the republic of turkey : legal aspects of doing · pdf filethe republic of turkey : legal...

THE REPUBLIC OF TURKEY :

LEGAL ASPECTS OF DOING

BUSINESS

Presented by Me Ali T. Argun

Montreal, May 4, 2011

Board of Trade of Metropolitan Montreal

• GENERAL

• The Republic of Turkey was founded on October 29, 1923.

• Turkey is a parliamentary democracy, a secular state (division of

church and state), and a constitutional republic.

• Turkey has a population of approx. 71.5 million (according to a

2008 census)

• Turkey’s currency is the Turkish Lira (TL) and its value is

determined by free market factors.

• The Turkish peninsula has been, for centuries, a center for

commerce and trade. Turkey’s geographic location alone testifies

to the leading role that this civilization has played in commercial

transactions: Turkey is the only country that bridges 2 continents,

Europe and Asia.

• GENERAL (continued)

• Turkey has strong ties with both the Western and Eastern worlds,

as can be seen by its membership in various organizations, such

as:

NATO (North Atlantic Treaty Organization);

World Trade Organization;

United Nations;

Council of Europe;

OECD (Organization for Economic Co-operation and Development, holds 30

countries which accept the principles of representative democracy and free

market economy);

The G-20 major economies;

ECO (international organization involving Asian and Eurasian nations whose

objective is to improve development and promote trade and investment

opportunities);

• Turkey has also reached a Customs Union Agreement (in 1995)

with the European Union (EU).

• ECONOMY

• According to the World Bank Report (2008), Turkey is the 17th

biggest economy in the world and is one of the world’s 10 “Big

Emerging Markets”.

• The GDP growth rate from 2002 to 2007 averaged 7.4% (source:

Turkish Statistical Institute “GNP and GDP as of September 2006”

2006-12-11), which has made Turkey one of the fastest growing

economies in the world.

• Foreign investment is on the rise

• ECONOMY (continued)

• “A series of large privatizations, the stability fostered by the start of

Turkey’s EU accession negotiations, strong and stable growth, and

structural changes in the banking, retail, and telecommunications

sectors have all contributed to a rise in foreign investment (Source:

Jorn Madslien “Robust economy raises Turkey’s hopes” BBC 2006-12-12)

• Turkey has taken advantage of the customs agreement with the

EU, which sought to increase its industrial productions (destined

for exports). Turkey has, likewise, benefited from EU foreign

investment into its economy. (Source: World Bank “Turkey’s

evolving trade integration into Pan-European Markets” 2006-05-01)

• POLITICS / LEGAL

• Turkey is a parliamentary representative democracy and has a

strong tradition of secularism.

• Elections are held every 5 years.

• The President is the Head of State.

• The Prime Minister and the Council of Ministers exercise executive

authority.

• The Turkish Constitution governs the legal framework of the

country and, much like the Canadian Constitution, sets out the

principles and rules of the state’s responsibility towards its citizens.

• The Turkish Constitution establishes a separation of powers

between the legislative, executive and judicial branches.

• POLITICS / LEGAL (CONTINUED)

• The Turkish Constitution includes a Bill of Rights which guarantees

“fundamental rights and freedoms” including freedom of religion,

freedom of thought and opinion, inviolability of the domicile

amongst others.

• The legal system in Turkey has been influenced by various

traditions: the administrative law is similar to the French system,

Turkish criminal law has its roots in the Italian legal system and

both the Turkish Commercial and Civil Codes are based on the

German and Swiss legal systems.

• The legal framework for commercial activities is found in the

Turkish Civil Code and the Code of Obligations. The Commercial

Code deals with commercial activities such as insurance, maritime

trade, companies, checks and bonds, etc.


• As in Canada, Turkish law both prohibits and sanctions unfair

competition.

• In 2003, the Foreign Investment Law came into force. This law

encourages foreign investments, applies international standards to

the definition of “investor” and, most importantly, protects the rights

of foreign investors.

• This law guarantees national treatment and comprehensive

investor rights (i.e.: foreign companies are treated as Turkish

companies) = the law does not distinguish between Turkish and

foreign companies; both are treated equally.


• This law therefore ensures that foreign companies benefit from:

Freedom to invest;

National treatment of foreign companies;

Guarantee against expropriation without compensation;

Transfer of proceeds;

Access to real estate;

Possibility to expatriate personnel;

International arbitration and other means of dispute settlement

• Different forms of legal persons are recognized in Turkey:

Companies

Partnerships

Joint Ventures

Individuals/ Sole traders

Branch Companies

• The rights, obligations, and liabilities vary depending on which

form of entity is chosen

(Source: “Doing Business in Turkey” Ernst & Young (2005) page 494 et seq.)


COMPANIES :

Business structures with limited liability consist primarily of joint

stock companies and limited liability companies

independent legal entities;

capital represented by shares and partnership rights;

shareholders are not required to be Turkish;

may be 100% foreign owned;

minimum capital to be contributed to limited liability and for joint stock

companies;

the Turkish Commercial Code (TCC) requires that joint stock

companies and limited liability companies maintain two legal

reserves;

legal reserves protect the rights protect the rights of third parties by

increasing the amount of owners’ equity.


COMPANIES : (Joint stock companies)

a corporation having its own trade name and a predetermined amount of

capital divided into shares;

liability of the shareholder is limited to his capital;

structure and organization of joint stock companies are subject to the

regulation of the Turkish Commercial Code;

a minimum of five shareholders are required (real persons or legal

entities);

capital is divided into shares of equal value, which are treated as

negotiable commercial paper;

the shares may be either registered or to the bearer;

the General Assembly of the shareholders has ultimate control of a joint

stock company;


COMPANIES (Joint stock companies)

a General Assembly must be held at least once a year within three

months following the end of the fiscal year and there is a formal

procedure for convening it;

the executive body of a joint stock company is the Board of Directors,

composed of at least three members who may also be foreigners.

Limited liability companies

require a minimum of two shareholders, but may have no more than 50

shareholders;

may not issue shares in the capital markets;

the three permissible types of corporate shares include share certificates,

privileged share certificates and redeemed share certificates;


PARTNERSHIPS :

Ordinary partnership

not a legal entity, but a group of entrepreneurs who have concluded an

agreement;

may not have their own trade name, nor may they appear in the Register

of Commerce or the Register of Title Deeds;

the partners of an ordinary partnership have equal rights and obligations,

jointly own the assets of the partnership, have unlimited liability for

partnership debts.



PARTNERSHIPS :

Partnership regarded as a commercial company

a legal entity with a legal personality independent from its partners;

may be either a limited or general partnership;

in a limited partnership, one or more of the active general partners is liable for

the partnership’s debts without limitation, while one or more of the limited

partners is liable only up to the amount of the partner’s capital contribution to the

partnership;

in a general partnership, the company is the first party liable for the partnership

debts, followed by the general partners;

for partnerships that are regarded as commercial companies a written

agreement is mandatory.

Joint Ventures

are formed between legal entities and/or individuals to complete a certain

project within a specified time according to a written agreement;

one of the partners to a joint venture must be a company that is subject

to corporation tax;

joint ventures are separately subject to corporation tax, VAT and

withholding tax, but they do not have legal personalities or ownership

rights.


Sole traders

a commercial business;

individual owner is the ultimate employer and manager of the firm;

must be registered with the Chamber of Commerce;

the results of operations are reported in the sole trader’s individual

income tax return.



• Branches of Foreign companies

foreign investors may choose to operate through “Branches of

Foreign Companies”;

the name that will be used must indicate that the entity is a branch;

the branch must be registered with the local Chamber of commerce

and the local Trade registry;

a non-resident company that intends to do business in Turkey (and

that wishes to form a branch) must inform the Foreign Investment;

General Directorate (FIGD) of the Undersecretariate of the Treasury;

Liability: includes both branch capital and parent company’s assets;

Branches are considered, for tax purposes, to be “non-residents” and

are only taxed on the profits that are generated in Turkey.


• Foreign investors find Turkey attractive for a number of reasons:

the government maintains a liberal policy towards all forms of

foreign investment;

energy costs are low;

the labour force is abundant and relatively cheap;

due to the size of the Turkish population, there is a large

market.

(Source: “Turkey” February 2003 by Deloitte & Touche)


• Those wishing to do business in Turkey may expect:

A political system similar to Canada and Quebec;

Political stability;

A judicial infrastructure similar to Canada and Quebec;

A legal framework similar to Canada and Quebec;

A commercial framework similar to Canada and Quebec;

Interesting Tax Incentives;

Sustainability;

Fair competition;

A large, hardworking labour force;

A large, expanding market.

Some Useful Tips:

• Be sure to conclude a written contract that includes:

clear definitions of the parties respective rights and obligations;

proper insurance provisions;

clear payment terms, conditions & guarantees;

a dispute resolution mechanism and the rules that shall be

applicable the Courts of a particular jurisdiction;

binding arbitration;

I.C.C., A.A.A., Rules of Arbitration of the Civil Code of Quebec;

a determination of the law that shall govern the contract;

a determination of where any dispute shall be heard;

reliable written notice provisions.

• Resist the temptation to cut and paste from other contracts

• Protect your intellectual property (patents, trademarks, copyright,

industrial designs)

• Consult qualified professionals (lawyers, accountants)

• Use the resources at your disposal

Acknowledgements

For his invaluable assistance in the preparation of this presentation, I wish to thank:

M. Sylvain Boucher

Partner

Ernst & Young

800, boul. René Lévesque Ouest,

Suite 1900,

Montreal, Quebec

H3B 1X9

Tel: 514-874-4393

Fax: 514-871-8713

[email protected]

Me Ali T. Argun

Partner

Morency, Attorneys LLP

500 Place d’Armes, Suite 2420

Montreal, Quebec

H2Y 2W2

Tel: 514-845-3533 (Ext. 202)

Fax: 514-845-9522

[email protected]

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