Foreign investment in Turkey is subject to a well-defined legal framework and international agreements aimed at ensuring fairness and protection for investors.
In this article, we explore the domestic legislation governing foreign investment in Turkey, international treaties, dispute resolution mechanisms, and the role of the Istanbul Arbitration Centre (ISTAC) in facilitating arbitration.
A. Domestic Legislation on Foreign Investment in Turkey
Turkey upholds the principle of equality between foreign and domestic investors in most areas, with some exceptions. The applicable legislation defines a “foreign investor” as a foreign individual, foreign entity, or non-resident Turkish citizen making a foreign direct investment into Turkey. Foreign direct investment encompasses assets of both foreign and domestic origin used to establish companies or branches or acquire shareholdings in Turkish companies.
Exceptions to the equality principle include:
Foreign ownership in a media company is limited to a maximum of 50 percent.
Certain maritime activities, like the transportation of passengers and cargo between Turkish ports, are reserved for Turkish individuals and entities.
Restrictions apply to foreign individuals, entities, and Turkish companies with foreign capital in real estate acquisition.
Certain professions, such as law and medicine, have restrictions on non-Turkish individuals or entities. Work permits for foreign employees are subject to specific conditions.
Foreign individuals and entities can only establish or participate in private, secondary education institutions with non-Turkish citizen students. They are prohibited from higher education institutions.
Domestic legislation, however, provides foreign investors with specific protections, including:
Equal Treatment: Foreign investors must not face more burdensome treatment based on their nationality compared to Turkish nationals.
Expropriation and Nationalization: Assets and enterprises cannot be expropriated or nationalized without due process or just compensation, based on the “public interest” as determined by relevant administrative bodies.
Expatriation of Proceeds: Investors can transfer proceeds, including profits, dividends, and capital, abroad through banks or financial institutions.
Dispute Settlement: Different methods are available for handling disputes depending on the type of investment, including national or international arbitration for certain cases.
Valuation of Capital in Kind and Foreign Securities: Capital in kind is valued according to regulations, while the value of foreign securities is determined by relevant authorities in the asset’s country of origin.
B. International Treaties
Turkey is party to numerous international treaties for the protection and promotion of foreign investment. These treaties have the force of law upon ratification by Parliament. Turkey has 117 bilateral investment treaties (BITs), with 82 currently in force, including agreements with EU member states and OECD countries.
These treaties grant foreign investors additional protections beyond domestic law, such as:
International Arbitration: Disputes can be resolved through international arbitration rather than local courts.
Most-Favored-Nation Treatment: Foreign investors receive treatment no less favorable than the best treatment offered to any foreign investor under other BITs.
National Treatment: Foreign investors are treated no less favorably than domestic investors.
Expropriation: The investor receives full and fair compensation for expropriated investments.
Expatriation of Profits: Investors can freely transfer profits and other payments overseas through banks.
Fair and Equitable Treatment: Host countries must provide a stable, predictable legal framework without discrimination.
Full Protection and Security: Host countries must prevent physical harm to investments.
C. International Dispute Resolution
Bilateral investment treaties allow foreign investors to choose between Turkish local courts and international arbitration for dispute resolution. Turkey enforces foreign arbitral awards under the New York Convention, with exceptions, and has its own domestic law for this purpose.
Turkish courts do not re-evaluate foreign court judgments but ensure compliance with Turkish law and public policy. The prohibition of revision is upheld.
D. Istanbul Arbitration Centre (ISTAC)
ISTAC, operational since 2016, aims to make Istanbul a regional arbitration hub. It offers dispute resolution services, including “fast-track” arbitration and “emergency arbitrator” options. Mediation-Arbitration (Med-Arb) procedures are also available.
ISTAC allows arbitration proceedings without physical attendance since April 2020, conducting hearings via teleconference or video conference.
ISTAC has established cooperation agreements with various arbitration institutions, including the Swiss Arbitration Association and the Permanent Court of Arbitration.
In conclusion, legal framework of Turkey and international engagements prioritize the protection and promotion of foreign investment. By offering legal safeguards, recourse mechanisms, and international arbitration options through ISTAC, Turkey maintains an investor-friendly environment conducive to economic growth and international collaboration.