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INVESTMENT IN TURKEY 2016

Turkey, geographically is one of the most important countries in world. It creates a bridge

between Europe and Asia and specially connecting the Eastern Europe and Middle East

markets.

Geographically unique position of the country has always created an important boost to

economy and politics of the country and attracted many investors worldwide. Moreover,

incentives granted by the Turkish Government and the consistently growing economy of the

Country has been the key factors attracting the investors.

Turkey is already the sixth largest economy in Europe and seventeenth in the world. Thus,

Turkey is a part of G-20 as well. Although an economic and financial slowdown has been

recorded in the world for the past few years, Turkey has reached to a remarkable economic

growth in the same time. Istanbul, the financial and cultural centre of the country, has been

indicated as the 22nd Most Attractive City For Investments in 2012 according to the inputs

of magazine The Economist. Furthermore, Istanbul has also been listed as the Best City To

Recover From The Global Economic Crisis by the Brookings Institute, a couple of years

ago.

In less than a decade, per capita income in the country has nearly tripled and now exceeds

$10,500.00-USD (Tenthousandfivehundred United States Dollar).

As per the credit rating agencies credit notes, Turkey has improved its economical strength in

2016 and accordingly has been rated as follows;

Moody's: BAA3 (Investable)

S&P: BB+ (Stable)

Fitch: BBB- (Stable)

JCR: BBB- (Stable)

Furthermore, it is also important to emphasize that all the abovementioned institutions have

foreseen a growth rate of around 3% and 3,5% for Turkey for 2016.

Since the global financial crisis, Turkey has created some 6.3 million jobs, although increases

in the labor force, including through a rise in the participation of women, has kept

unemployment at around 10 percent.

Private investments are the driving force behind of a constantly improving Turkish economy.

Turkey's stable liberalisation policy and open market for any foreign investor, which have

recorded important improvements in the 80's and which have created a constant willingness

before the foreign creditors towards Turkey, has been the key factors behind the private

investments.

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In principle, all fields of business, which are open to the Turkish private sector, are open to

foreign investors as well. Furthermore, Foreign Direct Investments Law numbered 4875 and

dated June 5, 2003 sets forth the rights of the foreign investors and provides a guarantee that

neither private nor public enterprises/institutions discriminate them.

OVERVIEW

Full Name

Republic of Turkey

Population

79,5 million (2016 census)

Capital

Ankara

Largest City

Istanbul

Other Major

Cities İzmir, Adana, Antalya, Kocaeli

Area

783,562 sq km (302,535 sq miles)

Language

Turkish

Life

Expectancy

72 years (men), 77 years (women) (UN)

Monetary Unit

Turkish Lira

Average

Annual GDP

Growth (2003

– 2014)1

4,7% (Annual Rate)

Annual

Average Real

GDP Growth

Forecast (2014

– 2016)2

3,6% (Annual Rate)

GDP Per

Capita

$ 10,497.-USD (as of 2012)

In addition to the above data, it should also be noted that Turkey is a party to EU Customs

Union Agreement, thanks to which no customs are levied on goods travelling within the

customs union. Furthermore, Turkey has also concluded many bilateral free trade agreements

with the countries such as Egypt, Syria, Georgia and Israel. Turkey is also a member of

the World Trade Organization since 1995.

1 Source: Turkstat

2 Source: OECD (February 2015), www.invest.gov.tr

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Key factors attracting the foreign investors to Turkey are;

Institutionalized economy fuelled by USD 123 billion of FDI in the past decade and

13th most attractive FDI destination in the world3.

16th largest economy in the world and 6th largest economy compared with EU

countries in 2013 (GDP at PPP, IMF-WEO).

Robust economic growth over the last decade with an average annual real GDP growth

of 4,7 percent during the years 2002 and 2014.

GDP reached USD 800 billion in 2014, up from USD 305 billion in 2003.

Strong economic policies with a prudent fiscal discipline.

Strong financial structure resilient to the global financial crisis.

According to OECD forecast GDP growth is projected to remain close to 4% per annum in

2016 and 2017 and a sharp hike in the minimum wage and social transfers in early 2016 will

be boosting the private consumption.4

Foreign relations;

Turkey, as being located in a geographically unique position in the world between Asia and

Europe and with its neighbourhood to Bulgaria, Greece, Syria, Iraq, Iran, Azerbaijan,

Armenia and Georgia, has always been an effective country in world politics.

Since 1963, Turkey is the associate member of European Union and since then aiming the full

membership being acknowledged by the EU. It should be noted also that Turkey has complied

more than the requested reforms by EU in 2016 and with the urgent boost of immigrant crisis.

It is now expected from EU to comply with the international agreements and provide Turkish

citizens with visa-free travel right.

Furthermore, Turkey is a founding member of the United Nations (1945), the Organisation

for Economic Co-operation and Development (1961), the Organisation of Islamic

Cooperation (1969), the Organization for Security and Co-operation in Europe (1973) and a

member state of NATO (1952). As possessing the control over the Turkish Straits, which lead

from Black Sea to Mediterranean, Turkey takes place in NATO as the eastern vital anchor.

Demographics;

Qualified human force is one of the most important values in Turkey. In 2014, Turkey has

recorded an annual growth rate of population of ‰ 13,3. Thus, the consumer demographics

3 2012 A.T. Kearney FDI Confidence Index.

4 http://www.oecd.org/economy/turkey-economic-forecast-summary.htm

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scale of Turkey indicates a constant increase as well. Most populated provinces of the country

are Istanbul, Ankara, Izmir, Bursa and Adana.5

Turkey presents a very dynamic and young, ready for hard-working population, which is

actually a boost to labour force of the country. The median age of the population in Turkey is

currently 30,1. Most of the young population living in the cities are bi-lingual and speaks

English as a second language. Citizens between the ages 15 and 64, which are the working

ages, constitute approx. the 67% of the total population. Thus, investors who opt for Turkey

barely have any problems finding a personnel matching with their needs, especially in the

major cities.

Living in Turkey;

The cost for living in Turkey is notably low in confront with the many EU Countries, UK and

US. However, some parts of the Country and specially certain districts in the cities like

Istanbul and Izmir, housing costs remain on the higher side and competing with the major

cities of the world. According to OECD statistics, Turkey has made considerable progress in

improving the quality of life of its citizens over the last two decades.6 It should also be noted

that, thanks to the recently announced development plans of the Turkish government, it is

very likely that Turkey shortly will become a land of peace and prosperity.

Although one of the main problems is the environment in major cities of Turkey, Turkish

governments has been running huge investment programmes on construction and

transportation sectors which has already created notable improvements. In this respect,

Turkish Airlines, flag carrier airline company in Turkey, has become the first, flying to most

countries worldwide, by leaving behind the other most known airline companies.

Furthermore, in 2013, the undersea rail tunnel connecting the European and Asian sides of

Istanbul and passing under the Istanbul Strait has been put into use. In addition, there are two

different bridge constructions currently ongoing which will definitely reduce the traffic jam

and air pollution caused due to traffic in Istanbul and connecting the city as a transit way to

other major cities. One will be passing over the Istanbul Strait from the northern side and the

other will be passing over the Izmit Gulf as a part of Istanbul - Izmir Motorway. Both are

planned to be put into use in 2016. Moreover, another undersea motorway tunnel is also under

construction in Istanbul to pass under the Istanbul Strait.

Economy & Currency;

Turkey notably considers the importance of the foreign investments and provides various

incentives in many sectors. Effective as of January 1, 2012, the new investment incentives

scheme is specifically designed to encourage investments with the potential to reduce

dependency on the importation of intermediate goods vital to the country’s strategic sectors.

To reduce the current account deficit; boost investment support to lesser developed regions;

increase the level of support instruments; promote clustering activities, and to support

5 http://tuik.gov.tr

6 http://www.oecdbetterlifeindex.org/countries/turkey/

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investments that will create the transfer of technology are indicated as the primary objectives

of the new investment incentives.

The Turkish currency is called as Turkish Lira and briefly indicated as "TL" or " ". The

following table shows the Central Bank exchange rate of Turkish Lira, to other major

currencies as of June 10, 20167.

Country Currency TL value

United States of America $ 1.-USD 2,9196.-TL

Euro € 1.-EUR 3,2992.-TL

Great Britain 1 Pound Sterling 4,2195.-TL

Switzerland 1 Swiss Franc 3,0352.-TL

Japan 100 Japanese Yen 2,7442.-TL

On the other hand, Turkish economy has faced high inflation rates for a long time. However,

it should also be noted that, there has been significant improvements in reducing the inflation

rates under the stabilization program. High inflation rates has been faced to the financing

problems of the State Economic Enterprises and payments for the huge infrastructure

investments in return of the smaller government revenues. Within the economic programmes

of the recent years, Turkish government has attached a special importance to privatizations

which lead to a decrease in public sector borrowing and accordingly, lower rates of inflation.

Turkey has a liberal foreign exchange regime, which allows to anyone to have local-foreign

exchange accounts. Turkey, as being a member state to IMF, accepts any currency and

Turkish Lira is fully convertible.

INCENTIVES

As briefly described above, Turkey provides notable incentives to foreign investors who opt

for Turkey. In this regards, many general and special incentive programmes have been

executed and being executed currently.

Turkish investment incentive system is comprised of four different schemes as described

below and local and foreign investors have equal access to such;

1. General Investment Incentives Scheme

2. Regional Investment Incentives Scheme

3. Large-Scale Investment Incentives Scheme

4. Strategic Investment Incentives Scheme

The support instruments to be provided within the framework of various investment

incentives schemes are shown in the following table8:

7 For daily updated currencies follow; http://www.tcmb.gov.tr/kurlar/today.html

8 http://www.invest.gov.tr/en-US/investmentguide/investorsguide/Pages/Incentives.aspx

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SUPPORT

INSTRUMENTS

GENERAL

INVESTMENT

INCENTIVES

SCHEME

REGIONAL

INVESTMENT

INCENTIVES

SCHEME

LARGE-SCALE

INVESTMENT

INCENTIVES

SCHEME

STRATEGIC

INVESTMENT

INCENTIVES

SCHEME

VAT Exemption + + + +

Customs Duty Exemption + + + +

Tax Reduction + + +

Social Security Premium

Support

(Employer’s Share)

+ + +

Income Tax Withholding

Allowance + + +

Social Security Premium

Support

(Employee’s Share)

+ + +

Interest Rate Support + +

Land Allocation + + +

VAT Refund +

General Investment Incentives Scheme;

Regardless of the region where investment takes place, all projects meeting both the specific

capacity conditions and the minimum fixed investment amount are supported within the

framework of the General Investment Incentives Scheme. However, some types of

investments are excluded from the investment incentives system and would not benefit from

this scheme.

Regional Investment Incentives Scheme;

The sectors to be supported in each region are determined in accordance with regional

potential and the scale of the local economy, while the intensity of supports varies depending

on the level of development in the regions.

In this respect, the cities of Turkey have been classified in six different regions taking into

account their needs and level of development. Cities such as Istanbul, Ankara and Muğla are

within the Region 1 category but, cities such as Diyarbakır, Van, Mardin are within the

Region 6 category.

Large-Scale Investment Incentives Scheme;

Twelve (12) different investment subjects, which will potentially foster Turkey’s technology,

research & development capacity and competitiveness, are supported by the instruments of

the Large-Scale Investment Incentives Scheme. These subjects are listed below;

1. Production of refined petroleum products,

2. Production of chemical products,

3. Harbours, harbour services and airport investments,

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4. Automotive industries,

5. Production of railway and tram locomotives and/or railway and tram cars,

6. Transit pipeline transportation services,

7. Electronics industry,

8. Production of medical, high-precision and optical equipment,

9. Production of pharmaceuticals,

10. Production of aircraft and spacecraft and/or related parts,

11. Production of machinery (including electrical machinery and equipment),

12. Mining (including metal production).

Strategic Investment Incentives Scheme;

Investments meeting with criteria below indicated are supported within the framework of the

Strategic Investment Incentives Scheme;

The domestic production capacity for the product to be manufactured with the

investment shall be less than the import of the product,

to have a minimum investment amount of TRY 50 million,

to create a minimum added-value of 40% (this condition is not applicable to refinery

and petrochemicals investments),

The total import value of the product to be manufactured with investment shall be

minimum USD 50 million as of the past one year (excluding the products that are not

locally produced).

Furthermore, it should also be noted that Turkey attaches specific priorities to certain

investment areas. In this respect, below indicated areas are supported with incentives provided

for Region 5 considered cities, regardless of the actual city of the investment;

Tourism accommodation investments to be made in the Culture and Tourism

Conservation and Development Regions determined by the Council of Ministers,

Mine extraction and/or processing investments,

Railroad and maritime freight or passenger transportation investments,

Specific pharmaceutical, defense, and aerospace industry investments with a minimum

fixed investment amount of TRY 20 million,

Test facilities, wind tunnel, and similar investments made for the automotive,

aerospace or defense industries,

Preschool, primary, secondary, and high school investments made by the private

sector,

International trade fair investments with a minimum indoor area of 50,000 square

meters,

Investments made in order to produce products developed by an R&D project that is

supported by the Ministry of Science, Industry and Technology, TUBITAK and

KOSGEB,

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Investments in the motor vehicles main industry amounting to TRY 300 million,

engine investments worth a minimum amount of TRY 75 million, and investments for

motor engine parts, transmission components/parts and automotive electronics worth a

minimum amount of TRY 20 million,

Investments for power generation where metals stated in the 4-b group of the Article 2

of the current Mining Law No. 3213 in scope of a valid mining license and permit

issued by the Ministry of Energy and Natural Resources are used as inputs.

In order to benefit from one of the above explained incentives, an application must be filed

before the General Directorate of Incentive Application and Foreign Capital under the

Ministry of Economy. It should also be noted that General Directorate of Incentive

Application and Foreign Capital shall make an evaluation regarding the conditions to be

granted with an Investment Incentive Certificate.

TAXATION

Turkish tax system can be defined as a multi-tax system and Turkish tax regime can be

classified under three main headings as;

1. Income taxes (Personal and Corporate Income Taxes),

2. Taxes on expenditure (VAT, Special Consumption Tax, Stamp Duty, etc.),

3. Taxes on wealth (Inheritance and Gift Taxes, Motor Vehicle Tax, Property Tax).

Turkey also is a party to numerous double-taxation agreements. As is known, certain

transactions may lead to levying of tax by two or more different jurisdictions. However,

thanks to the double-taxation agreement/treaties, this double liability is often mitigated.

Turkey has concluded double-taxation treaties with the countries listed below9;

1. USA 2. Germany 3. Albania 4. Austria 5. Azerbaijan

6. UAE 7. Bahrain 8. Bangladesh 9. Belgium 10. Belarus

11. Bosnia-

Herzigova

12. Bulgaria 13. Algeria 14. Chez

Republic

15. China

16. Denmark 17. Indonesia 18. Estonia 19. Ethiopia 20. Morocco

21. Finland 22. France 23. South Africa 24. South Korea 25. Georgia

26. India 27. Croatia 28. Holland 29. UK 30. Iran

31. Ireland 32. Spain 33. Israel 34. Sweden 35. Switzerlan

d

36. Italy 37. Japan 38. Canada 39. Qatar 40. Kazakhstan

41. Kyrgyzstan 42. Kuwait 43. T.R.N.C 44. Latvia 45. Lithuania

46. Lebanon 47. Luxembourg 48. Hungary 49. Macedonia 50. Malaysia

51. Egypt 52. Mongolia 53. Moldova 54. Norway 55. Uzbekistan

56. Pakistan 57. Poland 58. Portugal 59. Romania 60. Russia

61. Saudi Arabia 62. Serbia 63. Singapore 64. Slovakia 65. Slovenia

66. Syria 67. Sudan 68. Tajikistan 69. Thailand 70. Tunis

71. Turkmenistan 72. Ukraine 73. Oman 74. Jordan 75. Yemen

9 http://www.gib.gov.tr/sites/default/files/uluslararasi_mevzuat/VERGIANLASMALIST.htm

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76. New Zealand 77. Greece 78. England 79. Germany 80. Kosovo

81. Kosovo 82. Brazil

TRADE IN TURKEY

As mentioned briefly above, geographically unique position of Turkey provides an important

boost to trade. Specially, foreign trade with neighbours is the essential forming the Turkish

economy. On the other hand, Turkey is an important raw materials and textile exporter to

overseas as well.

Some of the applicable laws that regulate trade activities in Turkey are;

• Customs Law numbered 4458,

• Import Regime Decree,

• Export Regime Decree,

• Law on the Prevention of Unfair Competition in Imports numbered 3577,

• Law on Regulation of Foreign Trade numbered 2976,

• Decree on the regime of technical regulations and standardization,

• Free Trade Zone Law numbered 3218,

• Combating with Smuggling Law numbered 5607,

• Value Added Tax Law numbered 3065,

• Special Consumption Tax Law numbered 4760.

Import Regime Decree of Turkey is published and amended on a yearly basis in order for

better reflect the needs and economic policies of the country.

INVESTMENT IN REAL-ESTATE

Turkish construction market has gained a splendid accelerate in the past few years. Turkish

contractors has always concluded successful infrastructure, habitation, hotel and industrial

projects abroad. Many projects lead by Turkish contractors are currently running in countries

like Uzbekistan, Tajikistan, Morocco, Algeria, Kazakhstan and Egypt. In addition, thanks to

the recently enacted urban renewal regulations, domestic market has gained speed.

Within just a couple of years, it will be quite impossible to see old and neglected buildings

specially around the major cities. Obviously, all renewal processes are being handled

punctiliously in order to protect the historical heritage located almost all over the country.

Key drivers in the Turkish real-estate sector are; increased housing needs, eased housing

credits allowing people to upgrade their homes, an increase in the number of large-scale

Turkish contracting firms and the growth of the building materials sector. An important aspect

improving in the real-estate sector is also the young people with increasing need of housing.

Therefore, it is possible to state that Turkish real-estate market provides a wide range of

opportunity.

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Retail Investment;

The Turkish retail investment market has gained significant liquidity with a number of major

transactions completed over the past years and ongoing projects. The completed transactions

include the acquisition by GIC of 50% of two big shopping centres owned by the Rönesans

Group, a leading retail office developer in Turkey, with a total asset of approximately USD

413 million.

Office Investment;

Foreign investors interest for the office market remains strong despite the fact that tradable

assets in this sector remains limited. The market has largely been dominated by owner

occupiers acquiring office buildings under construction. The market is now looking forward

for the realization of certain transactions which are in the pipeline and in the range of USD 70

million to USD 90 million.

It should also be underlined that Atasehir District in Istanbul will become the new financial

centre with the completion of the new Financial Centre. The project has been set out to be

competitive with its equals in London, Dubai and New York. It is expected that the total cost

of the project upon its completion will be around USD 5 milliard.

Hotel Investment;

Foreign investors interested in hotel investments tend to create partnerships with the locals in

Turkey. On the other hand, specially within the tourism zones of country, there are many

investments launched directly by the foreign investors.

The majority of hotel contracts in Turkey are either management or franchise, excluded some

limited brand agreements. During the recent year, there has been numerous activities which

most of them resulted with the successful transactions. Such are mainly occurred between the

Turkish and Middle-Eastern or German investors.

During 2013, some considerable transactions occurred with the sale of three resort hotels in

Antalya; Adam and Eve, Hillside Su, Kemer Resort.

LEADING SECTORS IN TURKEY

Tourism;

Turkey has been ranked within the TOP 10 most visited countries in the world and constantly

improving its position on the list. Under the 2015 Edition of Tourism Highlights published

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by UNWTO, Turkey is ranked as 6th

in tourist arrivals. Germany, United Kingdom and

Russia are following Turkey on the list.

For the past decades tourism has taken the place as the most profitable and improved sector in

Turkey. This has lead foreign investors in hotel investments in Turkey. Thus, the governments

provided an important space to this sector in their plans. Currently, Turkey is aiming to be

ranked as the TOP 5 most visited countries in terms of tourist numbers and total tourism

revenue by 2023.

The depreciation of TL against the USD, as well as generally competitive prices, made

Turkey a favourable destination for foreign tourists. Turkey was visited by 36.14 M tourists in

2015.

Textile;

Textile and clothing sector can be defined as the leading economical activity together with the

automotive sector in Turkey.

In 2010, textile sector had a 13% share in total export volume of the country, which

approximately corresponds to USD 14,6 milliard. Currently, there are more than 35,000

textile companies operating and active in Turkey. Thus, it is possible to state that Turkey is a

major player in the world textile & clothing industry and is the second largest supplier to EU.

The Turkish textile and clothing industry is competitive on a global scale thanks to its high

quality and wide product range.

Automotive;

Currently, Turkey is the largest producer of buses in Europe. Furthermore, Turkey is

responsible for more than 7% of Europe's motor vehicle production. During the January -

November period of 2013, total export in automotive industry has indicated an increase of

12% in confront with the previous year's statistics and an export income has been obtained

around USD 19,7 milliard.

Vehicle productions of 13 global OEMs in Turkey increased from 374,000 in 2002 to

over 1.3 million units in 2015. This represents a compound annual growth rate (CAGR) of

around 10 percent during the same period

Currently, brands having a production and/or assembly facility in Turkey are; Ford, BMC,

Fiat, Toyota, Hyundai, Honda, Isuzu, Man, Renault, Mercedes-Benz, Otoyol, Iveco,

Mitsubishi.

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Energy;

As being an emerging market and thanks to its rapidly improving economy, Turkey is in a

position to demand more energy each day whether for its industry or for domestic use.

Although Turkey is one of the richest countries in the world in the means of renewable

energy, has been in a position to import energy for long.

However, Turkey has break through many renovations in its energy sector and regulations

concerning the energy market. In this respect, following the split of Turkey's main energy

provider into many regional enterprises, many foreign investors are attracted into the country.

Following a successfully implemented privatization program, power distribution of the

country is now completely in hands of the private sector.

Additionally, Turkey has launched new companies for the renewable energy sectors. In 2013,

the Energy Market Regulatory Authority of Turkey has accepted the license applications for

solar power plants for the very first time. Currently, Turkey holds an installed capacity of 410

MW unlicensed solar power plants as of May 2016. This, obviously is expected to increase

with the completion of under-construction solar power plants. Prior to attracting investors in

solar market, Turkey has also regulated wind energy market and lead to numerous

investments mostly realised by the foreign investors.

-----------------

It should be noted that the above indicated explanations are for information purposes only and

may be subject to changes in time. Thus, it is not intended to serve this article as a legal

advice. It is highly recommended to contact with our Law Office in order to be provided with

the most accurate and up-to-date information.

Erdem TOPAK

Attorney-at-Law