The legal framework in Turkey is predominantly anchored in the civil law tradition, characterized by a comprehensive codification of laws that serve as the primary reference point for legal principles and rules. Initially established in the early 20th century, the cornerstone of the Turkish legal system was set through the adoption of the Swiss Civil Code and the Italian Penal Code. Subsequently, Turkey has undertaken numerous modifications to its legal infrastructure to align with European Union standards and accommodate its unique socio-political evolution. Despite these adjustments, the essence of Turkey’s legal system steadfastly remains rooted in the civil law paradigm and the continental law of Europe.

The Turkish Commercial Code (TCC), Law No. 6102, sets forth the general provisions regarding companies and delineates the types of companies operational within the jurisdiction of Turkey. According to the TCC, companies are categorized into two principal groups:

1. Capital Companies, which encompass:

• Joint Stock Companies (JSCs);
• Limited Liability Companies (LLCs);
• Limited Partnerships with a share capital divided into shares.

In capital companies, the liability of shareholders towards the company is limited to the capital they have pledged.

2. Non-Capital Companies/Personal Companies, which include:

• Collective Partnerships;
• Limited Partnerships;
• Cooperative Companies.

Among the variety of capital companies, JSCs and LLCs emerge as the most prevalent forms. JSCs are particularly well-suited for larger enterprises due to their more developed and adaptable corporate governance legal framework. Consequently, entities such as holding companies, telecommunications companies, banks, financial institutions, intermediary institutions, and insurance companies are mandated to be established as JSCs, reflecting the suitability of the JSC structure for businesses operating at a significant scale.

Investors looking to engage in the Turkish market have other alternatives to directly establishing or participating in a capital company. One such alternative is the formation of a branch or liaison office of an existing foreign commercial entity domiciled outside of Turkey:

Branch Offices

Branch offices act as extensions of their parent companies and are not recognized as separate legal entities. They are granted a degree of independence in terms of accounting and executing commercial transactions but are closely tied to their parent companies regarding internal governance. Due to additional bureaucracy during formation and more dependency to parent, branches have become less popular among foreign investors in Turkey. They are typically utilized for local expansion within Turkey after establishing a subsidiary within the jurisdiction.

Liaison Offices

Liaison offices, also known as representation offices or ‘Irtibat Burosu’ in Turkish, are designed for engaging in non-commercial activities within Turkey. These offices are prohibited from issuing invoices, generating revenue, or engaging in any form of commercial transactions. The formation and maintenance of liaison offices are subject to less bureaucratic formalities, and they are intended to carry out preparatory and auxiliary tasks such as market research, gathering information on customers, suppliers, and competitors, monitoring market activities and local regulatory changes, and preparing analyses on the feasibility of establishing more permanent forms of business presence in Turkey.

In Turkey, foreign entities are permitted to conduct business activities across various sectors, with the exception of specific heavily regulated industries such as banking, finance, and electronic communications, which may have more stringent entry and operational requirements. Despite the openness to non-domestic business operations, foreign entities must adhere to certain legal and regulatory obligations based on the nature and scale of their activities within the Turkish jurisdiction.

One significant regulation concerns the Value Added Tax (VAT) obligations for electronic services provided by foreign entities. According to Article 9 of the Value Added Tax Law No. 3065, services rendered electronically to individuals in Turkey who are not registered as VAT taxpayers must be subject to VAT. The responsibility for declaring and remitting this VAT lies with the foreign service providers themselves, assuming they do not possess a residence, workplace, legal, or business centre within Turkey. Thus, a VAT registration may be required.

1. Joint Stock Company (JSC): The minimum capital requirement is TRY 250,000. However, for those adopting the registered capital system, a higher minimum registered capital of TRY 500,000 is required. The registered capital system allows JSC companies greater flexibility in increasing their capital.

2. Limited Liability Company (LLC): The minimum capital requirement is set at TRY 50,000.

3. Collective Companies, Limited Partnership Companies, and Limited Partnership Companies with Capital Divided into Shares: There are no minimum capital requirements for establishing these types of companies.

4. Branches of Non-Resident Companies: May opt for having an independent capital or not and there is no minimum threshold.

5. Liaison Offices: No capital permitted or required.

In Turkey, the establishment of business entities follows specific procedures outlined in the Turkish Commercial Code, executed electronically via the Central Registry Registration System (MERSIS). The process includes:

1. Drafting and Certification of Articles of Association: MERSIS guides founders through the legal requirements for the articles of association, which are then drafted, signed, and the signatures verified by a competent authority. For limited liability companies and cooperatives, this step occurs at the trade registry office of the company’s head office. For other types, a trade registry office or notary in the company’s headquarters can be used.
2. Preparation of Signature Declarations: Authorized company representatives must have their signatures approved and signature declarations prepared, a process completed at any trade registry office.
3. Financial Obligations: Companies must deposit 0.04% of their capital to the Competition Authority and, for joint stock companies, at least 25% of the cash capital into a bank account before registration.
4. Registration with the Trade Registry Directorate: Founders must apply for registration at the Trade Registry Directorate with all necessary documents. For joint stock companies, limited liability companies, and cooperatives, the commercial books are also certified during this step.

Joint Stock Companies (JSCs) and Limited Liability Companies (LLCs) are the most commonly established capital companies in Turkey.

The governance and operation of a business entity in Turkey vary with its type, guided by the regulations in the Turkish Commercial Code (TCC).

Joint Stock Companies (JSC): These are managed by a Board of Directors (BoD), which may consist of one or more members, either shareholders or non-shareholders, elected by the General Assembly. The BoD is tasked with essential duties like preparing the annual report and financial statements and suggesting dividend distributions. The General Assembly acts as the supreme decision-making entity, handling critical issues such as amending the articles of association, electing, or dismissing board members, approving financial statements, and making dividend decisions.

Limited Liability Companies (LLC): Management is undertaken by one or more managers, who can be shareholders or external appointees, with their roles and responsibilities outlined in the articles of association. Like JSCs, the General Assembly in LLCs holds the ultimate authority over significant decisions, including changes to the articles of association, appointing, or removing managers, and approving financial statements.

For both JSCs and LLCs, the articles of association are pivotal in delineating the specific governance framework, detailing voting protocols, and outlining decision-making methodologies. While the TCC sets the legal backdrop, it offers entities a degree of latitude to structure their internal governance, provided they remain within legal boundaries.

In Joint Stock Companies (JSCs) within Turkey, there’s notable flexibility regarding the nationality and residency of authorized representatives and shareholders:

• Authorized Representatives: They are not required to be shareholders of the JSC, allowing them to be of any nationality and not necessitating Turkish residency. This inclusivity facilitates international businesses in managing their Turkish operations more conveniently. However, it’s mandatory for at least one board member to possess unrestricted authority to represent the company, with this individual’s details duly registered in the Turkish Trade Registry.
• Shareholders: The regulations are liberal regarding the nationality and residency of shareholders, permitting full foreign ownership of a JSC, thus presenting an attractive proposition for international investors.

For Limited Liability Companies (LLCs), the approach towards management is somewhat parallel, but with distinct nuances:

• Managers: LLCs must appoint at least one manager, with no stipulated maximum. Managers can either be selected from among the shareholders or appointed externally. Similar to JSCs, there is no mandate for managers to be Turkish nationals or residents, albeit at least one of the managers must also be a shareholder in the LLC. While the legal framework does not impose residency or nationality constraints, practical business operations within Turkey may benefit from having managers with local residency due to logistical and operational efficiencies.

Expanding a business in Turkey encompasses various strategies beyond the formal creation of a company or representation unit (such as the branch or liaison offices). These methods may include the following:

1. Engaging with Distributors and Resellers: This approach allows a company to leverage existing local networks for the distribution and sale of their products. Distributors and resellers have an established presence and understanding of the market, which can significantly accelerate market penetration efforts.
2. Franchising: By franchising, a company grants a third party the rights to use its brand, product, and operational model in return for a fee. This method can rapidly expand a business’s footprint with relatively lower direct investment and capital expenditure.
3. Trade/Commercial Agents: Utilizing trade or commercial agents can be an effective way to represent a company’s interests in the market. These agents operate on behalf of the company, negotiating sales or purchases without the need for the company to establish a local presence.
4. Joint Ventures with Turkish Companies: Forming a joint venture with a local Turkish company is a common strategy for foreign businesses looking to enter the Turkish market. This partnership can provide valuable local knowledge, share the financial burden, and offer mutual benefits from the synergy of combining resources and expertise.

Apart from the Turkish Commercial Code regulating general corporate governance rules for companies (managing bodies, voting rights, minority rights etc.), corporate governance principles for privately owned companies, including groups of companies, are largely guided by the “Corporate Governance Principles” issued by the Capital Markets Board of Turkey. While these principles are primarily targeted at publicly traded companies to enhance transparency, accountability, and to protect the rights of shareholders, they also offer a framework that privately owned companies are encouraged to follow as best practice. The principles aim to improve the management and control structures of these companies, thereby increasing their competitiveness and ability to attract investment.

Main Provisions of the Corporate Governance Principles:

1. Shareholders’ Rights: Ensures the protection and facilitation of the exercise of shareholders’ rights, including the right to obtain information and to participate in general meetings.
2. Public Disclosure and Transparency: Emphasizes the importance of timely and accurate disclosure of all material information, including financial status, performance, ownership, and governance.
3. Stakeholders: Acknowledges the rights of stakeholders as established by law or through mutual agreements and encourages cooperation between the company and stakeholders in creating wealth, jobs, and the sustainability of financially sound enterprises.
4. Board of Directors: Focuses on the key role of the board in providing the strategic guidance of the company, the effective monitoring of the management, and the board’s accountability to the company and the shareholders.

In Turkey, alongside capital increases and conventional third-party loans, businesses have a range of alternative financing mechanisms at their disposal. These options not only align with global practices but also cater to the specific needs of different types of companies, from large joint stock companies (JSCs) to smaller, family-owned businesses.

Capital Injection 

• Joint Stock Companies (JSCs): JSCs can raise additional capital by issuing new shares to either existing or new investors. This approach is beneficial as it increases the company’s capital base without accruing new debt.
• Smaller or Family-owned Businesses: For these entities, owners may opt to inject personal funds into the business. Such capital injections are crucial for bolstering working capital, facilitating the continuity and expansion of the business operations.

Shareholder Loans

• Flexibility and Favourable Terms: Shareholder loans are particularly attractive because of their flexible repayment terms and potentially more favourable interest rates compared to those offered by external lenders.
• No Ownership Dilution: This financing option allows companies to improve their liquidity without diluting the ownership stakes of existing shareholders, unlike the issuance of new equity.

Regulatory Considerations for Shareholder Loans

It’s important to highlight that while shareholder loans offer various advantages, they may also be scrutinized under disguised capital or transfer pricing regulations. This scrutiny aims to ensure that such transactions are conducted at arm’s length and do not serve as a means to circumvent tax obligations or to artificially inflate a company’s capital.

Returning proceeds from entities in Turkey, such as dividends, returns of capital, and repayments of shareholder loans, involves specific processes that are regulated under Turkish law, particularly under the Turkish Commercial Code (TCC) and tax regulations. Here’s an overview of these processes:

Dividends

1. Declaration: Dividends are declared by the company’s General Assembly, based on the annual profit as reported in the financial statements and after the allocation to statutory reserves as required by the TCC.
2. Payment: Dividend payments are subject to dividend withholding tax, which must be deducted by the company at the time of payment. The rate of withholding tax can vary, and specific tax treaties between Turkey and other countries may reduce the rate for foreign shareholders.
3. Transfer: Dividends can be paid in cash or, if stipulated by the company’s articles of association, in the form of additional shares (stock dividend).

Returns of Capital

1. Procedure: A return of capital typically occurs during a reduction in the company’s share capital or upon liquidation. The process requires a resolution by the General Assembly and may involve legal procedures, including creditor notifications and a waiting period to protect creditor interests.
2. Taxation: Returns of capital are not subject to income tax if they do not exceed the amount of capital contributed by the shareholder. Any amount exceeding the contributed capital may be considered a capital gain and subject to taxation.

Return of Shareholder Loans

1. Repayment Terms: The terms of repayment for shareholder loans should be clearly defined in the loan agreement, including the repayment schedule and interest rates.
2. Tax Considerations: Interest payments on shareholder loans are subject to withholding tax, except where exempted or reduced under applicable tax treaties. The repayment of the principal amount of the loan is not taxed.
3. Transfer: Repayments must comply with Turkish foreign exchange regulations, especially if the funds are being repatriated to a foreign shareholder.

For all these transactions, compliance with Turkish foreign exchange regulations is crucial, especially for repatriation of funds to foreign entities or individuals. These regulations may require documentation and reporting to the relevant Turkish authorities, such as the Central Bank of Turkey or the Banking Regulation and Supervision Agency. Additionally, tax implications for the receiving party should be considered, as Turkey’s double taxation agreements with various countries could influence the applicable tax rates.

In Turkey, both Joint Stock Companies (JSCs) and Limited Liability Companies (LLCs) have specific voting requirements for passing resolutions in their General Assemblies and, for JSCs, in their Board of Directors meetings. These requirements are crucial for making key corporate decisions and ensuring that significant changes or actions reflect the consensus or a substantial majority of the shareholders’ or members’ interests. Here’s a summary of these requirements:

Joint Stock Companies (JSCs):

• Ordinary General Assembly Decisions: Most decisions are made by a simple majority of the votes represented at the meeting. This applies to routine decisions that do not alter the fundamental structure or operation of the company.
• Significant Decisions: For crucial actions such as amendments to the articles of association, mergers, capital increases or decreases, changes in corporate type, and dissolution, a qualified majority is required. This typically means at least two-thirds of the votes represented at the meeting. However, the articles of association can prescribe a higher majority than this legal minimum.
• Board of Directors Decisions: Resolutions generally require a simple majority of the total members present at the meeting. This ensures that the company’s day-to-day operations and decisions are made efficiently.

Limited Liability Companies (LLCs):

• General Assembly Decisions: Similar to JSCs, most decisions are taken by a simple majority of the total number of votes. This majority is sufficient for ordinary business decisions.
• Significant Decisions: For major changes, including amendments to the articles of association, capital increases or decreases, changes in corporate type, and dissolution, at least a two-thirds majority of the total votes is typically necessary, unless the articles of association specify a stricter requirement.

Articles of Association:

For both JSCs and LLCs, it’s possible to establish more stringent voting thresholds in the articles of association than those mentioned above. However, the law does not permit setting a threshold lower than the statutory requirements for both types of companies. This ensures a balance between enabling corporate actions and protecting the interests of minority shareholders or members.

In Turkish corporate governance, the extent to which shareholders can issue binding instructions to the company’s management varies by the type of entity, primarily distinguished between Joint Stock Companies (JSCs) and Limited Liability Companies (LLCs).

Joint Stock Companies (JSCs)

In JSCs, shareholders influence the company’s management indirectly, mainly through their voting rights at the General Assembly meetings. The Board of Directors (BoD) is responsible for managing the company, and while they must act in accordance with the resolutions passed at these meetings, direct binding instructions from individual shareholders or shareholder groups outside of these formal resolutions are not typical. The Turkish Commercial Code (TCC) ensures the BoD’s autonomy in managing the company, intending to protect the company’s interests by preventing direct interference by shareholders in daily management activities. However, significant decisions that affect the company’s structure and strategy, such as mergers, acquisitions, or amendments to the articles of association, require approval from the General Assembly, where shareholders vote. 

Limited Liability Companies (LLCs)

In LLCs, the management structure is generally more flexible, and the involvement of shareholders in management can be more direct, especially in smaller companies or those with fewer shareholders. The shareholders in LLCs can have a more direct say in the company’s management, as the management is usually undertaken by the shareholders themselves or managers appointed directly by them. The articles of association for an LLC can specify conditions under which shareholders can issue instructions to the managers, thereby allowing for more direct control if stipulated.

Consequences and Limitations

Issuing direct binding instructions to management in entities where such actions are not customary or legally supported can lead to several consequences:

• Legal Ramifications: If shareholders overstep their bounds, it may lead to legal challenges, especially if their actions contravene the TCC or the company’s articles of association.
• Corporate Governance Issues: Overreach by shareholders can disrupt the balance of power within a company, potentially leading to conflicts of interest, mismanagement, or neglect of minority shareholder rights.
• Operational Inefficiency: Direct interference by shareholders in daily operations can lead to inefficiencies, as management may be better equipped to make day-to-day operational decisions due to their expertise and experience.

The TCC and a company’s articles of association are designed to clearly delineate the roles and powers of shareholders and management to ensure effective governance, protect stakeholder interests, and maintain operational integrity.

Turkey’s employment laws offer robust protections across various aspects of work, guided by Labor Law No. 4857 and related regulations:

Key Protections

• Discrimination: Outlawed on various bases, including gender, with strict equal pay mandates.
• Minimum Wage: Reviewed bi-annually; set at 17,000 TL for 2024.
• Working Hours/Overtime: Standard week is 45 hours; overtime compensated at 150% of normal rate.
• Annual Leave: Ranges from 14 to 26 days based on service length, with special provisions for certain age groups.
• Health and Safety: Employer responsibilities include ensuring safety and providing training, with rights for employees to stop work in dangerous situations.
• Social Security/Health Insurance: Mandatory coverage, including pension contributions and health insurance.
• Maternity/Paternity Leave: Up to 16 weeks of maternity leave; 5 days of paternity leave for private sector, 10 for civil servants.
• Termination/Severance: Specifies valid termination reasons and entitlements to severance pay under certain conditions.
• Collective Labor Relations: Supports the right to unionize, bargain collectively, and strike.
• Personal Data Protection: Employers must protect employees’ personal data and maintain confidentiality.
• Rest Periods/Job Search Leave: Mandated breaks and job search leave during termination notice periods.
• Military Service Leave: Rights to job return within two months post-service, with compensation for non-compliance.

Reinstatement Rights

Employees wrongfully terminated can seek reinstatement under these conditions:

• Eligibility: Applies to employees in workplaces with over 30 staff, after 6 months of service, excluding those on fixed-term contracts unless termination is unjust.
• Process: Must file a lawsuit within one month of termination. Employers need to justify the termination; courts can order reinstatement if deemed unjust.
• Compensation: If reinstatement isn’t feasible, compensation ranging from four to eight months’ wages, may be awarded.
• Limitations: Does not apply to mutual consent terminations; reinstated employees entitled to severance under qualifying conditions.

Employment contracts in Turkey can be either for a fixed term or an indefinite period, affecting the termination process:

Fixed-Term Contracts

• Automatically end at their specified term without the need for notice.

Indefinite-Term Contracts

• Require prior notification to the employee for termination.

Notice Requirements

• Except for immediate termination with just cause, notice is required for ending indefinite-term contracts. Legal notice periods vary by employment duration, ranging from two to eight weeks.

Immediate Termination

• Allowed for just cause related to employee misconduct without notice or notice pay.

Valid Reasons for Termination

• Employers must have valid reasons related to the employee’s competence, behaviour, or operational requirements for workplaces with 30 or more workers and employees with at least six months’ tenure.

Severance Pay

• Payable for valid terminations, based on the employee’s latest gross salary and total years of service, provided the employee has at least one year of service and isn’t terminated for misconduct.

Wrongful Dismissal

• If deemed unjust by a labour court, employees may receive bad faith compensation, severance, and, potentially, 4 to 8 months’ wages as compensation if reinstatement isn’t feasible.

Collective Dismissals

• Classified based on company size and the number of employees dismissed within a month, requiring at least 30 days’ notice to works councils and the Turkish Employment Agency, along with negotiations.

Termination Procedures

• Must be made in writing, with clear reasons given. Employers cannot terminate for productivity or behaviour without the employee’s defence. Notice pay is required if notice periods aren’t adhered to.

Yes, Turkey has a system of employee representation and participation primarily through trade unions and collective bargaining agreements. The main legal framework for these mechanisms is provided by the Labor Law No. 4857 and Law No. 6356 on Trade Unions and Collective Bargaining Agreements. These laws facilitate the establishment of workers’ and employers’ unions, as well as their federations and confederations, and outline the rights and obligations pertaining to collective bargaining and industrial action.

Trade unions play a critical role in representing the interests of workers, negotiating working conditions, wages, and benefits through collective bargaining agreements with employers or employers’ associations. These agreements, once reached, are legally binding and can offer more favourable terms than the statutory minimum requirements.

Works Councils and Co-determined Supervisory Boards

Unlike some European countries, Turkey does not have a widespread system of works councils or co-determined supervisory boards that involve direct participation of employees in management decisions. The main form of employee participation is through trade unions and collective bargaining.

Exemptions from Regulations

While the laws aim to cover a broad range of employment sectors, certain categories of workers may be excluded from some provisions of trade union and collective bargaining regulations. For example, public servants and certain professional groups with specific regulations (e.g., military personnel) might not fall under the same trade union rights as private-sector workers.

The Law No. 6356 on Trade Unions and Collective Bargaining Agreements focuses on the representation threshold that a trade union must achieve to be considered a representative body for collective bargaining purposes. To be eligible for collective bargaining, a trade union must represent at least 1% of the employees in the relevant sector on a national level. Additionally, within a specific workplace, the trade union needs to represent more than half of the workers to obtain the right to be the bargaining agent.

Turkey’s legal framework for combating bribery and corruption is comprehensive, incorporating both national legislation and international conventions. The cornerstone of this framework is the Turkish Criminal Code (Law No. 5237), alongside the Declaration of Property and Combating Bribery and Corruption (Law No. 3628), among other relevant statutes. These laws specifically target a wide spectrum of corrupt activities, including bribery, embezzlement, fraud, and influence peddling, applicable to public officials and private individuals alike.

Key components of Turkey’s anti-corruption efforts include:

• Broad Coverage: The regulations address various corrupt practices, ensuring a wide-ranging approach to combating corruption.
• International Compliance: Turkey’s adherence to major international conventions, such as the OECD Convention against Bribery, the UNCAC, and the Council of Europe’s Criminal Law Convention on Corruption, underscores its commitment to global anti-corruption standards. These conventions mandate extraterritorial application of Turkey’s anti-corruption laws, enabling prosecution of offenses by Turkish citizens or entities abroad and acts within Turkey involving foreign officials.
• Extraterritorial Reach: The inclusion of provisions with extraterritorial scope in Turkish law allows for the prosecution of bribery and corruption offenses connected to Turkey, regardless of where the act occurred.
• Institutional Support: Enforcement and implementation of anti-corruption measures involve key state institutions such as the Ministry of Justice, the Turkish National Police, and Financial Crimes Investigation Board (MASAK).

In Turkey, economic crimes are covered under various laws, with the Turkish Criminal Code (Law No. 5237) and Capital Markets Law (Law No. 6362) being the primary legislation addressing offenses such as fraud, embezzlement, money laundering, and bribery. Other specific laws also deal with economic crimes, including:

• The Law on Prevention of Money Laundering (Law No. 5549): This law specifically targets money laundering activities, requiring financial institutions and other obligated entities to take preventive measures, conduct due diligence, and report suspicious transactions to the Financial Crimes Investigation Board (MASAK).
• The Law on the Prevention of Financing of Terrorism (Law No. 6415): This legislation focuses on combating the financing of terrorism, imposing obligations on a wide range of entities to report transactions suspected of being linked to terrorism financing to MASAK.
• Banking Law (Law No. 5411): Among other financial regulations, this law includes provisions related to financial crimes in the banking sector, including fraud and embezzlement.

Obligation to Report Economic Crimes

Turkey imposes legal obligations on entities and individuals to report economic crimes to the relevant authorities. Key reporting obligations include:

• Money Laundering and Terrorism Financing: Financial institutions, professionals, and certain non-financial businesses are required to report suspicious transactions that could be related to money laundering or terrorism financing to MASAK. Failure to comply with these reporting obligations can result in administrative fines and other penalties.
• Banking Sector: Banks and financial institutions are subject to strict reporting requirements and internal control obligations to detect and report potential economic crimes.
• Public Officials: Depending on the nature of the economic crime, public officials may have a duty to report criminal activity discovered in the course of their duties to law enforcement authorities.

Money laundering and terrorist financing are regulated through a combination of laws, regulations, and oversight by various regulatory bodies in Turkey. Prominent regulations in this regard are the Law on Prevention of Laundering Proceeds of Crime (Law No. 5549 published in the Official Gazette No.26323, on October 11, 2006) and the Law on the Prevention of the Financing of Terrorism (Law No.6415 published in the Official Gazette No.28561, on February 13, 2013).

The Law on Prevention of Laundering Proceeds of Crime is the cornerstone of Turkey’s anti-money laundering approach. It outlines the principles and procedures for the identification, prevention, and reporting of money laundering-related activities. Financial institutions and certain non-financial businesses and professions are required to implement strict customer due diligence processes, keep detailed records of transactions, and report suspicious transactions to the Financial Crimes Investigation Board (MASAK).

The Law on Prevention of Financing of Terrorism specifically targets the prevention of terrorism financing. It includes provisions on freezing the assets of individuals and entities involved in terrorism or terrorist financing based on United Nations Security Council resolutions or national decisions. The law also sets reporting and compliance obligations to prevent using financial services for terrorist purposes.

In addition to these laws, government bodies such as the Financial Crimes Investigation Board (MASAK), the Banking Regulation and Supervision Agency and the Capital Markets Board play important roles in combating money laundering and terrorist financing.

Turkey is also a member of the Financial Action Task Force (FATF), an international body that sets standards for combating money laundering, terrorist financing, and other related threats to the integrity of the international financial system.

Turkey does not have a specific legislation comparable to the UK Modern Slavery Act, the Dutch “Wet Zorgplicht Kinderarbeid” (Child Labor Due Diligence Law), or the French “Loi de Vigilance” (Corporate Duty of Vigilance Law) that directly addresses compliance in the supply chain regarding modern slavery, child labour, and comprehensive corporate vigilance.

However, Turkey is committed to ensuring workers’ rights and preventing unethical labour practices through various national laws and regulations, as well as international conventions to which it is a signatory. The key legal frameworks include:

• Labor Law No. 4857: This law provides general protections for workers and outlines the rights and obligations of employers and employees, including working conditions, employment contracts, and work hours. It aims to protect workers from unfair treatment and unsafe working conditions but does not specifically address supply chain compliance.
• Law No. 6331 on Occupational Health and Safety: This law requires employers to ensure health and safety in the workplace, which indirectly affects supply chain management by obligating companies to comply with safety standards that can extend to their suppliers.
• International Conventions: Turkey has ratified numerous International Labour Organization (ILO) conventions, including those related to forced labour, child labour, and discrimination in the workplace. Compliance with these conventions necessitates adherence to certain standards throughout the supply chain.

While these laws and conventions provide a framework for protecting labour rights, they do not explicitly impose the same level of supply chain due diligence and reporting obligations found in the specific laws mentioned in your question. Companies operating in Turkey are expected to comply with national laws and international conventions regarding labour practices, but the focus has been more on direct employment relationships rather than the broader supply chain.

In Turkey, the preparation, audit, approval, and disclosure of annual accounts/financial statements for companies are governed by the Turkish Commercial Code (TCC), Law No. 6102, and the regulations issued by the Public Oversight Accounting and Auditing Standards Authority (POA).

Preparation of Annual Financial Statements

Companies must prepare their annual financial statements in accordance with Turkish Accounting Standards (TAS), which are harmonized with International Financial Reporting Standards (IFRS). The financial statements include the balance sheet, income statement, statement of changes in equity, cash flow statement, and notes to the financial statements.

Independent Audit Requirements

The requirement for an independent audit of financial statements is determined based on specific thresholds related to the company’s size and type. These thresholds are periodically updated and include criteria such as total assets, net sales revenue, and the number of employees. As of the latest update:

• Companies that exceed certain thresholds regarding total assets, net sales revenue, and employee numbers are subject to mandatory independent auditing.
• The audit must be conducted by an independent audit firm authorized by the POA.
• The criteria for auditing are set out in the “Communiqué on the Determination and Application of Criteria for Companies Subject to Independent Auditing” issued by the POA.

Approval of Annual Financial Statements

• The board of directors prepares the financial statements and submits them to the general assembly of shareholders for approval.
• The general assembly must convene within three months following the end of the fiscal year to approve the financial statements.

Disclosure of Financial Statements

• Publicly held companies are required to publish their audited financial statements on the Public Disclosure Platform (PDP) of the Capital Markets Board (CMB) and their websites.
• Non-public companies must file their approved annual financial statements with the relevant Trade Registry Gazette and make them available to their shareholders and creditors.
• Specific sectors, such as banks and insurance companies, may have additional disclosure requirements regulated by their respective supervisory authorities, like the Banking Regulation and Supervision Agency (BRSA) and the Insurance and Private Pension Regulation and Supervision Agency.

Additional Considerations

• The Turkish Accounting and Auditing Standards Foundation (TURMOB) plays a significant role in setting accounting standards and professional ethics for auditors.
• Small and medium-sized enterprises (SMEs) may be subject to simplified reporting requirements, although they still need to ensure that their financial reporting complies with the applicable TAS.

In Turkey, corporate entities are required to adhere to several annual compliance obligations to ensure their operations comply with the country’s laws and regulations. Some important ones are:

Annual Tax Filings

• Companies must complete their annual tax returns and submit them to the Turkish Revenue Administration by the deadline specified in the tax calendar. This includes corporate income tax and value-added tax (VAT) filings, among others.

Preparation of Annual Financial Statements

• Corporations are required to prepare annual financial statements, including the balance sheet and income statement, in accordance with Turkish Accounting Standards (TAS), which are aligned with International Financial Reporting Standards (IFRS).
• Financial statements must reflect the company’s financial performance and position accurately and must be prepared within a specific period following the fiscal year-end.

Independent Audit

• Certain companies meeting specific criteria regarding total assets, net sales revenue, and the number of employees are subject to mandatory independent auditing. The audit must be performed by an audit firm authorized by the Public Oversight Accounting and Auditing Standards Authority (POA).
• Audited financial statements are to be prepared for review in the annual General Assembly and for public disclosure as required.

Annual General Assembly (Shareholders’ Meeting)

• The General Assembly is required to convene within three months following the close of the fiscal year. During this meeting, shareholders approve the annual financial statements, appoint auditors, and make decisions on profit distribution and other corporate matters.
• The outcomes of the General Assembly, including the approved financial statements and decisions made, must be registered with the Trade Registry and published in the Trade Registry Gazette.

Profit Distribution Decisions

• Decisions on the distribution of profits, as proposed by the board of directors, are subject to approval by the shareholders at the Annual General Assembly.
• The profit distribution must comply with the Turkish Commercial Code (TCC) and any restrictions set forth in the company’s articles of association.

Reporting Obligations to the Trade Registry

• Changes to the company’s legal, organizational, or financial status, including amendments to the articles of association, changes in share capital, board membership, or executive management, must be reported to the Trade Registry and published in the Trade Registry Gazette.

Regulatory Filings for Publicly Listed Companies

• Publicly listed companies have additional reporting obligations to the Capital Markets Board (CMB) and must disclose significant financial and corporate events through the Public Disclosure Platform (KAP).

Social Security and Employee-related Filings

• Companies are also responsible for monthly filings related to employee salaries and social security contributions to the Social Security Institution (SGK).

In Turkey, the convening of general assembly meetings for Joint Stock Companies (JSCs) and Limited Liability Companies (LLCs) is a critical annual compliance requirement, governed by the Turkish Commercial Code (TCC) and specific communiqués such as the one on the procedures and principles of general assembly meetings for JSCs.

Joint Stock Companies (JSCs)

• Ordinary General Assembly Meetings: Must be held within three months following the end of each accounting period. These meetings primarily focus on approving the annual financial statements, annual reports, profit distribution plans, discharging board members and auditors from liability, and electing board members and auditors for the new term.
• Extraordinary General Assembly Meetings: Can be held at any time when necessary, addressing issues beyond the routine annual matters.

Limited Liability Companies (LLCs)

• Similar to JSCs, LLCs are required to hold a general assembly of shareholders within three months following the end of the fiscal year. The agenda typically includes approval of financial statements, decisions on profit distribution, and may cover the discharge of managers and other significant management and operational matters.

Procedural Compliance

• The TCC outlines specific procedures for calling, holding, and documenting general assembly meetings. These procedures are designed to ensure the legality of the meetings and the validity of the decisions taken.
• Notice: Adequate notice of the meeting must be given to all entitled to attend, specifying the date, time, location, and agenda.
• Quorum: The meeting must meet any quorum requirements as specified in the TCC or the company’s articles of association.
• Minutes: A detailed record of the meeting, including a list of attendees, the matters discussed, and the decisions made, must be documented.
• Submission and Publication: Minutes and certain decisions must be submitted to the Trade Registry Office and may need to be published in the Turkish Trade Registry Gazette to become effective and publicly known.
• Ministry Representative: For most of the shareholders general assembly meetings that involve an articles of associations amendment, a Trade Ministry appointed representative shall also attend the meeting.

The Tax Procedure Communiqué No. 529, published by the Ministry of Treasury and Finance on July 13, 2021, mandates corporate and certain non-corporate taxpayers to report Ultimate Beneficial Owner (UBO) information to the Revenue Administration.

Key Requirements under the Communiqué

• Effective Date: The requirements became effective for entities operating as of August 1, 2021.
• Reporting Obligations for Corporate Taxpayers: Corporate entities are required to declare their UBO information within their provisional and annual corporate tax returns.
• Non-Corporate Taxpayer Reporting: Non-corporate entities listed in the Communiqué must submit their UBO information electronically to the Revenue Administration by the end of August each year.
• Banking and Financial Institution Requirements: When opening accounts or establishing business relationships, entities must provide banks and financial institutions with detailed information about their beneficial owners. This includes names, dates of birth, nationalities, and other identification details.
• Ongoing Accuracy and Updates: Entities are responsible for ensuring the beneficial ownership information is current and must notify the respective bank or financial institution of any changes.

In Turkey, businesses are subject to various taxes, each with its specific rates and bases. Major taxes applicable to businesses in Turkey as of 2024:

Corporate Income Tax

• Rate: 25%
• Base: Levied on the profit (net income) generated by corporations and other business entities.

Value-Added Tax (VAT)

• Rates: Standard rates are 1%, 10%, or 20%, depending on the goods or services provided.
• Base: Applied to the sale of goods and services, as well as on imports and certain service transactions. The specific rate depends on the type of goods or services.

Withholding Tax

• Application: Levied on payments such as dividends, interest, royalties, service fees, and rents made to both real persons and corporations.
• Base: The rate varies depending on the type of income and the recipient’s status (resident or non-resident).

Stamp Tax

• Rate: Varies based on the type of document; can be a percentage of the document’s value or a fixed fee.
• Base: Imposed on a wide array of documents, including but not limited to contracts, agreements, and letters of credit.

Banking and Insurance Transaction Tax (BITT)

• Rate: Generally 5%
• Base: Specifically targets the transactions conducted by licensed banks and insurance companies. While these transactions are usually exempt from VAT, they are subject to BITT on the gains derived from such transactions.

Turkey has implemented comprehensive incentive programs to foster business investment, spur economic development, and encourage growth in strategic sectors, including research and development (R&D). These incentives are designed to make Turkey an attractive destination for both domestic and foreign investment, with benefits tailored to the specific needs of various industries and regions. Some of the major ones are noted below:

Investment Incentive Programs

The Turkish government offers a range of benefits under its Investment Incentive Programs, which vary by region and sector, including:

• VAT Exemption: Applies to imported machinery and equipment for the investment.
• Customs Duty Exemption: On imported machinery and equipment.
• Corporate Tax Reduction: Applied to income generated from the investment, potentially lowering the tax rate significantly.
• Support for Municipal Revenues and Real Estate Tax: Reductions or exemptions to further ease the financial burden on investors.
• Stamp Tax Exemption: For various documents related to the investment.

R&D and Innovation Incentives

To stimulate innovation and support R&D activities, Turkey provides additional incentives under Law No. 5746 on Supporting R&D and Design Activities and Law No. 4691 regarding Technology Development Zones:

• R&D Deduction: 100% deduction of eligible R&D, innovation, or design expenses from the Corporate Income Tax base.
• Income Tax Exemption: For R&D, design, and support personnel’s salaries, with rates varying based on the level of education and the nature of the supported program.
• Social Security Premium Support: Subsidies covering half of the employer’s share for R&D, design, and support personnel.
• Customs Duty and VAT Exemptions: For goods imported for R&D projects and machinery and equipment acquired for R&D and design activities.
• Stamp Tax Exemption: On documents related to R&D and design activities.

Free Trade Zone Incentives

Turkey’s Free Trade Zones offer unique incentives for export-oriented investments, including:

• Regulatory Advantages: Special regulations that simplify operations, with exemptions or modifications to the usual foreign trade and financial policies.
• Fiscal Benefits: Potential exemptions from certain taxes and duties, encouraging businesses to set up in these zones to take advantage of the favorable conditions.

Employment Incentives

The government also promotes employment through various schemes, such as:

• Subsidies for Social Security Premium Payments: For additional hires, especially targeting young workers, women, and the long-term unemployed.
• Vocational Training Support: Financial incentives for companies providing vocational training to their employees.

Turkey’s investment climate is structured to attract and support investment from both domestic and international investors, with favourable conditions and a regulatory environment aimed at facilitating business operations and growth. Here’s a brief overview of how capital flows are treated in terms of taxation:

Capital Inflows

• No Tax on Inflows: Capital inflows into Turkey are generally not subject to taxes, reflecting the country’s open and encouraging stance towards investment. This exemption from taxation on inflows helps to reduce the financial barriers for investors looking to allocate resources in Turkey.
• Competition Authority Fee: The only notable exception is a nominal fee of 0.04% payable to the Competition Authority for certain transactions. This fee is relatively insignificant and does not significantly impact the overall attractiveness of investing in Turkey.

Capital Outflows

• Taxation Based on Capital Gains: When it comes to capital outflows, the situation is different. Capital gains generated within Turkey are subject to taxation under personal and corporate income tax regulations. The taxation rates and conditions depend on the nature of the gains and the taxpayer’s status (individual or corporate).
• Withholding Tax: Additionally, capital outflows may be subject to withholding tax. This applies to various payments made to non-residents, including dividends, interest, royalties, and service fees. The withholding tax rates are determined by Turkish tax law and may be influenced by double taxation treaties that Turkey has signed with other countries, potentially offering reduced rates.

In Turkey, the taxation system encompasses various duties on legal and financial documents, as well as on specific transactions like real estate transfers, to ensure a comprehensive fiscal framework.

Stamp Tax

• Applicability: Stamp tax covers contracts, agreements, letters of credit, financial statements, leases, and more.
• Rate Variation: The tax rate depends on the document type. It may be calculated as a percentage of the document’s value, subject to maximum caps for certain documents, or as a fixed fee for others.
• Exemptions: Some documents are exempt from stamp tax, particularly those related to specific governmental transactions or falling under international agreements.

Real Estate Transaction Tax

• Tax Rate: The tax rate for real estate transactions is set at 4%.
• Payment Responsibility: Typically, the tax burden is shared between the buyer and seller, with each party paying 2%. However, the exact distribution can vary based on mutual agreement.
• Impact: This tax affects both residential and commercial real estate transactions, making it a crucial consideration for buyers and sellers in the real estate market.

In Turkey, the regulatory framework for public takeovers of listed companies is detailed in the Capital Markets Law and further elaborated upon in the Communiqués issued by the Capital Markets Board (CMB) of Turkey.

Mandatory Bid Requirement

A mandatory bid obligation is triggered when an entity, either directly or indirectly, acquires shares that increase its stake to reach or exceed certain thresholds of voting rights in a public company, commonly set at 50% or more. This requirement ensures all shareholders have the chance to sell their shares at a fair price after a significant change in company control.

Voluntary Offers

Entities may choose to make voluntary offers to buy additional shares from the remaining shareholders of a target company, even if the thresholds necessitating a mandatory bid are not met. Such offers might be part of strategies to increase ownership stakes or secure company control.

Offer Price Criteria

The offer price in a takeover bid must be fair, reflecting the highest price paid by the acquirer for the target company’s shares during a specified period leading up to the bid. Ensuring a fair offer price is crucial for protecting the interests of all shareholders.

Equal Treatment of Shareholders

The principle of equal treatment mandates that all shareholders of the target company are offered the same terms during a takeover bid, safeguarding minority shareholders from being disadvantaged.

Disclosure Requirements

The acquirer must disclose details about the takeover bid, including offer terms, acquisition objectives, and future plans for the target company, to both the target company and the CMB. Such transparency enables shareholders to make informed decisions regarding the offer.

Defensive Measures

While the target company’s board may adopt defensive strategies against a takeover bid, these are regulated to prevent unjustified bid obstruction and ensure shareholder protection.

Exemptions from Mandatory Bids

Specific situations, such as inheritance or transfers within a corporate group, may be exempt from the mandatory bid requirement, contingent upon CMB approval.

Turkey’s competition law framework includes a comprehensive merger control regime governed by the Law on the Protection of Competition No. 4054.

Key Aspects of the Merger Control Regime

• Thresholds for Notification: A merger or acquisition must be notified to the Turkish Competition Authority if it results in a change of control and meets the following financial thresholds:
  • Each of the parties’ Turkish turnover exceeds TRY 250 million, and the combined Turkish turnover of the parties exceeds TRY 750 million.
• Notification Requirements: Parties involved in transactions meeting these thresholds must submit a comprehensive notification, detailing information about the transaction, the entities involved, market definitions, and the potential impact on competition.
• Review Process:
  • Preliminary Examination: The Competition Authority conducts an initial review within approximately 30 days. If it determines that the transaction does not pose significant competition concerns, it will grant approval.
  • In-depth Investigation: Should potential competition issues be identified, a more detailed investigation is initiated. This phase includes thorough analysis, additional information requests, market tests, and consultations. It can last up to six months and may be extended if deemed necessary.
• Decision: Following its investigation, the Competition Authority will either approve or block the transaction based on its potential impact on market competition.

Yes, there is an obligation to negotiate in good faith, which generally applies to commercial transactions in Turkey, including mergers and acquisitions (M&A). This principle has its origins in the Turkish Code of Obligations and the Turkish Commercial Code, which emphasize honesty and integrity in contract negotiations and the performance of contracts. While the concept of “good faith” is not always explicitly detailed in the context of M&A proceedings, it is fundamental to the expectation that parties act honestly, transparently, and fairly during negotiations and respect the rights and interests of the other party. Failure to comply with the principle of good faith can lead to legal disputes and potential damages.

Article 6 of the Turkish Labor Law No. 4857 and Article 178 of the Turkish Commercial Code (TCC) provide specific protections for employees in the event of a workplace transfer, including mergers and acquisitions.

Key Provisions and Implications

• Continuity of Employment Contracts: Upon the transfer of a workplace or a part thereof, existing employment contracts, along with all associated rights and obligations, automatically transfer to the transferee (new employer). This ensures that employees retain their jobs and benefits without interruption.
• Prohibition of Termination: The transferor (original employer) or transferee (new employer) cannot terminate employment contracts solely because of the transfer. This regulation aims to protect employees from losing their jobs due to organizational changes beyond their control.
• Right to Object in Mergers and Acquisitions: Article 178 of the TCC grants employees the right to object to the transfer of their service contracts in the case of mergers and acquisitions. If an employee objects, their service contract will expire at the end of the statutory notice period, during which both the employee and the transferee are required to fulfil their contractual obligations.
• Joint and Several Liability: Both the former employer and the transferee are jointly and severally liable for any of the employee’s receivables that were due before the transfer and until the contract’s normal termination date or termination due to the employee’s objection.
• Transfer of Rights: Unless specified otherwise or clearly necessitated by the circumstances, the employer cannot transfer rights derived from the service contract to a third party without the employee’s consent.

Employee Receivables Guarantee

Employees may seek assurance for their receivables that are due and will become due, ensuring that their financial entitlements are secured throughout the transition process.

Turkey’s approach to foreign direct investment (FDI) is generally characterized by openness and a supportive environment, underpinned by the principles of Law No. 4875 on Foreign Direct Investment. Here are some key aspects and considerations:

Equal Treatment

• Foreign investors enjoy the same rights and obligations as local investors, reflecting Turkey’s commitment to creating a non-discriminatory investment environment.

100% Foreign Ownership

• The law permits foreign investors to establish companies with 100% foreign capital in Turkey, allowing full ownership without mandatory participation of local investors.

Sector-Specific Restrictions

• Despite the overarching supportive stance, Turkey has implemented restrictions in certain sectors due to national security, public order, and other sensitive considerations. These restrictions might involve caps on foreign ownership, additional regulatory approvals, or outright prohibitions in very specific areas.

Need for Approvals

• Depending on the sector and the nature of the investment, foreign investors may need to obtain approvals from relevant regulatory bodies. This is particularly true for sectors considered strategic or sensitive, such as defence, telecommunications, and energy.

Decree No. 32 on the Protection of the Value of the Turkish Currency plays a critical role in Turkey’s economic policy by promoting the use of the Turkish Lira in domestic transactions and imposing certain restrictions on the use of foreign currencies. The decree is aimed at safeguarding the Turkish currency’s value and enhancing economic stability through various measures:

Restrictions on Foreign Currency in Contracts

• The decree restricts the use of foreign currencies in contracts between residents in Turkey. This includes a wide range of contracts, such as lease agreements for real estate and movable properties, employment contracts, and service agreements. The aim is to reduce the economy’s exposure to foreign exchange rate volatility.

Foreign Currency Loans

• There are specific restrictions on foreign currency-denominated loans to limit the risk of currency fluctuation and external debt exposure. Residents in Turkey, both individuals, and entities, face limitations on obtaining foreign currency loans, particularly if they do not have foreign currency income.
• For residents with foreign currency earnings, obtaining foreign currency loans is possible under certain conditions, reflecting a more flexible approach for businesses engaged in international trade and services.

Repatriation of Foreign Exchange Earnings

• Exporters and businesses providing services that earn foreign currency are mandated to repatriate a portion of their earnings to Turkey within a specified timeframe and may be required to exchange some portion of the forex revenues into Turkish Lira.

In Turkey, the process of liquidating, dissolving, or winding up a business entity is regulated under the Turkish Commercial Code (TCC), which outlines the conditions and procedures for such actions.

Overview of the Liquidation Process

• Initiation: Liquidation can be initiated through a resolution by the shareholders, bankruptcy proceedings, or court orders.
• Role of the Board of Directors: The Board of Directors typically oversees the liquidation process, unless the Articles of Association or a resolution of the General Assembly appoints a specific liquidator, who can be a shareholder or an external third party.
• Requirement for a Turkish Citizen: At least one of the liquidators authorized to represent the company during liquidation must be a Turkish citizen and must reside in Turkey.
• Legal Personality During Liquidation: The company maintains its legal personality to the extent necessary for completing the liquidation activities. The company’s trade name must include the phrase “in liquidation” throughout the process.
• Settlement of Debts: Priority is given to paying off the company’s debts. Only after all liabilities are settled can the distribution of remaining assets to shareholders begin.
• Distribution of Assets: Remaining assets are distributed among shareholders according to their shares and any privileges stated in the Articles of Association. However, distribution can only occur after a three-month waiting period from the last announcement to creditors in the Turkish Trade Registry Gazette.
• Duration: The liquidation process can vary in length, typically ranging from 4 to 12 months or more, depending on the complexity of the company’s financial and operational situation.

Considerations and Compliance

• Creditor Protection: The three-month waiting period serves to protect creditors’ interests, allowing them sufficient time to present their claims.
• Transparency and Notifications: Legal requirements include making announcements in the Turkish Trade Registry Gazette to inform creditors and other stakeholders about the liquidation process.
• Final Steps: Once the liquidation process is completed, and all requirements have been met, the company is officially dissolved, and its legal personality ceases to exist.