Restrictions, if any “100%” Means No Caps or Restrictions 3D Printing 100% AI and Machine Learning 100% Big Data & Analytics 100% Blockchain 100% Cryptocurrency 100% Drones 100% E-Commerce 100% Fintech 100% Gig Worker Platforms 100% Healthtech 100% Türkiye’s Digital Economy Sectors 100% IoT Devices 100% Logisticstech 100% Robotics 100% Social Network Platforms 50% cap in broadcasting; foreign investor may directly hold shares of maximum of 2 broadcasting companies Cloud Computing Infrastructure (e.g. 100% Datacenters) Telecom Services* 100% Telecom equipment to enable digital 100% infrastructure and digital connectivity Traveltech 100% Source: Analysis by Kilpatrick Townsend and Stockton based on country’s laws and regulations. | 26 2022 INVESTMENT POLICY AND REGULATORY REVIEW – TÜRKIYE economy. There are no minimum investment (i) the preparation of legislation with regard to requirements or other discriminatory restrictions or legal obligations of cloud service providers; (ii) quotas or local sourcing requirements specifically putting in place accreditation schemes for cloud for FDI in the digital economy sectors. Nor are there service providers; (iii) introducing regulations in any requirements specifically imposed on foreign regard to the security of cloud services parallel investors in the digital economy sectors to invest in to the European Union’s regulations; and (iv) local R&D, meet any export quotas, or to transfer offering incentives to companies that will provide technology to local business partners. However, cloud infrastructure, such as tax exemptions for investments up to certain thresholds in certain equipment and software, energy, and so forth. regions or industry may benefit the investors by making them eligible for incentives, as described in On May 1, 2021, regulations on cryptocurrencies Section 5. For example, TUBITAK’s R&D center were issued. The Presidential Decree of the incentives may be available to an investor, provided Amendment to the Regulation on Measures the investment meets the prescribed criteria and at Regarding Prevention of Laundering Proceeds of least 15 R&D personnel are employed. Crime and Financing of Terrorism was published in Türkiye’s Official Gazette, which places crypto No special restrictions are placed on the asset service providers under specific obligations appointment of expatriates on the board of within the scope of the Law on Prevention of directors or key managerial positions in the Laundering Proceeds of Crime to prevent the crypto digital economy, other than those applicable to markets from becoming an intermediary for money the traditional sectors. As noted above, effective laundering and the financing of terrorism. The October 2020, the amendment to the Law no. 5651 regulation explicitly states that crypto assets do not on the Regulation of the Broadcasts in Internet and qualify as fiat currency, fiduciary money, electronic Combatting Crimes Committed Through These money, payment instruments, securities, or other Broadcasts mandates foreign entities offering social capital market instruments, and the direct or indirect networking platforms having more than 1 million use of crypto assets in payments or provision of daily access counts from Türkiye to designate at payment services and electronic currency exports least one representative in Türkiye who must be a is prohibited. Turkish citizen. On August 24, 2021, a new AI strategy was adopted. The Digital Transformation Office of the Recent Policies in Digital Economy Presidency of the Republic of Türkiye (DTO) and Sectors the Ministry of Industry and Technology published Türkiye has begun to orient its strategy the National Artificial Intelligence Strategy, in towards the promotion of the digital economy. line with the Eleventh Development Plan and In the Strategic Plan (2019-2023) published by the Presidential Annual Programs. The Strategy Information Technologies and Communications determines measures for Türkiye’s artificial Authority, Türkiye’s priorities in relation to new intelligence (AI) strategy for 2021-2025. technologies are set as follows: (i) expand fiber infrastructure and broadband internet access; (ii) Intellectual Property Rights initiate the use of 5G communication technologies; (iii) increase national cybersecurity measures; Digital intellectual property (such as e-books, and (iv) incentivize the provision of machine-to- digital platforms, downloadable music, digital machine and internet-of-things services. content, software, and databases, to name a few) is afforded protection under Türkiye’s While there are no specific rules regulating the intellectual property regime, subject to the provision of cloud services in Türkiye, in the various criteria under the Copyright Law No. 5846. National Broadband Strategy and Action Plan Generally, intangible products that exist in digital (2017-2020), the Turkish government adopted form are considered as copyrightable work as long several objectives to increase reliance on as they meet the requirements of a copyright, i.e., national cloud service providers. These include holding the individuality of the author. For instance, 2022 INVESTMENT POLICY AND REGULATORY REVIEW – TÜRKIYE | 27 software is protected as a scientific and literary Türkiye does not have a specific statute for work under the Copyright Law. Intangible products protecting trade secrets. Rather, trade secrets in digital form are not afforded protection under the are protected pursuant to general unfair Industrial Property Code No, 6769, which extends competition law principles regulated in Article protection to tangible embodiments of inventions. 55 of the Turkish Commercial Code No. 6102 or by the provisions of special regulations, Under the Copyright Law, any person whose such as the Banking Code No. 5411 or Electronic moral and economic rights have been infringed Communications Code No. 5809, and the Turkish may bring an action against the infringer to Criminal Code No. 5237. Under the Commercial stop infringement. According to Article 77, a Code, any person who enjoys legal protection copyright owner may request injunctive relief against unfair competition may claim compensation from the court before or after the commencement for pecuniary and non-pecuniary damages from of the proceedings on the merits of the case. Any the offending counterparty for its acts that are injunctive relief ordered by the court is implemented deceptive or contrary to the good faith principle, in accordance with the related provisions of the are unfair and illegal. According to the law, a customs regulation to stop infringing products from person who unlawfully discloses business secrets entering the country. and, especially, who reviews or informs others of The “fair use” exceptions are clearly itemized the business secrets and any information acquired under Articles 30 and 47 of the Copyright Law in secret and without permission, or in any other in a manner to enable the author to be aware illegal way, is deemed to have acted contrary to of where the financial rights might be limited, good faith. In addition to civil remedies, including which include the following: interim injunctive relief and confiscation of goods that constitute unfair competition, criminal penalty n Private use: Use of a copyrighted work without may also be imposed under the Criminal Code for pursuing profit is allowed. A specific fair use theft or misappropriation of trade secrets. exception is adopted for computer programs. Unless otherwise agreed by the parties, a person In June 2021, the Banking Regulatory and who legally acquired a computer program or Supervisory Authority published the Regulation software cannot be prevented from reproducing on Disclosure of Confidential Information in the or distributing for purpose of proper use. Official Gazette, which will become effective on Such proper use also includes error recovery July 1, 2022. This new Regulation prohibits banks and corrections. Such right to reproduce from disclosing bank and client secrets to anyone and distribute is only acceptable where the except those legally authorized, subject to limited software has been acquired in compliance with exceptions, and it sets forth the general principles the law. To the extent required for the use of of sharing and transferring such information. the computer software, the person who has the Both administrative and judicial enforcement legal right to use the computer software cannot measures and remedies are available to foreign be prevented from taking one back-up copy by investors (similar to domestic investors) for virtue of the contract. enforcing IP rights in Türkiye. Administrative n Public order: Use of a copyrighted work for the measures include oppositions before the Turkish purpose of public information and declaration is Patent and Trademark Office and online customs allowed. applications before the IP Department of the Customs Union to record IP rights before the n Public interest: A copyrighted work to be used customs authority’s enforcement program to enable for educational and information purposes is Customs to monitor infringing products. Judicial allowed. measures include civil lawsuits filed before the specialized IP civil courts in Istanbul, Ankara n Freedom of quotation: As long as there is a and Izmir to counter infringement of copyrights, proper citation, a work that is made public can patents, utility models, trademarks, designs and be used. | 28 2022 INVESTMENT POLICY AND REGULATORY REVIEW – TÜRKIYE geographical indications; but excluding trade sanctions, to name a few. Other laws, such as the secrets as they are subject to general commercial Turkish Criminal Code No. 5237, and sector- law disputes. In other cities, regular civil courts specific laws, such as Law No. 5809 on Electronic are authorized to hear the cases in the name of Communications, also touch upon data protection. an IP court. An IP right owner, whether a foreign investor or domestic, can file a lawsuit to protect The LPPD applies to any data controllers and their IP rights in Türkiye as long as (i) they hold a data processors that collect, process, store and/ registered or unregistered IP right in Türkiye, (ii) or transfer personal data of natural persons, the infringing act is committed in Türkiye and/or including entities located in Türkiye or outside (iii) the counter party is domiciled in Türkiye. Türkiye that are processing the personal information of Turkish data subjects. Under Generally, receiving preliminary injunctions, the law, a “data controller” is the natural or legal court orders preventing and prohibiting infringing person who determines the purpose for which and actions, requesting moral and material damages, means by which personal data is processed and and confiscating the infringing goods are amongst is responsible for establishing and managing the the available civil remedies in IP infringement data registry requirements; a “data processor” is lawsuits. Criminal enforcement proceedings and a natural or legal person processing data with the penalties are available to investors for enforcing authorization of the data controller; and “personal their trademark and copyright rights. No criminal data” is any information relating to an identified measures are available for infringement of other or identifiable natural person. The law includes IP rights, such as patents, utility models, designs stricter provisions for special categories of personal and geographical indications. However, in certain data, such as “sensitive personal data” relating to cases criminal remedies may be based on unfair race, ethnic origin, political opinions, philosophical competition regulations. beliefs, religion, sect or other beliefs, clothing, membership of associations, foundations, or trade While Türkiye’s IP protection laws are generally unions, health data, information related to sexual at par with international standards, the life, previous criminal convictions and security enforcement of IP rights in the country remains measures, and biometric and genetic data. lax and software piracy is frequent. All data controllers are required to register Data Privacy with the Data Controllers Registry Information System (VERBİS) and appoint a data controller Law No 6698 on the Protection of Personal Data representative who must be a Turkish resident dated April 7, 2016, and its implementing rules before they can begin processing of personal (LPPD) regulates the processing of personal data data of Turkish data subjects. The Board by any real or legal person. The regulatory bodies process exempts certain data controllers from the to oversee its provisions are the Kişisel Verileri registration process, such as data controllers with Koruma Kurumu (Data Protection Authority or less than 50 employees and an annual balance DPA) and the Turkish Data Protection Board sheet below TRY 25 million so long as they do not (Board), active as of January 2017. The DPA serves process sensitive personal data; data controllers a mostly administrative and government relations who process only by non-electronic means; and role whereas the Board is the decision-making Chartered Public Accountants, lawyers, mediators, authority. The DPA is empowered to monitor unions and foundations. Failure to register can corporate data usage and raise public awareness result in large monetary penalties of up to TRY 1.5 about data protection in the country. The Board’s million and restrictions on processing activities. functions include determining adequate measures for compliance, examining and concluding A data subject’s explicit consent is required, if complaints and rendering decisions, delivering the data processing cannot be based on other opinions on draft legislation on personal data, legal reasons, such as legitimate interest. announcing data breaches, maintaining the registry of data controllers, and deciding on administrative The LPPD does not set out minimum or 2022 INVESTMENT POLICY AND REGULATORY REVIEW – TÜRKIYE | 29 maximum periods for data retention but The LPPD does not mandate data privacy requires personal data to be stored only as impact assessments. long as required for the purpose for which it is processed. That said, there may be sector-specific Türkiye’s Constitution allows the government laws which set out specific data retention periods, to access or compel disclosure of data that is such as a 10-year data retention rule for commercial collected and stored by private entities when it is books and records. Similarly, hosting and access in the interest of national security, public order, providers are obligated to collect and keep traffic prevention of crime, protection of public health information for up to two years and submit such and public morality and to protect people’s traffic information and subscriber information to rights and freedoms. In certain cases, the Turkish the Information Technologies and Communication Data Protection Board may initiate audits either Authority on demand. E-commerce service ex officio or due to complaints and require private providers and intermediary service providers are entities to provide the data they hold. Similarly, required to store the electronic logs regarding hosting and access providers must keep traffic and electronic commerce transactions for three years individuals’ location data (such as information following the transaction date and submit these logs regarding the access to the internet medium, such to the Ministry of Trade upon request. as the name of the subscriber, name and surname, telephone number, subscription commencement The LPPD does not explicitly mention or provide date, subscription termination date, system for the right to be forgotten, but contains similar connection date and time, system logout date and rights — moreover, the right to be forgotten time, given IP address for related connection and has been acknowledged by the Turkish Data connection point) for up to two years and submit Protection Board and the DPA. Article 11 of the such traffic and subscriber information to the LPPD enables a data subject to request the data Information Technologies and Communication controller to erase, destroy or make anonymous the Authority at least three months prior to terminating data subject’s personal data under certain conditions. its operations. That said, the Information For example, conditions may be that the reasons for Technologies and Communication Authority is not processing the data have become redundant or that authorized to access such information ex officio the data was attained unlawfully, which arguably without a warrant. In addition, user data may be form the basis of the right to be forgotten. In June requested by courts and law enforcement agencies. 2020, the Turkish Data Protection Board rendered its Although not regulated under the data protection decision on its examination of several applications laws, personal data stored by entities may also submitted before the DPA regarding the requests of be subject to access for investigations by other removal of results containing individuals’ personal authorities, such as the Competition Board or the data from search engines, which recognized the Turkish Central Bank. right to be forgotten. In the Board’s decision, search engines were accepted as “data controllers” The LPPD empowers the Board to impose and the activities of search engines were described administrative fines of up to TRY 2,678,863 as “personal data processing.” According to the announced for the year 2022 per each violation decision, a data subject may first apply to the of the law. The administrative fines are subject to search engine regarding his or her request for the revaluation annually based on the revaluation rate removal of search results from the index, and if the of the relevant year. Further, disciplinary actions, data controller search engine rejects such request such as suspension of data processing activities or or does not respond to the data subject, then such cross-border data transfers (if any) and deletion person may file a complaint with the Board or of illegally processed personal data, if there is an directly initiate legal proceedings. On October 20, obvious violation of laws and damages that are 2021, the DPA published the Guidelines on the impossible or hard to remedy, may also be imposed Right to be Forgotten (Guidelines) on its official as an administrative sanction. Sector-specific website, specifically relating to the results on the regulations also contemplate administrative fines. search engines. The Regulation on Administrative Sanctions | 30 2022 INVESTMENT POLICY AND REGULATORY REVIEW – TÜRKIYE of Information and Communications Authority pursuant to the Communiqué on Management and imposes fines of up to 3% of the preceding calendar Audit of Information Systems of Financial Leasing, year’s net sales on authorized operators (service Factoring and Financing Companies. providers, network providers, infrastructure operators) for violating personal data and security Moreover, the July 2020 amendments to the Law obligations. The LPPD does not set out any No. 5651 on the Regulation of Internet Broadcasts criminal penalties but such penalties, including and Prevention of Crimes Committed through Such imprisonment (ranging from 6 months to 4 years), Broadcasts (Internet Law) require social network may be imposed pursuant to the Criminal Code providers (foreign and domestic) having more No. 5237 for unlawful collection, processing than 1 million daily access counts from Türkiye to and transfer of personal data. Further, sanctions undertake necessary measures to retain the data of may be imposed on legal entities such as license Turkish users in Türkiye. cancellation and seizure of pecuniary benefits Cross-border transfer of personal data (including obtained from the committed crime. sensitive personal data) outside Türkiye is currently permitted in two scenarios: by (i) Data Localization obtaining explicit consent, or (ii) obtaining DPA’s Turkish law does not generally impose any data approval on undertakings or binding corporate rules localization or residency requirements, except (BCRs). Another scenario could be if a country with respect to customer data in regulated has the same level of protection in place deemed sectors, such as banking, healthcare, electronic adequate by the DPA (if so notified by the DPA), but payments and telecommunications. For instance, to date the DPA has not yet announced any country as in the telecommunication sector, servers of the providing an adequate level of protection (i.e., safe communication systems that are on board of country). On April 10, 2020, the DPA announced vehicles that enable the rendering of value-added that the BCRs may be used as a legal basis for services in addition to eCall (i.e., emergency- intra-group cross-border data transfers among call system for vehicles for providing emergency multinational companies operating in countries that assistance in case of road traffic incidents) must do not provide adequate data protection to achieve be located in Türkiye and such data can only be an adequate level of data protection for the intra- transferred outside Türkiye based on the data group data transfers. However, the DPA’s review subject’s explicit consent. Law No. 6493 on and approval timeframes for commitment letters Payment and Security Systems, Payment Services and BCRs submitted for review may extend to more and Electronic Money Institutions also requires than a year. Accordingly, explicit consent is the most financial institutions to establish servers in Türkiye common practice for cross-border data transfers. in order to localize data. Pursuant to Law No. 5809 The DPA is empowered to prohibit the cross-border on Electronic Communications, traffic and location transfer of data, even if explicit consent of the data data of subscribers can be transferred outside Tukey subject is obtained, if it considers that public or only upon explicit consent of the data subjects. personal interests will be seriously harmed. In 2018, new “on-soil” (that is, mandatory Certain sector specific laws may also regulate storage of data in the country) requirements were cross border transfers of data. For example, introduced: (i) for companies that are publicly under the Banking Law data belonging to real registered and subject to independent audits of their and legal persons formed after establishing a information systems pursuant to the Communiqué customer relationship with banks specifically on Management of Information Systems (the for banking activities becomes customer data scope of which is narrowed down to publicly listed and its transfer outside Türkiye is subject to the companies that are subject to independent audits regulations stipulated under the Banking Law. through the Capital Markets Board decision of Further, the Banking Regulation and Supervision March 8, 2018 of 2018/10); and (ii) for financial Authority is authorized to prohibit the sharing or leasing, factoring and financing companies transfer of customer data or bank secrets to third parties located outside Türkiye as well as to make 2022 INVESTMENT POLICY AND REGULATORY REVIEW – TÜRKIYE | 31 decisions regarding keeping information systems to content, such as conducting editorial activities used by banks and their backups locally due to (i.e., where mere conduit defense is unavailable) audits regarding economic security. might increase the possibility of being deemed a content provider. Intermediary Liability In July 2020, the Internet Law was amended to There is no legislation specifically regulating include a number of obligations on social media intermediary liabilities. Liabilities of inter- companies with more than one million daily users mediaries are regulated under the Internet Law and in Türkiye in order to amplify compliance with the Regulation on the Procedures and Principles content removal requests. Regarding the Regulation of Publications Made on the Internet Environment. There are no user identity requirements imposed on intermediaries. An intermediary has no There are no specific rules on “safe harbor” obligation to ensure users supply accurate personal immunity for intermediaries but hosting information. An intermediary has no obligation to providers (including ISPs) are generally proactively monitor users’ activities. exempted from liability for third-party content, provided they comply with judicial or Generally, in recent years governmental scrutiny administrative decisions regarding the removal of digital platforms is increasing. For instance, it of or blocking access to illegal content. Under was recently announced by the government that the Internet Law, content providers are primarily Parliament is working on social media legislation liable for the content they publish online. However, which is expected to set forth criminal liabilities hosting providers (including ISPs) and access related to false news/content. providers are not obligated to monitor the content they host on their platforms or which they have Content Access provided access to, nor are they obligated to The Internet Law stipulates four legal bases for investigate the illegality of the content. Hence, the removal of content and/or access blocking to hosting providers are generally exempted from websites: (i) Article 8 regulates catalogue crimes civil and criminal liability for third-party content, such as inducing suicide, sexual abuse of children, but merely required to remove any illegal content, facilitating use of drugs or stimulants, (ii) Article if and when notified. 8/A regulates urgent situations, such as cases Law No. 6563 on the Regulation of Electronic mostly related to national security, public order Commerce (E-Commerce Law) and the Regulation and prevention of crimes, (iii) Article 9 regulates on Service Providers and Intermediary Service violation of personal rights, and (iv) Article 9/A Providers in Electronic Communication likewise regulates violation of the right to privacy. Blocking stipulate that an intermediary service provider is orders may be issued by courts, criminal judgeships, not liable for, nor obligated to, control the content public prosecutors, or the Information and provided by third parties using the electronic Communication Technologies Authority. Websites environment they provide and are not liable for hosted in Türkiye found to host prohibited content defects related to the goods and services subject to may be taken down while websites hosted outside such content. On January 25, 2022, the Supreme Türkiye may be blocked and filtered through the Court with File No. 2021/4000 and Decision No. internet service providers (ISPs). ISPs also have 2021/11403 published in the Official Gazette held to block access to specific URLs within 4 hours intermediary service providers not liable for third- of receiving an order. Non-compliance by ISPs party content or defective products sold via such with blocking orders or failure to take any action content. to block alternative means of accessing the targeted site within the prescribed 4 hours may result in hefty However, based on other court precedents (e.g., fines of up to TRY 300,000. Since 2018, the Turkish Supreme Court’s decision no. 2014/5427 dated 29 authorities have blocked thousands of Turkish and April 2015), playing an active role with respect international websites under various grounds. | 32 2022 INVESTMENT POLICY AND REGULATORY REVIEW – TÜRKIYE Further, the broadcasting regulator, the Radio E-Commerce and Television Supreme Council (RTUK), is granted sweeping oversight over all online E-commerce is regulated in Türkiye primarily content, including streaming platforms and under the following laws and their implementing online news outlets, pursuant to the Regulation regulations, communiques and guidelines: on the Transmission of Radio, Television, and On- n Law No. 6563 on Regulation of Electronic Demand Services on the Internet (which amended Commerce that sets the main framework of Law No. 6112 on the Establishment of Radio and electronic commerce aimed at creating a more Television Enterprises and their Media Services in secure, transparent and accessible e-commerce March 2018). This regulation mandates all online environment (E-Commerce Law) content service providers (foreign and domestic) to comply with the restrictions and a long list of n Law No. 6502 on Consumer Protection that broadcasting principles stipulated in Article 8 of establishes the rules for all consumer and the regulation, and to obtain broadcasting licenses business/seller interactions from the RTUK. Any non-compliances can result in license revocation and other sanctions. RTUK n Law No. 6493 on Payment and Security is also empowered to request removal or blocking Settlement Systems, Payment Services and of content transmitted without a license or Electronic Money Institutions that regulates the authorization, following a warning and grace period use of electronic payment systems and payment of three months within which the necessary licenses service providers or authorization must be obtained. Criminal penalty n Law No. 5070 on Electronic Signatures that may be imposed against natural persons and the covers the legal and technical aspects of members of the board of directors and the general electronic signatures manager of legal persons making the offending transmissions. The regulation categorizes service n Law No. 5651 on Regulation of Content providers as media service providers and internet Published on the Internet that provides for the transmission platform operators. The internet obligations and liabilities of content, access service providers that only provide hosting are and hosting providers and sets out certain excluded from the ambit of this regulation. requirements specific to content posted online Other laws and sector specific legislations may n Law No. 6698 on the Protection of Personal also be related to the blockage or removal of Data that regulates processing of personal data online content. For example, many provisions of by automated and non-automated means the Criminal Code and the Anti-Terrorism Law and Defamation Law are applied to online and offline n Law No. 5809 on Electronic Communications activity. The Anti-Terrorism Law subjects those to that regulates consumer rights, competition in the imprisonment who “make online propaganda of a electronic communications sector, obligations terrorist organization….by legitimizing, glorifying, of operators, investments and developments in or inciting violent methods or threats.” The Turkish communications infrastructure. Medicine and Medical Devices Agency established Other sector-specific laws and regulations may be under the Ministry of Health is authorized to applicable, such as those regulating the banking, immediately block access to infringing websites energy or insurance sectors, for example. pursuant to Law No. 1262 on Pharmaceutical and Medicinal Preparations in case of online sales of The E-Commerce Law applies to all commercial off-label or counterfeit drugs. The High Board of communication and activities in the electronic Religious Affairs of the Directorate of Religious environment, stipulates service providers’ and Affairs is also authorized to block access with intermediary service providers’ obligations, respect to certain content published on the Internet regulates electronic execution of agreements, and destroy the already published Quran translations as well as potential sanctions. It imposes certain that are found to be prejudicial by the High Board. obligations on service providers and intermediary 2022 INVESTMENT POLICY AND REGULATORY REVIEW – TÜRKIYE | 33 service providers to create the environment of trust communications and must also register with İYS necessary for the proper conduct of e-commerce, (an online platform built to facilitate the consent which include the following: management system for service providers, intermediary service providers and recipients). n Obligation to inform — service providers and intermediary service providers are obligated The Ministry of Trade is the competent authority to provide certain information with regard to to take any measures and carry out inspections electronic contracts and orders to consumers with regard to e-commerce, including imposing before concluding contracts electronically. fines for violations. Since 2017, service providers (conducting e-commerce activities on their own n Providing statistical information — banks, platforms) and intermediary service providers payment or electronic money institutions, (providing electronic environment for others to cargo and logistics companies, e-commerce conduct financial or commercial activities) are infrastructure providers and intermediary service required to register with ETBİS (Elektronik Ticaret providers must present anonymized statistical Bilgi Sistemi) before commencing their activities information about the agreements concluded in Türkiye. The ETBİS system is established by and orders placed through the internet to the the Ministry of Trade under the E-Commerce Ministry of Trade on a monthly basis. Communiqué for the registration of service providers n Electronic commercial communications — and intermediary service providers, collection of service providers must obtain consent from e-commerce data, and preparation of statistical data individuals to send electronic commercial through the processing of e-commerce data. | 34 2022 INVESTMENT POLICY AND REGULATORY REVIEW – TÜRKIYE ENDNOTES 1 The WTO services sectoral classification list Services are categorized into 12 sectors: (W/120) is a comprehensive list of services sectors and sub-sectors covered under the GATS. It was 1. Business services compiled by the WTO in July 1991 and its purpose 2. Communication services was to facilitate the Uruguay Round negotiations, ensuring cross-country comparability and 3. Construction and related engineering services consistency of the commitments undertaken. The 160 sub-sectors are defined as aggregate 4. Distribution services of the more detailed categories contained in 5. Educational services the United Nations provisional Central Product Classification (CPC). The list can be accessed 6. Environmental services under the following link: http://www.wto.org/ english/tratop_e/serv_e/mtn_gns_w_120_e.doc. 7. Financial services 8. Health related and social services 9. Tourism and travel related services 10. Recreational, cultural and sporting services 11. Transport services 12. Other services not included elsewhere 2022 INVESTMENT POLICY AND REGULATORY REVIEW – TÜRKIYE | 35 2 For the purpose of this research, 32 sectors have been identified. This is not an exhaustive list of all sectors of the economy. Primary: Services: 1. Agriculture, Hunting, Forestry, and Fishing 18. Electricity, Gas, and Water 2. Mining, Quarrying, and Petroleum 19. Alternative Energy 20. Construction Manufacturing: 21. Wholesale and Retail Trade 3. Agro-processing, Food Products, and Beverages 22. Hotels and Restaurants 4. Textiles, Apparel, and Leather 23. Other Travel and Tourism-related Services 5. Chemicals and Chemical Products 24. Logistics, Transport, and Storage 6. Rubber 25. Telecommunications 7. Plastic Products 26. Computer and Software Services 8. Pharmaceuticals, Biotechnology, and Medical Devices 27. Financial Services including Insurance 9. Metals and metal products 28. Real Estate 10. Non-metal mineral products 29. Business Services 11. Wood and wood products (other than Furniture) 30. Professional, Scientific and Technical Services (Engineering, Architecture, and 12. Furniture so on) 13. Paper and paper products 31. Health Services 14. Printing and publishing 32. Media and Entertainment 15. Automobiles, Other Motor Vehicles, and Transport Equipment 16. Information Technology and Telecommunications Equipment 17. Machinery and Electrical and Electronic Equipment and Components | 36 2022 INVESTMENT POLICY AND REGULATORY REVIEW – TÜRKIYE LIST OF REFERENCE MATERIALS Primary Sources 11. 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Decision No 1/95 Of The EC-Turkey 53. Türkiye’s International Direct Investment Association Council Of 22 December Strategy for the years 2021-2023 of 1995 On Implementing The Final Presidency of the Republic of Türkiye Phase Of The Customs Union (https:// Investment Office (https://www.invest. eur-lex.europa.eu/legal-content/EN/ gov.tr/tr/library/publications/Lists/ TXT/?uri=celex:21996D0213(01)) InvestPublications/Turkiye-Uluslararasi- Dogrudan-Yatirim-Stratejisi-2021-2023.pdf) 50. Export Incentives (https://ticaret.gov.tr/ destekler/ihracat-destekleri/teblig-bazinda- destek-mevzuati) 51. Annual Presidency Program of 2021 (2021_ Yili_Cumhurbaskanligi_Yillik_Programi.pdf (sbb.gov.tr)) 52. Annual Presidency Program of 2022 2022 INVESTMENT POLICY AND REGULATORY REVIEW – TÜRKIYE | 39 This Investment Policy and Regulatory Review presents information on the legal and regulatory frameworks governing foreign direct investment. Since legal and regulatory frameworks are constantly evolving, a cut-off date was set for the research. This country review therefore covers information available as of December 31, 2021, unless otherwise indicated in the review. IPRRs are available for the following middle-income countries: Brazil, China, India, Indonesia, Malaysia, Mexico, Nigeria, Thailand, Türkiye, and Vietnam.