Invest

INVESTMENT IN TURKEY

February 2010

General Information

Location and climate
The lands of Turkey are located at a point where the three continents making up the old world,
Asia, Africa and Europe are closest to each other, and straddle the point where Europe and Asia
meet. Geographically, the country is located in the northern half of the hemisphere at a point that
is about halfway between the equator and the North Pole, at a latitude of 36 degrees N to 42
degrees N and a longitude of 26 degrees E to 45 degrees E. Turkey is roughly rectangular in shape
and is 1,660 kilometres long and 550 kilometres wide.
The actual surface area of Turkey inclusive of its lakes and rivers is 814,578 square kilometres, of
which 790,200 are in Asia and 24,378 are located in Europe. The land borders of Turkey are
2,753 kilometres in total, and coastlines (including islands) are another 8,333 kilometres. Turkey
has two European and six Asian countries for neighbours along its land borders.
Although Turkey is situated in a geographical location where climatic conditions are quite
temperate, the diverse nature of the landscape, and the existence in particular of the mountains
that run parallel to the coasts, results in significant differences in climatic conditions from one
region to the other. While the coastal areas enjoy milder climates, the inland Anatolian plateau
experiences extremes of hot summers and cold winters with limited rainfall.

Population and political divisions
Turkey is governed by the 1982 constitution, actually the third constitution of the republic. The
form of government is a parliamentary democracy. There are 81 provinces in Turkey and they
have limited powers because of the centrally administrated organisation of the State. The capital
city is Ankara, which is located in the centre of the Anatolia.
Turkey’s population is a 72.1 million and the population growth rate is 1.3%. The local civilian
work force is about 25 million. The population is much younger compared to European countries
(approximately 30% of the population is below the age of 15). Turkey will continue to have one
of the largest populations in the Middle East and Eastern Europe. The official language is Turkish.
However, many Turkish businessmen speak and conduct transactions in English. French, German
and Russian are also widely used for business. The religion of the Turkish people is
predominantly Islam, but the organisation of the State is secular.

“Local Ideas, Global Solutions” 2

Legal system
The Turkish legal system profited from various Continental European legal systems when making
laws and regulations; the main sources are the French, Swiss and Italian codes.
An independent judiciary supervises the conformity of laws to the 1982 constitution by means of
the Constitutional Court.
The legislation governing foreign investments in Turkey has been shaped by the Foreign Direct
Investments Code numbered 4875, and related regulations. The definitions and entitlements under
this code standing as a legal guide for foreign investors are compatible with the best international
practices.
Foreign investors have the same rights as local investors to benefit from investment incentives.
Investments are not only secured by the legislation regarding foreign investments; there are many
other legal acts and international agreements which guarantee a stable and reliable investment
environment.

Language and currency
The Turkish language is spoken in Turkey and in many other States in Central Asia with Turkish
origin. The official currency of Turkey is the Turkish Lira (TL).

Economic environment
Turkey’s population of over 70 million is young and growing. It has the largest landmass in
Western Europe, and its economy is among the 20 biggest economies in the world with a GDP
more than US $630 thousand million. The US Department of Commerce has identified Turkey as
one of the ten most promising emerging economies, and the World Bank also declared Turkey one
of the ten countries most likely to enter the top tier of the world economy.
The major urban centres and the greatest economic development are found in the Marmara,
Aegean and Central Anatolian regions, which extend across central and north-western Turkey.
The presence of the major cities of Istanbul, Izmir, Bursa and Ankara within these regions has
enabled them to emerge as the predominant manufacturing and industrial districts. In addition
there is another fast developing region in the south around Adana.
In the early 1980’s, Turkey implemented a series of important economic reforms aimed at
liberalising the Turkish economy and integrating it into the global economy.
The main components of this economic reform were reducing government intervention;
implementing a flexible exchange rate policy; liberalising import regulations; increasing exports;
encouraging foreign capital investment; establishing free trade zones; deregulating financial
markets; privatising State Economic Enterprises, and decentralising government activities. The
Turkish economy displayed a high growth performance thanks to these decisively implemented
structural reforms together with successful macroeconomic policies and has become one of the
fastest growing economies in the world. The average real GDP growth rate over the past 20 years
is almost 5% and, this rate reaches 7.4% when the last five-year period (2003-2008) is considered.
Turkey’s total foreign trade volume has increased by over 150% in this latest five-year period and
exceeded USD 330 milliard in 2008.


Historically, the agricultural sector has been Turkey’s largest employer and a major contributor to
the GNP. However, as the country has developed, the relative importance of agriculture has
declined, while that of industry and the service sector has increased. Turkey’s entrance into
international markets and the resulting increase in international competitiveness have further
accelerated the industrialisation process. In 2008, total exports exceeded USD 100 milliard and
the shares of agricultural and industrial exports in this total were 4.2% and 93.8% respectively.
The privatisation of State Economic Enterprises has been a major structural objective of Turkish
governments since the mid-1980s. Numerous state companies have already been privatised in the
last ten years; the State has completely withdrawn from a number of industry sectors. The sale of
Turk Telekom was finalized. The privatisations of Tüpraş (refineries), Erdemir (steel) and the
initial public offering (IPO) of THY (Turkish Airlines) were also concluded. Following the
successful IPO of Vakifbank, the work on privatisation of state banks also gained pace and the
IPO for about 25 percent of Halkbank was completed. Hence, Turkey attracted USD 9.8 milliard
of foreign direct investment (FDI) in 2005 and a record level of FDI in 2006, which at USD 20.1
milliard exceeded the cumulative total of the previous five years. FDI for the following years is
expected to be almost as high, driven by ongoing merger and acquisition activity in the banking
and other sectors. Today, approximately 10,000 foreign companies actively participate in the
Turkish economy. The Turkish banking sector has also made significant progress in parallel with
the structural changes undertaken to produce a more financially liberal Turkish economy.
With the efforts to restructure the Turkish economy and integrate it into the modern financial
system, Turkish banks have achieved important changes in their institutional structures and in the
quality of their products and services. The new Banking Law was approved by the Parliament in
2005. The new legislation aligns the regulation andsupervision of the sector with the EU standards
and introduces new and modern practices in many fields. With the new legislation, a structure
parallel to international best practices is established in many areas such as bank ownership and
management, bank licensing, and connected lending. The Banking Regulation and Supervision
Agency (BRSA) implemented the necessary organizational changes including the merger of
onsite and offsite supervision and risk based supervision. The BRSA continues its efforts to
prepare the banking sector for international completion by issuing regulations in parallel to the
new Banking Law and also is planning to implement Basel II principles in 2008, just one year
after G-10 countries.

One of the major developments in the Turkish financial sector was the establishment of the
Istanbul Stock Exchange (ISE) in 1986. Stock and bond markets are completely open to foreign
investors with no restriction on the repatriation of capital and profit. In June 2007, the ISE market
capitalisation and the daily average traded value exceeded US$ 200 milliard and US$ 1 milliard
respectively. The ISE Bonds and Bills Market left behind US$ 2,000 milliard/year traded value in
2006, with an increase of 50% compared to two years ago.
In the aftermath of the Cold War, Turkey has moved from the periphery of Europe to the centre of
the new political and economic reality of Eurasia. This region, which includes Central Asia, the
Caucasus and the countries of the Black Sea, attracts increasing attention not only because of its
potential as one of the world’s most important energy-producing areas, but also because of its
position as a transport corridor linking East and West. Turkey has historic, cultural and linguistic
ties with the majority of the countries in these regions. Turkey has significantly improved
economic and trade relations in the region and Turkish companies have experienced phenomenal
growth through their expansion into these markets.


Turkey has also made substantial investments in and reaped impressive rewards from the tourism
sector. During the last decade, the number of tourists and tourism revenues have increased
considerably. In 2008, over 26 million tourists visited Turkey, generating revenue of almost
US$21 milliard. In 2004, these figures were 17.5 million tourists and US$16 milliard respectively.
At the December 1999 Helsinki Summit, the European Union (EU) declared Turkey an official
candidate for full membership in the European Union. In the last two years, the goal of fulfilling
the Copenhagen Criteria has been substantially achieved as mentioned in the 2004 Regular Report
on Turkey drafted by the European Commission. Turkey’s future has been substantially shaped at
the end of 2004 by the European Union (EU) Council decision about the opening of accession
negotiations.
In this decision, The European Council welcomed the adoption of the six pieces of legislation
identified by the Commission and decided that, in the light of this and of the Commission report
and recommendation, Turkey sufficiently fulfils the Copenhagen political criteria to open
accession negotiations provided that it brings into force these specific pieces of legislation. As a
result, it invited the Commission to present to the Council a proposal for a framework for
negotiations with Turkey, on the basis set out in paragraph 23 of its decision. It requested the
Council to agree on that framework with a view to opening negotiations on 3 October 2005. In its
meeting at 3 October 2005, the Council approved a framework for negotiations with Turkey on its
accession to the EU, thus enabling the negotiations to begin immediately after the meeting.

Turkey’s long-standing relations with the EU and familiarity with most EU regulations and
policies will accelerate the accession process and allow Turkey to achieve full membership more
quickly than expected.
Turkey is also playing an active role in the realisation of the East-West Energy Corridor. Turkey
is a natural bridge between major oil and gas producing areas such as the Middle East and the
Caspian Region on the one side and the consumer markets of Europe on the other. The energy
projects most of which have already been realized are the Baku-Tiblisi-Ceyhan Oil Project, the
Trans-Caspian Gas Pipeline, the Blue Stream Project with Russia, the expansion of the existing
Russia-Bulgaria-Turkey natural gas line and the Azerbaijan’s Shah Deniz Natural Gas field
Project.
All the above-mentioned factors are expected to fuel further economic growth. The most
conservative projections predict an annual average growth rate of 5 percent in the coming years.
With its young and well-trained workforce; rich natural resources; well-developed infrastructure;
improved transportation, telecommunications and banking systems; rapidly growing domestic
market; and dynamic and developed industry, Turkey today offers an attractive and secure
investment opportunity to foreign investors.
Turkey has aligned itself with the West and is a member of numerous international organisations.
Turkey is a founding member of the United Nations, Council of Europe, the European Bank for
Reconstruction and Development and the Organisation for Security and Cooperation in Europe
(“OSCE”) as well as the World Bank, the IMF, the European Resettlement Fund, the Asian
Development Bank, the Black Sea Economic Cooperation Organisation, the Multilateral
Investment Guaranty Agency (“MIGA”), the Bank for International Settlements (“BIS”) and the
OECD. Turkey is also a party to the General Agreement on Tariffs and Trade (“GATT”) and a


member of the World Trade Organisation (“WTO”). In addition, Turkey is a member of the
Organisation of the Islamic Conference and of the Islamic Development Bank.


Investment Factors
Special features
Turkey’s own business environment is becoming an increasingly attractive and a substantial
platform for free enterprise. With its liberal foreign investment law, free trade practices, dynamic
stock exchange, and numerous incentives for investors and exporters, Turkey is set to become a
major commercial and a financial centre for the region.
An investment in Turkey today is an investment in the future due to its location and trade
relations, its level of development as an emerging economy, and its stable political system backed
by a solid commitment to international cooperation and development:
Turkey provides access to a wide range of markets. While nearly half its exports are now directed
at the European Union (EU), Turkey is actively engaged in meeting the requirements for the
customs union with the European Union to be followed by full membership. Turkey also enjoys
excellent relations with the Commonwealth of Independent States, Central and Eastern European
countries, the Turkic-speaking republics of Central Asia, the Gulf and the Middle East, making it
a perfect base from which to access and serve these markets.
Turkey played a pioneering role in establishing the Black Sea Economic Cooperation
Organisation and has agreements with the International Centre for Settlement of Investment
Disputes (ICSlD) and Multinational Investment Guarantee Agency (MIGA).

Investment incentives
The investment policy of the Turkish government is to encourage, support and orient investments
and exports, in conformity with the objectives of Development Plans and Annual Programmes, in
order to reduce interregional imbalances, increase employment by benefiting from high and
appropriate technologies with greater added value and to improve the competitiveness of the
country. The Turkish investment incentive system can be classified under three main headings:
 Investment incentives that require the possession of the IEC
 Incentives that are not tied to the investment encouragement certificate (IEC)
 Zone specific incentives and the new incentive system1

1
The new system has been announced on 2 June 2009 by the government .The country is seperated into four incentive
zones and different regulations are in force.


Investment encouragement certificate
It is an obligation to get the IEC to benefit from the government subsidies for investments in
Turkey. Fundamentally all applications should be made to the Undersecretariat of Treasury,
however, local firms operating in manufacturing and agricultural industries with investment
projects less than 8 million TL have option to apply to the nearest chamber of industry. These
official bodies review the contribution of the investment to the industrial and/or social
development of the country before issuing the Certificate. The Certificate defines the main
characteristics of the investment, the incentives allowed and the requirements that the investor has
to fulfil. The requirements can be illustrated such as due date of the investment, minimum cost of
the investment, export commitments etc.

Incentives that are tied to the IEC
The legislative base of the government subsidies for investments is the decree numbered
2006/10921, dated August 28th 2006.
To be eligible for the incentive measures tied to the IEC, the scale of investment must meet the
following criteria:
 Minimum 200,000 and maximum 2,000,000 TL for SME’s investments,
 Minimum 1,000,000 TL for other investments,
 Minimum 200,000 TL for investments to be made through the leasing companies.

There are also limitations for specific sectors and IEC are not issued for the investments in these
sectors. Some of them are as follows:
 Cotton processing investments
 Investments in synthetic fibre
 Hypermarkets, commercial centres, shopping malls investments
 Building contracting investments
 Vegetable cultivation investments (except seed propagation, seeding growing, nursery
gardening, mushroom and greenhouse cultivation)
 Ostrich feeding

According to this legislation, the incentive tools granted to investors are:
 Exemption from Customs duties
 VAT (Value Added Tax) exemption
 Interest expenditure support

Exemption from Customs duties
This incentive measure ensures that the imported machinery and equipment for theinvestment can
be brought to the country with exemption from Customs duties. The machinery and equipment,
which are to be imported under this measure, must be
included in the import machinery and equipment list, a supplementary document of the IEC.
Within this context, raw materials and intermediate goods cannot be imported.


Some other items for which Customs duties are collected:
 Spare parts
 Trucks, tow trucks, forklift trucks, trailers (there are some exceptions)
 Passenger vehicles, buses, yachts and motorboats
 Furniture, porcelain and ceramic tableware, kitchen utensils
 Construction materials, concrete station and concrete pumps, transmixers

VAT exemption
The imported machinery and equipment, which are included in the import machinery list, can be
brought to Turkey without paying VAT. Locally purchased machinery and equipment can also be
included in this list. With this approved machinery list approved by the Undersecretariat of
Treasury, the investor can purchase the local machinery without paying VAT to the seller.
Interest expenditure support
The following investments are subject to this incentive.
 Investments beneficial to the priority regions
 Investments to be made by small and medium size enterprises (SME’s)
 Investments related to R&D
 Investments for environmental protection

Of the interest rate of the loan -with minimum term of 1 year- provided by financial institutions to
be used in financing the abovementioned investments, 5 and 2 points for the local currency loans
and the FX loans respectively will be compensated by the government for the first four years. This
interest expenditure support is also available for the short-term finance of the operational
materials to be used in R&D investments with condition that it is approved by the
Undersecretariat of Treasury. The amount of support differs according to the investment to be
made; 1 million TL for the investment in priority region is the maximum.

Incentives that are not tied to the IEC
According to the Law for the Encouragement of Investments and Employment numbered 5084,
dated 29.01.2004, and to the subsequent laws (numbered 5228, 5350, 5568 and 5615) amending
this law, the following incentives are granted to real and legal persons that will invest in provinces
which have a GDP per capita of less than US$ 1,500.


Income withholding and social security premium (employer share) exemptions
Investors which will employ in their establishment at least 10 workers are exempt from income
withholding taxes and employer’s share of the social security premium until 31.12.2012.

Energy incentives
This incentive measure enables investors that will employ at least 10 workers continuously to
benefit from a maximum 50% reduction in their electricity costs until 31.12.2012.

Land allocation
The Law numbered 5084 also allows free land allocation for the investments to be made in the
provinces mentioned above. The minimum employment requirement is the same. Land allocation
applications shall be evaluated according to the availability of publicly owned lands in the
investment location.

Zone specific incentives
The new incentive system has been announced in outline by the government on 2 June, 2009.

The following incentive items are introduced:
 Corporation Tax, Income Tax Deduction
 The supporting of the Employer’s Share of the SSK Premium by the Treasury,
 Interest Support,
 Allocation of Place of Investment,
 VAT Exemption
 Customs Duty Exemption.

The investments to be realized in 12 different sectors, above the amounts specified for each
sector, will be entitled to benefit from all the incentive factors excluding interest support
(corporation tax discount, SSK Employer’s share, allocation of an investment place, VAT
exemption, Customs Duty exemption) disregarding the place where these investments were
realized.

The discounted Corporation Tax rates and the SSK incentive applicable for big investments as
per regions, are presented in the table provided below

Discounted Corporation Tax SSK Premium Employer’s
Regions Rate of Contribution (%)- Rate of Tax (%) Share
1 30 10 2 years
2 40 8 3 years
3 50 4 5 years
4 70 2 7 years

The discounted Corporation Tax application shall be applied as follows: for example, in an
investment in the production of chemical substances worth 1.000 million TL to be realized in the
1st Region, Corporation Tax shall be levied at a rate of 10% instead of 20%. The 10% tax


application shall continue until the amount of saving provided through the application of 10% tax
instead of 20%, reaches 30% of the investment total of 1.000 million TL, which is equal to 300.

The incentives application, which has been determined as Regional and Sectoral Incentive
System, envisages the division of Turkey into 4 zones after the completion of the implementation
of the relevant legislation and to form a group of provinces in each group (for example Kocaeli,
Sakarya, Düzce, Bolu, and Yalova, forms a group of provinces within the 1st zone. Similarly,
Mardin, Batman, Şırnak, and Siirt forms a group of provinces within the 4th zone. There are 6
group of provinces in the 1st zone, 4 group of provinces in the 2nd zone, 8 group of provinces in
the 3rd zone, and 8 group of provinces in the 4th zone, adding up to 26 groups of provinces.) the
system will operate through the giving of incentives to the investments realized in designated
areas.

The Incentive Measures to be applied for the regional and sectoral investments, are provided in
the following table:

SSK Premium Loan Interest Support
Discounted Corporation Tax Employer’s (Points)
Regions Rate of Contribution (%)- Rate of Tax (%) Share Support TL - F/X
1 20 10 2 years _ _
2 30 8 3 years _ _
3 40 4 5 years 3 1
4 60 2 7 years 5 2

In regional and sectoral incentives, it is noted that during the determination of the sectors,
besides the existing facilities as per provinces/groups of provinces, an importance was also laid
on the subsidizing of the new facilities to be established, and through this way, clusters are
attempted to be formed.

Investments in integrated processing facilities in animal husbandry, facilities of recycling and
elimination of dangerous wastes, are among the incentives that are subsidized in all the regions.
Hotel investments are encouraged in the provinces that are included under the 1st Zone (Istanbul,
Tekirdağ, Edirne, Kırklareli, Izmir, Bursa Eskişehir, Bilecik, Kocaeli, Sakarya, Düzce, Bolu,
Yalova, Ankara)

The new incentive structure, shall only be applied to the new investments. The investments that
have begun until the end of 2010 shall benefit from the incentives. The investors who do not
benefit, or who do not wish to benefit from the new system, will be allowed to benefit from the
opportunities introduced by Law 5084 that is currently in effect, or from the Customs Exemption
and the VAT exemption mechanisms that are currently applied.

Free zone incentives
There are 21 free zones in Turkey, the oldest of which has been operational for 20 years. As in
other countries, free zones in Turkey are areas which have been left outside of certain foreign
trade restrictions such as customs applications and in which tax incentives or exemptions are


provided to investors to subsidize export oriented production in various ways. An operating right
in a Turkish free zone is acquired through obtaining a license from the Undersecretariat of
Foreign Trade.
This government authority reviews the license applications for conformity with the objectives
determined by the Economic Affairs Coordination Council. Export and export-oriented
production, employment, value added creation, use of new technologies are the main objectives.
Tax advantages of Turkish free zones may be enumerated as follows:
 Value Added Tax Exemption: All the transactions in goods and services of companies
operating in free zones are exempted from VAT.
 Income and Corporate Tax Exemption: All free zone companies with licenses obtained before
February 7, 2004 are excluded from income and corporation tax on the income they derived in
these zones, limited to the expiration dates of their licenses. In addition, the earnings
originated from the sales of finished goods produced in free zones by taxpayers with a
manufacturing license are excluded from income and corporation tax until the annual taxation
period of full membership of the European Union.


Technology development zone incentives
The Technology Development Zones (TDZ) Law numbered 4691 and dated July 6, 2001 aims at
the development of special investment areas for investments involving high technology and to
regulate the support of R&D activities as sources of innovations in production.
Companies must apply to the Managing Companies of the TDZ related to the sector they are
working in or for which they are developing projects and, carry out activities in accordance with
the Zone Operation Directives drawn up by each TDZ.
The major tax advantages provided are as follows:
 Income and Corporate Tax Exemption: Profits generated in these zones resulting from
software and R&D-based production activities by the TDZ companies are excluded from
income and corporation tax until December 31, 2013. In addition, income derived within the
scope of application of TDZ Law by Managing Companies is also exempted from income and
corporate tax until the same date.
 Income Tax Withholding Exemption: Wages and salaries paid to researchers, software, and
R&D personnel employed in the zone for their research, software, and R&D work will be
exempt from all taxes until December 31, 2013.
 Exemption from Tax, Duties and Fees: Managing companies of TDZs will be exempt from all
taxes, duties and charges in the transactions concerning the implementation of the TDZ Law.
 Value Added Tax Exemption: Until December 31, 2013 delivery and services which are
manufactured and rendered in these zones and in the form of system management, data
management, business applications, internet, mobile and military command control
application software are excluded from VAT.

Export incentives
The procedures and the principles pertaining to the application of stamp duty and fee exemption
concerning exports and other foreign currency earning activities are outlined in the Communiqué
Concerning the Stamp Duty and Fee Exemption Application in Foreign Exchange Generating
Activities Series No 1 based on the 28th and the 33rd article of Law No 5035, dated January 2,
2004.
According to the aforementioned articles of Law No. 5035:
 Export transactions
 Other foreign exchange-earning activities to be defined in the related Communiqué
(mentioned in the above paragraph), shall be excluded from the Stamp Tax under Statute
Number 488 and from fees under Statute Number 492.

To benefit from export incentives, presentation of an IPR authorization certificate and a stamp tax,
duty and fee exemption certificate are required for exports subject to the inward processing
regime and other (than export) foreign exchange-earning activities respectively.


Inward processing regime measures
The inward processing regime (IPR) which has been applied in conformity with EC’s regulations
since January 1st, 1996, is now implemented through the decree no. 2005/8391, dated January
27th, 2005. The aim of the IPR is to eliminate obstacles that prevent exporters from obtaining
materials at world market prices, in this way to enhance their competitiveness.
IPR measures include systems to import raw materials and semi-finished goods that are used in
the production of export goods without paying customs duty and being subject to commercial
policy measures. Inward processing consists of two types of systems:
 Conditional exemption (suspension) system for imports and,
 System concerning repayment of taxes and duties paid during imports (drawback system).

Conditional exemption on imports
This is an exemption for firms resident in the Turkish Trade Zone that own an IPR authorization
certificate. Exports of the above mentioned firms are made through taking a guarantee equal to the
amount of the taxes that should be collected during the imports of raw materials, auxiliary
materials, semi-finished products, products and packaging materials that have been taken under
export guarantee during their unpaid non-quota or paid imports. Cash, letters of guarantee given
by banks or government bonds and treasury bills are regarded as guarantees.

Repayment of taxes taken during imports
This system usually consists of repayment of taxes collected during importation, when a good that
has been imported into free circulation is exported as a processed good.

For the application of this system, an IPR authorization certificate is required that
demonstrates the name, quantity value, exports term on the basis of projects of goods that are
imported or exported (including secondary goods).
It is necessary to apply to the Undersecretariat of Foreign Trade to obtain an IPR authorization
certificate.
The Undersecretariat grants the request of residents of the Turkey Customs Region
provided that,
 It is possible to determine that the imported good is used in the production of processed goods
and,
 It is possible to determine that it is not seriously harmful for the economic interests of
producers in the Turkish Customs Region,
 The production process under IPR creates an additional production capacity, value added and
increase competitiveness, or the treasury may reject the request.


Sources of Finance
Turkey has mature and strong financial institutions to support commercial and industrial
enterprises in debt and equity financing. Additionally leasing and accounts receivable financing
are alternative and popular sources of financing.
Turkish banks are wholly integrated within the international banking sector with their high quality
of products and services, and with the modern national regulations they follow. Presently 32
commercial banks and 4 participation banks operate in Turkey. The breakdown of commercial
banks is as follows: 3 public commercial banks, 12 private commercial banks, 10 foreign
commercial banks established in Turkey, 7 branches of foreign banks established outside of
Turkey.
Another positive move to encourage foreign investment was the launching of the Istanbul Stock
Exchange (ISE) in January 1986 followed by the establishment of an inter-bank market in 1987.
ISE is the sole securities exchange in Turkey, providing a fair and transparent environment for the
trading of a wide variety of securities, namely, stocks, depository receipts, government bonds,
treasury bills, revenue-sharing certificates, bond issues by the Privatisation Administration, and
real estate certificates. In this capacity the ISE plays a crucial role in the Turkish economy. The
main indicator of the market is the ISE national-100 Index comprising 100 companies with high
market capitalisation and liquidity, which are capable of representing their respective sectors.
The Istanbul Stock Exchange attracts many foreign investors; foreign investors’ equity portfolio
holdings made up more than 65% of free floating stocks at the end of January 2010.

Exchange control
Law No. 1567 concerning the protection of the value of the Turkish currency, which has been in
effect since 1980 provides only a general framework and detailed exchange control regulations
are established by resolutions of the Council of Ministers. The most recent one is resolution
number 32 which became effective on August 11, 1989. It sets out the principles that are aimed at
protecting the value of the currency and, subject to the limiting provisions of international
agreements that are to be applicable to:
 The setting of official exchange rates and the price of gold,
 All transactions associated with foreign exchange and instruments representing foreign
exchange (including securities) as well as with the disbursement and management of foreign
exchange,
 The importation and exportation of Turkish currency and instruments denominated in Turkish
currency (including securities),
 Transactions involving precious metals, stones, and articles,
 Exports,
 Imports,
 Exports and imports of a special nature,
 Invisible transactions,
 Exchange transactions related to international portfolio capital movements.

The importation of Turkish currency and of documents securing payment in Turkish currency are
not subject to any restriction. Such items may also be exported subject to a few limitations:


 Residents and non-residents of Turkey are free to send Turkish currency abroad through banks
and certain private finance institutions,
 Documents securing payment in Turkish liras may be freely exported from the country,
 Travellers are permitted to carry up to U.S. $ 5,000 with them when travelling abroad,
 Non-residents are free to make payments, collections, and deposits in Turkish currency in
Turkey,
 Commercial banks and interest-free banks must notify the Turkish Central Bank of any
transfers that they effect outside the country that are in excess of U.S. $ 50,000 (except those
related to import, export, and invisible transactions) within thirty days of the date of the
transaction.

The commercial banks are responsible for implementing the exchange control regulations and in
the case of foreign investment it becomes critical when repatriation of Turkish liras in foreign
currency is desired. Under no circumstances should foreign currency be remitted to Turkey and
converted into Turkish liras unless the legal formalities for ultimate repayment have been
completed first. Absence of the relevant documentation cannot be rectified later.
Exchange rates and gold prices are determined in accordance with the principles and procedures
established by the Turkish Central Bank.

Exports
Foreign currency or Turkish lira revenues derived from exports must be transferred into the
country within 180 days. There are a number of exceptions to this general requirement. In cases
where at least 70 percent of the foreign exchange from exports is brought into the country and
sold to a bank or interest-free bank within 90 days, the exporter is free to do whatever he wants
with the remaining 30 percent.
If foreign currency payments for exports are not brought into the country until the stipulated
period, any positive difference arising between the official rate of exchange on the final day of the
period (even if periods of extension have been granted) and the rate of exchange on the day when
the foreign exchange is sold is not paid to the exporter but is instead passed to the Support and
Price Stability Fund.
Exporters of goods that do not conform to declarations made with respect to quantity, quality or
value and those who smuggle goods out of the country are under the obligation of bringing the
goods into the country and selling the foreign currency equivalent within 90 days of the date of
notification made to them by the exchange control authorities. Even if the foreign exchange is
then brought into the country it does not absolve the parties involved of their liabilities under Law
No. 1567.

Imports
Payments sent abroad for imports can be realised through the resources of the banks or private
finance institutions negotiating the transaction as well as from foreign currency accounts which
belong to the importer. Such payments must be made in accordance with established banking
customs and practices as well as with the provisions of agreements between the buyer and the
seller.


The Ministry which is responsible for the Undersecretariat of Foreign Trade is authorised to
determine the principles and procedures for all stages of the process, including payment for
imports (with or without a foreign currency allotment), the closing out of import accounts and
imports of a special nature.

Invisible transactions
Foreign exchange allotments and transfers to be made abroad for international shipping, banking
and insurance services conducted overseas, and for other invisible transactions as well as their
banknote sales are conducted by banks and private finance institutions within the framework of
procedures, principles, and limits specified by the Central Bank.
Residents of Turkey may freely dispose of foreign exchange received in return for all services that
they render, whether in Turkey or abroad, to non-residents or on behalf of such persons. Foreign
exchange received in return for expenditure incurred in the name of or on account of non-
residents may be disposed of similarly.

Other issues
Securities
Securities may freely enter and leave the country.

Real estate properties
Non-residents can transfer out of Turkey the income and the sale proceeds from real estate
properties (and from their accessory rights) that they have purchased.

Credit and loans
Residents of Turkey are free to obtain cash, and non-cash credit from outside the country and to
make use of such credit through banks.
Turkish banks can be classified into three major groups: commercial banks, investment banks and
interest-free banks. Today, there are 32 commercial banks, 13 investment banks and 4
participation (interest-free) banks in operation.
Agreements concerning all forms of credit that are obtained from abroad with terms of more than
one year must be sent to the ministry within thirty days of the date on which they are concluded so
that they may be recorded and registered in the debt log maintained by the ministry.


The ministry has the authority to track credit obtained from abroad on the basis of individual real
persons and legal entities, to prohibit it, to restrict it, and to halt the repayment of loans that
should have been registered in the debt log but were not.

Non-cash credit, guarantees and bonds
Residents of Turkey are free to obtain all forms of non-cash credit, guarantees, and surety from
outside Turkey.

Issuance by the Banks
Banks are free to issue:
 denominated in foreign currency and Turkish lira letters of credit, guarantees, and surety
on behalf of residents and non-residents of Turkey in favour of non-residents,
 letters of credit, guarantees, and surety denominated in foreign currency on behalf of
residents and non-residents of Turkey in favour of residents for international requests for
tenders conducted in Turkey.

Foreign currency accounts
Central Bank and banks may open foreign currency deposit accounts or foreign currency
convertible to Turkish lira accounts in the names of residents and non-residents of Turkey. The
holders of such accounts have full power of disposition over them.

Capital movements
Residents of Turkey are free to export, through banks and private financial institutions, foreign
currency cash capital up to an amount of U.S. $ 5,000,000 (or the equivalent thereof) in order to
invest outside the country or in free zones in Turkey or to establish companies, participate in
companies, or open branches in order to engage in commercial activities. Capital-in-kind equal to
the same amount may also be exported for the same purposes in accordance with the provisions of
customs regulations.
If such persons wish to export capital for the same purposes in amounts exceeding U.S. $ 5
million, the permission of the ministry must be obtained.
Capital may be imported in kind, subject to evaluation by experts from Foreign Investment
Department and under the provision that the related machinery is not sold for five years.


Employment regulations
The legal working week is 45 hours in Turkey. Overtime may not exceed 3 hours a day for
maximum 90 days a year and is not allowed in underground work. Usual overtime rates involve a
50% daytime premium on weekdays and Saturdays and 100% on Sundays and public holidays.
The government sets a minimum wage, but actual wages are higher than the minimum wage rate.
Salaries are normally reviewed on a half yearly or quarterly basis. The review of wages depends
on whether there is a collective bargaining agreement with a union and how long this is valid for.
Fringe benefits cost employers about 30-40% of blue-collar workers’ gross wages and 25-30% of
white-collar salaries. The most common fringe benefits are meals, transport, and yearly bonuses
of two or four months’ salaries. In addition, cash benefits payable in the event of births, marriage,
etc. and heating and clothing allowances are provided through union agreements.
Under the current labour law, a company is required to make lump sum payments to employees
whose employment is terminated due to retirement or for reasons other than resignation or
misconduct. Severance pay is calculated at one month’s salary up to a maximum amount per year
of service. This limit is adjusted four times a year. The employer has no obligation to provide
severance pay if the employee resigns.
Legislation also requires that all employees should be covered by the social security system and
pay social security contributions. The system includes benefits for industrial accidents and
sickness, health insurance, maternity, disability, old age and death. It also covers almost all costs
of a modest level of medical care.
Contributions as a percentage of gross salary are payable by individual employees and employers.
The contribution rate for the employer and employee is around 19.5-25% and 14% of the gross
salary respectively. For citizens of countries with which Turkey has bilateral social security
agreements, it is possible to stay within their own national social security schemes.
Employment law currently allows people to retire after fulfilling 7000 premium days or 4500
premium days on condition to be under the social security shelter for 25 years, and to attain the
age of 58 for women and 60 for men.


The employment of foreign personnel is also possible in Turkey. In order to be able to work and
reside in Turkey, all non-residents must first obtain a work permit from the General Directorate of
Foreign Investments and parallel with this permit, a residence permit from the Ministry of Internal
Affairs.

Real estate acquisition by foreigners
Foreign real persons’ acquisitions
According to the 35th article of the Land Registry Law, foreign real persons can acquire real
estates in Turkey for business purposes or to use as residence. The local authorities seek the
following requirements stipulated in the same law before allowing the change of ownership:
 Presence of reciprocity with the foreigner’s native country,
 Allocation and registration of the real estate to be acquired in the implemented or localized
development plans for the appropriate purpose,
 Maintenance of conformity to the individual upper limit of 2.5 hectares,
 Compliance with other legal restrictions.

Foreign companies’ acquisitions
The aforementioned law allows companies established in foreign countries to acquire real estates
in Turkey within the restrictions stated in the laws specified below:
 Law of encouragement of tourism (Law no.2634)
 Petroleum law (Law no.6326)
 Industry regions law (Law no.4737)

Foreign capital companies’ acquisitions
The foreign direct investment law (Law no.4875) allows companies established (or participated)
in Turkey by foreign investors to acquire real estates of which their sale to Turkish real or legal
persons is legitimate.


Types of Business Organisation
Organising a business corporation
The Turkish Commercial Code recognises two distinct types of business enterprise:
 Partnerships
 Corporations

The legal differences between the two concern the allocation of liability and the legal identity of
the entity. Corporations exist as separate legal entities and offer their shareholders limited
liability. Although foreign investors are not longer restricted to establishing only corporations or
branch offices by the new Law No.4875, in practice, a corporation is the type of business
enterprise preferred by foreign investors.
Under the TCC, a corporation is established in either of these two forms:
 Limited Liability Company (Ltd. Şti.)
 Joint Stock Company (A.Ş.)

Joint stock company
A joint stock company is defined as a corporation having its own trade name and a predetermined
amount of capital divided by shares. The liability of the shareholders is limited to their capital.
The structure and organisation of joint stock companies are subject to regulation by the Turkish
Commercial Code. However, the founders of joint stock companies are afforded significant
flexibility in drafting the articles of association, thereby serving the needs of the specific venture.
Capital Market Board regulations also apply to joint stock companies whose shareholders number
at least 250, or which have issued bonds or whose shares are quoted on the Istanbul Stock
Exchange.
A minimum of five shareholders, who may be either real persons or legal entities, is required for
the formation of a joint stock company. The overall share capital must be a minimum of 50,000
TL.
The capital of a joint stock company is divided into shares of equal value, which are treated as
negotiable commercial paper. The shares may be issued in either registered or bearer form.
Registered shares are freely transferable subject to approval by the board of the company, unless
prohibited by the company’s articles of association. Bearer shares are freely transferable under
the Turkish Law of Obligations, unless otherwise agreed by the parties.


Decision making in a joint stock company is by majority vote; but the Turkish
Commercial Code includes certain provisions to protect minority interests. Minority shareholders
may also request the appointment of a special auditor on their behalf. At least three members are
appointed by the shareholders to form the Board of Directors. These members are responsible
individually for the tax liabilities of the company.

Limited liability company
Limited liability companies may be composed of real persons or legal entities and must consist of
at least 2 and no more than 50 shareholders. The overall share capital must be a minimum of
5,000 TL. All shareholders are personally liable for the debts of the company up to a maximum of
their contribution in addition to the company’s tax liabilities, however, shareholders are not held
liable for the unpaid portions of others’ contributions.
Shares held in a limited liability company are non-negotiable and may be transferred only with the
approval of the other shareholders. Transfers must be approved by at least a 75% majority vote,
with at least 75% of the total capital represented. Limited liability companies are also prohibited
from engaging in banking or insurance business. A limited liability company differs from the joint
stock company in that its capital is not divided into shares of stock nor represented by share
certificates. There is no board of directors for a limited company. Instead, the appointed manager
has authority to run the company.

Branches and liaison offices
Foreign companies may also operate through liaison offices or branches providing they have
acquired a permit from the relevant official authority. The Ministry of Industry and Commerce,
and the Treasury are the authorities to be applied to for establishing branch and liaison offices
respectively.
The income of a branch derived in Turkey is taxed in the same way as that of resident
corporations. A liaison office, on the other hand, which is used to establish a presence in Turkey
and funded by the parent company abroad, is not expected to have a taxable income since it is not
allowed to carry on any commercial activity. The liaison office still has to keep official books of
account and record in these books all money transfers, income and expenses.

Terms and conditions for foreign business corporations
By the new Foreign Investment Law 4875 entered into force as of June 17, 2003, the foreign
investment policy of Turkey has changed from a screening system to a monitoring system. With
this new scope, all permits granted by the GDFI have been abolished and this official authority
has been charged only with collecting data concerning foreign investments.
With this new legislation, all companies established with a foreign capital contribution and under
the rules of the Turkish Commercial Code (TCC) have come to be regarded as Turkish
Companies. Therefore equal treatment both in rights and responsibilities as stated in the
Constitution and other laws is currently applicable to all foreign business corporations. The rights
that foreign investors acquire with the new legislation are as follows:
 National Treatment: Foreign investors are free to make direct investments in Turkey and
subject to equal treatment with domestic investors in conformity with the international
agreements and other special laws.


 Protection against Expropriation: Principles stated in the Constitution and in the Expropriation
Law are stated in the new law, as in the bilateral investment agreements and other
international agreements. Therefore it is clarified that expropriation can not take place for any
reason other than the above-mentioned regulations.

 Guarantee of Money Transfers: Profits, dividends, proceeds from the sale or liquidation of all
or any part of an investment, amounts arising from license, management and similar
agreements, and reimbursements and interest payments arising from foreign loans through
banks or special financial institutions can be freely transferred abroad by foreign investors.

 Access to Real Estate: Legal entities with foreign capital, established and registered under the
rules of Turkish Commercial Code can acquire real estate on the same basis as Turkish
nationals. The principle of reciprocity is still valid for foreign real persons.

 International Arbitration: For the settlement of disputes arising from investment agreements
subject to private law and disputes arising from conditions and contracts made with the
administration under which concessions concerning public services are granted, the foreign
investor can apply to, besides the authorised local courts, national or international arbitration,
or other means of dispute settlement, provided that the conditions in the related regulations are
fulfilled and the parties agree thereon.

 Valuation of Non-cash Capital: Non-cash capital is valued within the regulations of Turkish
Commercial Law. However, stocks and bonds of companies residing abroad will be accepted
as the foreign capital share of foreign investors and the values determined by the courts of the
home country, or other relevant authorities in the home country or any other international
institutions performing valuations will be accepted.

 Employment of Expatriates: Foreign personnel can be employed for investments in Turkey.
Considering its importance to foreign investors, the employment of expatriates is explicitly
mentioned in the new legislation.

As is settled in Banking Code, foreign banks may be active in Turkey, on a branch office basis. It
is also required that permission must be obtained from The Council of Ministers. The foreign
bank is to have the status of a Joint Stock Corporation or equivalent, under the law of native
country.
Specifically, foreign insurance companies may only be active in Turkey as a Joint Stock
Corporation or on a branch basis. That sort of foreign company may join -as shareholders-, the
insurance companies, which are presently active in Turkey as well. In this case, the foreign
insurance company must be a Joint Stock Corporation or have equivalent status, under the law of
its native country. A foreign legal entity may open a branch office in Turkey, only if the entity is
active in the insurance field in its native country.


Accounting System
Financial Reporting and Auditing
At present, there is no set of generally accepted accounting principles that apply equally to all
Turkish companies although over the past few years there have been some tentative steps in that
direction. Instead, there are general rules that govern aspects of accounting in the Tax Procedures
Code and, in addition to these general rules, there are other rules that apply specifically to banking
and insurance companies and to companies registered with the Capital Market Board. However
the new Turkish Trade Law is being negotiated in the parliament by end of January 2010. With
the introduction of new Law, the IFRS are going to be obligatory for all companies regardless
they went public or not.
The most recent development has been the introduction of a Uniform Chart of Accounts, which
prescribes certain fundamental accounting concepts, a code of accounts, and a format for the
presentation of financial statements which, with the exceptions listed below, are applicable to all
companies in Turkey from January 1, 1994 onwards.
The exceptions to this general rule are:
 Banking and insurance companies
 Private finance institutions
 Leasing and factoring companies
 Mutual funds, institutions, and investment trusts

The balance sheet starts with the items that are most liquid. Non-current items are listed at the
bottom.
There are two alternatives for cost accounting. The (A) type tracks each transaction recorded
according to three classifications: function, type of expense, and cost centre. The (B) type tracks
the costs recorded according to the type of expense. At year-end, the accumulated data should be
reclassified according to the function. The (B) type is for small businesses whereas (A) is for
medium and large businesses.
There are five financial statements to be submitted to the tax authorities, which are obligatory for
the companies whose net sales or total assets are above the limits revised by the Ministry of
Finance each year. The financial statements are as follows:
 Balance sheet,
 Income statement,
 Profit appropriation,
 Cost of sales statement,
 Cash-flow statement.


The last three statements are not required to be submitted to the tax authorities for companies
lacking the criteria stated above.
By issuing the Communiqué XI/25 dated November 15, 2003, the Turkish Capital Markets Board
(SPK) has set accounting standards for listed companies which are identical to IFRS. These
standards will be into force in 2005. Hyperinflation accounting, on the other hand has been
applied by listed and non-listed companies since January 1, 2003 and 2004 respectively.
The provision of the Procedural Law of Taxation that stipulates keeping official books in TL and
in Turkish has been amended by the Law No.5228 dated July 31, 2004. With this amendment,
Turkish companies are allowed to enter account definitions in a foreign language provided that
Turkish synonyms are maintained. In addition, by getting permission from the Council of
Ministers, companies having capital above or equal to $100 million and with a minimum 40%
foreign shareholding are allowed to keep their books in a foreign currency.
Corporations with shareholders more than 250 and/or whose shares are quoted on stock exchange
are required to make audited their financial statements to the independent auditors certified by the
SPK before publishing them.
Banks have to submit independent auditors’ report to the Banking Regulation and Supervision
Agency (BDDK) containing matters specific to financial institutions in addition to disclosures
made in the standard audit reports mentioned above.


Taxation
General structure
The Turkish tax regime can be classified as:
 Income Taxes o Corporate Income Taxes o Individual Income Taxes
 Taxes on Expenditure
o Value Added Tax
o Private Consumption Tax
o Banking and Insurance Transaction Taxes
o Stamp Duty
 Taxes on Wealth o Inheritance and Gift Taxes o Property Tax

Income taxes
Income taxes in Turkey are levied upon the income, both domestic and foreign, of individuals and
corporations resident in Turkey. Non-residents earning income in Turkey through employment,
ownership of property, carrying on a business or from other activities giving rise to income are
also subject to tax, but only on their Turkish derived income.

Corporate income tax
For tax purposes, companies are grouped as limited liability companies (corporations and limited
companies) and personal companies (limited and ordinary partnerships). Corporate (income) tax
applies to limited liability companies. State economic enterprises, joint ventures and business
entities owned by societies, foundations and local authorities are also subject to corporation tax.
The corporate tax rate is 20%.
Whether a company is subject to full or limited tax liability depends on its status of residence. A
company whose statutory domicile or place of management is established in Turkey will have full
tax liability; in this case, world-wide income is taxable. If a non-resident company conducts
business through a branch or a joint venture, it will have limited tax liability; i.e. fully subject to
corporate tax on profits earned in Turkey on an annual basis. If there is no presence in Turkey,
withholding tax will generally be charged on income earned; for example, for services provided in
Turkey. However, if there is an avoidance of double taxation treaty, reduced rates of withholding
tax may apply.


For resident corporations, whose statutory domicile or place of management is established in
Turkey, tax is levied on world-wide income, but credit is given for foreign tax payable in respect
of income from foreign sources (up to the amount of Turkish corporate income tax).
Corporate entities having their statutory domicile and place of management outside Turkey, but
established in Turkey in the form of a branch are subject to tax on an annual return based on
income received from the permanent establishment in Turkey. Withholding taxes apply on a wide
range of types of income received by Turkish resident individuals and companies, including for
individuals; rent receipts from businesses; and for both individuals and companies; interest on
government bonds, bank interest, etc.
From the non-resident’s point of view, many payments abroad including those for professional
services and technical assistance, royalties and rentals are subject to withholding tax at rate of
20%. In this regard, countries having avoidance of double taxation treaties with Turkey have
considerable advantages. These countries can, in general, benefit from a reduction of withholding
taxes in certain circumstances.
Royalty agreements including those for know-how and patent licences must be registered by the
General Directorate of Foreign Investments.

Individual income tax
Turkish residents have full tax liability, meaning that they are taxed on world-wide income, but
they can receive a tax credit for taxes paid abroad. Personal taxes on income from foreign
countries may be deducted from taxes due in Turkey on the same income, but only up to the
amount of the Turkish taxes assessed. The range of tax rates for individual income is 15-35%.
Non-residents have limited tax liability. The limited tax liability covers trade or business income
from a permanent establishment, salaries for work done in Turkey (regardless of where paid or
whether or not remitted to Turkey), rental income from real property in Turkey, Turkish derived
interest, and income from the sale of patents, copyrights and similar intangible assets. The income
of non-residents is taxed at the same rate as residents, but non-residents are not entitled to deduct
the general allowance and receive no credit for foreign taxes. The salaries of the personnel
working in foreign corporations’ liaison offices are not subject to income withholding if these
offices do not deal with commercial activities in Turkey yet and the salaries of the personnel are
paid by the remittances in foreign currency sent from abroad. However the related personnel are
required to declare this income through the individual income tax return and pay the related tax to
the tax office.


Taxes on expenditure
Value added tax (VAT)
Deliveries of goods and services are subject to VAT at rates varying from 1% to 18%. The
general rate applied is 18%. Intercompany interest charges are subject to VAT at 18%. The VAT
rate on most leased assets is 1% with the exception of 18% on leased passenger and land transport
vehicles. Lease contracts are exempt from all types of stamp taxes and duties. VAT is charged on
imports at normal rates.
Payments made to non-residents regarding technical and professional services received or rights
and other intangible assets acquired are also subject to VAT and this tax responsibility is carried
out by those receiving the service or asset.
Exemption from value added tax
1. Exported goods and services: Goods and services that are exported from the country are not
subject to VAT.

A delivery of goods is considered an act of exportation if;
 The delivery is made to a customer outside the country,
 The goods delivered pass through Turkish customs.

Situations in which goods are delivered by the manufacturer to the exporter are also
considered to be within the scope of this exemption; however in this case, the goods must
actually be exported by the exporter within three months of their delivery to the exporter.
A performance of services is considered an act of exportation if;
 The service is rendered for a customer who is outside the country,
 The benefit of the service is derived outside the country.

2. Goods purchased by tourists.
3. Conveyances and petroleum exploration: VAT exemption is provided on purchases of marine,
air, and rail conveyances, and floating dry-docks and their equipment if they are to be used by
the enterprise making the purchase. This exemption also extends to payments made for their
maintenance and repair services as well. Through recent changes in the law, services and
deliveries in connection with the production and construction of the vehicles in question are
included in the scope of the exemption. Another VAT exemption is provided for goods and
services purchased by those engaged in petroleum exploration.


4. Transport services: Transport services between Turkey and other countries and
transit trade activities through Turkey are not subject to VAT.
5. Diplomatic personnel: Deliveries made and services provided to diplomatic representations
and consulates of foreign countries in Turkey as well as to their members who possess
diplomatic rights are exempt from VAT on condition of reciprocity. The same applies to
deliveries made and services provided to international organisations and their personnel that
have been granted a tax exemption based on international agreements.
6. Banking and insurance transactions: Banking and insurance transactions are exempt from VAT
(Such activities are already subject to a five percent banking and insurance transaction tax).
7. Others: Other deliveries that are exempt from VAT include:
 Deliveries of gold, silver, foreign exchange, cash, tax stamps, stocks, and bonds,
 Movements of crude oil, oil, and oil-based products through pipelines,
 Deliveries made and services provided by military factories and shipyards that are in
accordance with the purposes for which they were established,
 Delivery and leasing of assets which have been included within the scope of privatisation.

VAT refund
Taxpayers who deliver goods and/or perform services that fall within the scope of the VAT-
exempt categories (specifically exports, conveyances, petroleum exploration, transport services
and diplomatic exemptions) are allowed to deduct VAT paid in the generation of such goods and
services from the amounts of VAT collected. Where such a deduction is not possible (in other
words, where the output VAT is less than the input VAT) the tax related to the tax-exempt
activities can be refunded to the taxpayer.

Private consumption tax (PCT)
Deliveries, initial acquisition and import of goods stated in the tax legislation numbered 4760 are
subject to PCT. Since the related legislation stipulates that PCT can only be charged once -
differing from VAT- in the subsequent deliveries and acquisitions of goods in question PCT is not
applied. The goods subject to PCT are categorized in four groups in the code. The main items in
these groups are as follows.


Group I: Petroleum products and natural gas derivatives.
Tax rate: Various fixed amounts over quantity
Group II: Motor vehicles (except tractors).
Tax rate: 0.5-84%

Group III: Tobacco products, alcoholic beverages, soft drinks containing carbon dioxide.
Tax rate: 25-275.6%
Group IV: Luxuries (jewelleries, clothing made of fur, perfumes & cosmetics etc.), consumer
durables (refrigerators, dishwashers, vacuum cleaners, telephones etc.) , audiovisual
equipments (tvs, hifis, amplifiers etc.), firearms.
Tax rate: 6.7-20%

Banking and insurance transaction tax
The transactions of banks, insurance and factoring companies, capital market intermediary
institutions remain exempt from VAT, but are subject to a Banking and Insurance transaction tax
at a rate of 5%. This tax applies to income earned by the banks, for example on loan interest.

Stamp duty
Stamp duty applies to a wide range of documents, including contracts, agreements, notes payable,
capital contributions letters of credit, letters of guarantee, financial statements and payrolls. Stamp
duty is levied at fixed amounts or as a percentage (1.5% to 7.5%) of the monetary value of the
document.

Taxes on wealth

Inheritance and gift taxes
Items acquired as gifts or through inheritance are subject to progressive taxation. The tax rates
changes between 10-30% upon gifts received and 1-10% upon inheritances received. Tax paid in
a foreign country on inherited property is deducted from the taxable value of the asset. Inheritance
tax is payable over the period of three years and in two instalments per year.

Property taxes
Property taxes are paid each year on the tax values of land and buildings at rates varying from
0.1% to 0.6%. In the case of the sale of property, both the buyer and the seller pay a 1.5% levy on
the sales value. The rate is raised to 3.6% if the property is contributed as capital-in-kind.


Reporting periods and payment procedures

Corporate Income Tax
The corporate income tax return has to be submitted to the related tax office by April 25th that
follows the balance sheet date. If the balance sheet date is different from the December 31st –the
calendar year is accepted as the accounting year, exceptions may be granted to the requesting
companies- this deadline shifts accordingly. The quarterly corporate income taxes paid during the
year are offset against the definite corporate income tax declared in this tax return.

Individual Income Tax
The time schedule to report and pay individual income tax on the basis of the type of the income
earned is as follows:
 Those whose income consists only of immovable property revenues submit their declarations
in the month of March of the following year and pay their taxes in
March and July,
 Those whose income consists of commercial earnings computed in the simple way submit
their declarations in the month of February of the following year and pay this tax in February
and June,
 In other cases, the declaration is submitted in the March of the following year and the tax is
paid in March and July. There are provisions to offset withholding taxes already paid and any
prepaid taxes against one’s total tax liability.

Within the current year, 15 percent of “provisional income tax” is paid on commercial profits and
self-employed profits, determined for three-monthly periods. The provisional income tax is
computed on earnings declared until the 14th day of the second month following each quarter and
paid within this same period. The tax so paid is netted off against the yearly income tax paid in the
beginning of the subsequent year. Taxes collected through withholding are reported by means of a
separate return filed on the 23th of the following month at which time they must be paid.
Those with a “limited” tax liability must file tax returns and pay all out-standing tax obligations
fifteen days before they leave the country.
Each family member submits a separate annual income tax declaration. If certain earnings taxed
through withholding do not exceed the amount determined by law, no declaration is to be
submitted, and if a declaration is submitted for other earnings they need not be included in the
declarations.


Acquiring no-par shares by shareholders after capital increases financed by profit
reserves is considered as a profit distribution by the Company and as dividends for shareholders.
So these dividends will be the subject of income tax withholding of 15%. If the tax ratio stated in
the agreement of preventing double taxation signed between foreign shareholder’s country and
Turkey is below this ratio, the ratio determined in the agreement will be applied in favour of the
foreign shareholders according to the 94th clause of Turkish Income Tax Code.

Agreements for the avoidance of double taxation
Avoidance of double taxation agreements has been signed and come into force with 65 countries.
The list of these agreements and the maximum tax rates applicable for dividends, interest and
intangible property income can be found in the schedules below.

Country Dividends Interest Royalties
% % %
Albania 5/15 (a) 10 10
Algeria 12 10 10
Austria 25/35 (b) 15 10
Azerbaijan 12 10 10
Bangladesh 10 10 10
Belarus 10/15 (c) 10 10
Belgium 15/20 (d) 15 10
Bulgaria 10/15 (c) 10 10
China 10 10 10
Croatia 10 10 10
Czech Republic 10 10 10
Denmark 15/20 (e) 15 10
Egypt 5/15 (a) 10 10
Estonia 10 10 5/10 (f)
Finland 15/20 (e) 15 10
France 15/20 (g) 15 10
Germany 15/20 (g) 15 10
Greece 15 12 10
Hungary 10/15 (c) 10 10
India 15 10/15 (h) 15
Indonesia 10/15 (c) 10 10
Iran 15/20 (e) 10
Israel 10 10 10
Italy 15 15 10
Japan 10/15 (c) 10/15 (i) 10
Jordan 10/15 (c) 10 12
Kazakhstan 10 10 10
Korea 15/20 (e) 10/15 (j) 10
Kuwait 10 10 10
Kyrgyzstan 10 10 10
Latvia 10 10 5/10 (f)
Lebanon 7/10 (f) 10 10
Lithuania 10 10 5/10 (f)
Luxembourg 10/20 (l) 10/15 (m) 10
Macedonia 5/10 (n) 10 10
Malaysia 10/15 (c) 15 10
Moldova 10/15 (c) 10 10
Mongolia 10 10 10
Morocco 10/15 (o) 10 10
Netherlands 5/10 (p) 10/15 (m) 10
Northern Cyprus 15/20 (e) 10 10
Norway 25/30 (q) 15 10
Pakistan 10/15 (c) 10 10


Poland 10/15 (c) 10 10
Romania 15 10 10
Russian Federation 10 10 10
Singapore 10/15 (c) 7.5/10 (r) 10
Slovak Republic 5/10 (n) 10 10
Slovenia 10 10 10
Spain 5/15 (s) 10/15 (t) 10
Sudan 10 10 10
Sweden 15/20 (e) 15 10
Syria 10 10 10/15 (u)
Tajikistan 10 10 10
Thailand 10/15 (c) 10/15 (v) 15
Tunisia 12/15 (w) 10 10
Turkmenistan 10 10 10
Ukraine 10/15 (c) 10 10
United Arab
Emirates 5/10/12 (x) 10 10
United Kingdom 15/20 (e) 15 10
United States 15/20 (g) 10/15 (y) 5/10 (f)
Uzbekistan 10 10 10
Nontreaty countries 15 0/10/15 (z) 15 (z)

(a) The 5% rate applies if the recipient owns more than 25% of the payer of the dividends. The 15% rate applies to other dividends.
(b) The 25% rate applies if the recipient owns more than 25% of the payer of the dividends. The 35% rate applies to other dividends.
(c) The 10% rate applies if the recipient owns more than 25% of the payer of the dividends. The 15% rate applies to other dividends.
(d) The 15% rate applies if the recipient owns more than 10% of the payer of the dividends. The 20% rate applies to other dividends.
(e) The 15% rate applies if the recipient owns more than 25% of the payer of the dividends. The 20% rate applies to other dividends.
(f) The 5% rate applies to royalties paid for the use of industrial, commercial or scientific equipment. The 10% rate applies to other
royalties.
(g) The 15% rate applies if the recipient owns more than 10% of the payer of the dividends. The 20% rate applies to other dividends.
(h) The 10% rate applies to interest on loans granted by banks and financial institutions. The 15% rate applies to other interest payments.
(i) The 10% rate applies to interest on loans granted by financial institutions. The 15% rate applies to other interest payments.
(j) The 10% rate applies to interest paid with respect to a loan or other debt claim with a term exceeding two years. The 15% rate applies to
other interest payments.
(k) The 7% rate applies if the recipient (beneficial owner) owns more than 25% of the payer of the dividends. The 10% rate applies to other
dividends.
(l) The 10% rate applies if the recipient owns more than 25% of the payer of the dividends. The 20% rate applies to other dividends.
(m) The 10% rate applies to interest on loans with a term exceeding two years. The 15% rate applies to other interest payments.
(n) The 5% rate applies if the recipient owns more than 25% of the payer of the dividends. The 10% rate applies to other dividends.
(o) The 10% rate applies if the beneficial owner owns more than 15% of the payer of the dividends. The 15% rate applies to other
dividends.
(p) The 5% rate applies to dividends distributed by Dutch companies. The 10% rate applies to dividends distributed by Turkish companies.
(q) The 25% rate applies if the recipient owns more than 25% of the payer of the dividends. The 30% rate applies to other dividends.
(r) The 7.5% rate applies to interest on loans paid by financial institutions. The 10% rate applies to other interest payments.
(s) The 5% rate applies to dividends to the extent they are paid out of profits that have been subject to tax as specified in the tax treaty and
if the recipient owns more than 25% of the payer of the dividends. The 15% rate applies to other dividends.
(t) The 10% rate applies to interest on loans granted by banks. The 15% rate applies to other interest payments.
(u) The 10% applies to royalties paid for the use of, or the right to use, copyrights of literary, artistic or scientific works, including
cinematographic films and recordings for radio and television. The 15% rate applies to royalties paid for patents, trademarks, designs or
models, plans, secret formulas or processes, or for information concerning industrial, commercial or scientific experience.
(v) The 10% rate applies to interest on loans granted by banks, financial institutions and insurance companies. The 15% rate applies to other
interest payments.


(w) The 12% rate applies if the recipient owns more than 25% of the payer of the dividends. The 15% rate applies to other dividends.
(x) The 5% applies if the recipient of the dividend is the government, a public institution which is wholly owned by the government or a
political subdivision or local authorities of the other Contracting State. The 10% rate applies if the recipient owns more than 25% of the
payer of the dividends. The 12% rate applies to other dividends.
(y) The 10% rate applies to interest derived from loans granted by financial institutions, such as banks, savings institutions or insurance
companies. The 15% rate applies to other interest payments.
(z) See Section A.


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