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Doing business in Turkey Contents

Executive summary 4 Disclaimer

Foreword 6 This document is issued by HSBC Bank A.S. (the ‘Bank’) in Turkey. Introduction – Doing business in Turkey 8 It is not intended as an offer or solicitation for business to anyone Conducting business in Turkey 14 in any jurisdiction. It is not intended for distribution to anyone located in or resident in jurisdictions which Taxation in Turkey 20 restrict the distribution of this document. It shall not be copied, Audit and accountancy 32 reproduced, transmitted or further distributed by any recipient. Human Resources and Employment Law 34 The information contained in Trade 38 this document is of a general nature only. It is not meant to Banking in Turkey 40 be comprehensive and does not constitute financial, legal, tax or HSBC in Turkey 42 other professional advice. You should not act upon the information Country overview 44 contained in this publication without obtaining specific professional Contacts 46 advice. This document is produced by the Bank together with PricewaterhouseCoopers (‘PwC’). Whilst every care has been taken in preparing this document, neither the Bank nor PwC makes any guarantee, representation or warranty (express or implied) as to its accuracy or completeness, and under no circumstances will the Bank or PwC be liable for any loss caused by reliance on any opinion or statement made in this document. Except as specifically indicated, the expressions of opinion are those of the Bank and/ or PwC only and are subject to change without notice.

The materials contained in this publication were assembled in November 2010 and were based on the law enforceable and information available at that time. Executive summary

A member of the G-20, Turkey I ndeed, the economy remains • The Turkish legal framework was the world’s 17th largest vigorous. Inflation is currently offers a level playing field to economy in 2009. Powered in single figures and public foreign investors and domestic by private consumption debt is below 50%, although companies. Foreign ownership and supported by robust challenges remain in the is unrestricted, with no pre- macroeconomic policy form of Turkey’s sizeable entry screening requirements. framework, the Turkish economy current account deficit has expanded substantially over and geographic inequality • Foreign investors may freely the past decade. The country in wealth distribution. start up businesses in saw a 187% increase in GDP company, branch office between 2002 and 2007, Many economists forecast or liaison office forms. while annual average economic that over the next decade growth over the same period Turkey’s growth will match • Issues such as transfer pricing was 7%. or exceed that of any country and thin capitalisation are except China and India. formally regulated and classified Increasing stability, thanks to Others predict it could in line with Organisation for restructuring of the banking become the world’s tenth Economic Co-operation and sector and enforcement of tight biggest economy by 2050. Development (OECD) guidelines fiscal policy in the wake of the and worldwide applications, 2001 crisis, as well as the public  These factors, together allowing international businesses administration reform, the EU with Turkey’s advantageous to comply with the local policies accession process (in addition geographical position, young, with a relative ease. to the customs union with the rapidly growing population EU) and attractive tax regimes, and ever-increasingly qualified • Turkey has signed a Customs have made Turkey a magnet workforce, mean it is likely Union Agreement with the for foreign investment in recent to remain an attractive target EU and customs practices years. The global financial crisis for investment well into are in line with World Trade did impact investment inflows the future. Its key sectors Organization member countries. in 2009 but, despite this, GDP (including construction, dropped by only 4.7% in the automotive, energy and same year. utilities, transportation and logistics, healthcare and banking) are therefore likely to continue to grow. Other factors attracting investors to Turkey can be summarised as follows:

4 Foreword

With its population of 73 m, with our talented team and Martin Superling Turkey is the 17th largest local know-how, make us Chief Executive Officer economy in the world in terms very well suited to provide HSBC Turkey of GDP size and the population the unique set of services of Istanbul alone is larger required by our customers. than that of 19 EU countries. The wide global reach of HSBC More than half of the Turkish supports the demands of an population are below the age increasingly inter-linked world, of 28 and the country has including those related to the fourth largest number of Turkey’s strategic location Facebook users in the world, in major energy corridors highlighting a favourable between the East and West. demographic profile and unique growth potential. This young In 2010 we celebrated our population is one of the 20th anniversary in Turkey and principle reasons behind the in this time we have built a very fast growth of the Turkish successful bank with a network economy over the past six of 335 branches in 62 cities years and among the G20 that serve over 3 m customers. countries – Turkey has achieved Our 20th year in Turkey the highest GDP growth rate was marked with awards in 2Q10, alongside China. for the ‘Best Debt House in Since 2002, Turkey’s positive Turkey’ and ‘Best Corporate economic performance and Internet Banking in Turkey’ long-term growth prospects from Euromoney and Global have led to a sharp increase Finance respectively, further in FDI inflows to the country. demonstrating the success of our business. In the aftermath of the global crisis, the importance of In order to provide the best emerging market economies service to our customers has been emphasised and and business partners, growth levels in these HSBC, in collaboration with economies are likely to PricewaterhouseCoopers, outpace those of the has produced the Doing developed world for the business in Turkey guide foreseeable future. At HSBC, to help you gain valuable insight we are very well positioned about the Turkish market and to the sustained growth the wide range of financial and emergence of the services and investment Turkish economy. opportunities that exist.

HSBC’s global footprint On behalf of HSBC, I would like extends to 87 countries and to take this opportunity to wish territories around the world and you success in your businesses this global connectivity, coupled in Turkey and beyond. 6 Introduction

Doing business in Turkey

Driven by private consumption Foreign Direct Investment Key attractions of Turkey benefit from R&D support CPI due to rising oil and food and supported by a stable (FDI) inflows to Turkey declined and market research with prices). During the peak of macroeconomic policy by 58% in 2009 and Turkey • Turkey is located at a close the aim of encouraging the global crisis in 2009, the framework, the Turkish was ranked the 32nd country proximity to Europe (two-three exports and increasing the Turkish Central Bank’s prime economy has grown in the world in this respect. hours’ flight to major European competitiveness of firms lending rate was as high as significantly since the country FDI into Turkey totalled destinations), the Middle East in international markets. 16.75%, compared with 6.50% emerged from the 2001 US$18.2 bn in 2008 and and the Caucasus. Turkey in August 2010. financial crisis. Between US$22 bn in 2007, however, benefits from its location as • The Turkish government 2002 and 2008, Turkey’s GDP due to the financial crisis this a bridge between Europe and has also introduced flexible • There is a split between the experienced an annual average figure decreased sharply in Asia. It also acts as an energy exchange rate policies and east and the west of the growth of 5.8%, versus 1.8% 2009 to US$7.9 bn, equal to corridor connecting these liberal import regulations in country; economic development, in the EU. Due to global turmoil that seen in 2005. two continents. order to promote and sustain investment opportunities, in 2009, Turkey’s GDP declined foreign investment. infrastructure and skilled staff by 4.7% versus 4.1% in the Since the 2001 crisis the • Turkey entered a customs are concentrated in the west. EU. Even though Turkey’s GDP economy has been buoyant. union with the EU in 1996 • n I recent years, Turkish banks decreased to US$614 bn by It is on the verge of acquiring and has been an EU accession have taken an increasingly • Although Turkey is moving the end of 2009, Turkey still an investment-grade credit candidate since 2005. This large role in financing project towards adopting International managed to be the 17th largest rating and inflation is in single has resulted in the expansion finance deals, benefiting in Financial Reporting Standards economy in the world. figures. Public debt is below of trade relations with Europe, many cases from increasingly (IFRS), this is still a work 50%. Turkey is knocking on which now accounts for 44% liquid balance sheets. in progress. In practice, Restructuring of the banking the door of the BRICs club of of Turkey’s foreign trade. accounting standards vary sector, monetary discipline emerging giants and today it • The Turkish legal framework from company to company. based on independence is perceived as ‘Europe’s BRIC’ • Turkey offers an accessible, offers a level playing field to of the Central Bank and a or ‘the China of Europe’. Some skilled and cost-effective foreign investors and domestic • Turkey suffers from rising floating exchange rate regime, economists suggest that over workforce, providing the fourth companies. Foreign ownership energy prices. Up to 90% of its tight fiscal policy, public the next decade, Turkey’s largest labour force amongst is unrestricted, with no pre- oil and 97% of its gas resources administration reform, and growth will match or exceed EU members and accession entry screening requirements. are imported from Russia and the EU accession process with that of any country except countries. It boasts a large the Middle East. reform packages enacted by China and India. Others predict population of over 70 m people, • A new commercial code is the Parliament all contributed it could become the world’s with an average age of 29, currently with the General • The country’s current account to the transformation of the 10th biggest economy by 2050. against 40 in the EU. Assembly of the Parliament deficit is large. In recent years it country after the 2001 crisis. for approval. The Code aims has been comfortably financed  • The Turkish government to integrate the Turkish by foreign direct investment,  provides various tax and Commercial Code with EU but long term this could lead non-tax incentives to foreign law, improve transparency, (as it has in the past) to inflation investors, in line with those protect minority rights and currency instability. provided to domestic and strengthen corporate companies. These include governance principles. • n I spite of interest rates customs and VAT exemptions  swiftly shrinking down to on various imported or locally Challenges are important record low levels, they are delivered goods, including still high in comparison to machinery and equipment, •  While Turkey did not have a most European countries. as well as priority regions subprime mortgage issue, like offering incentives such as other emerging markets, it was free land and energy support. affected by the ongoing global Investors are also able to credit turmoil (i.e. increasing 8  Key industries in Turkey and the second-largest supplier GDP growth in the same nine months of 2010 amounted • The Turkish Electricity growth prospects and the to the EU. It has a share of period. In 2009, due to the to 806,000 and increased by Transmission Company growing number of people who •  Travel and tourism is one 4.3% in global woven clothing global economic crisis, the 18% with respect to the same estimates that Turkey’s demand can afford private healthcare. of Turkey’s most dynamic exports and ranks fourth among construction sector shrank period in 2009. More than for electricity will increase at an • L T interest rates are industries. This industry exporting countries worldwide. by 14.8%. During the first half of the vehicles produced annual rate of 6.0% between continuously decreasing due defied the economic crisis With a share of 2.9%, Turkey six months of 2010, in Turkey are passenger cars. 2009 and 2023. Therefore, to the series of rate cuts by and continued to grow in ranked eighth among woven expenditure in the construction Passenger cars and trucks the government is looking for the Central Bank (‘CBT’) after Turkey in 2009, albeit at a clothing exporters worldwide. sector increased by 13.3%, account for more than 90% investment in this industry. The September 2008. As a result slower rate than in the previous The Turkish textile and clothing with respect to the same term of the total number of vehicles total amount of investments to of the macro uncertainties and year. The depreciation of the industry is competitive on a in the previous year. Key drivers produced. Turkey anticipates be made to meet the energy increasing credit risk after the Turkish lira (TL) against the global scale thanks to its high include increased housing becoming the third largest demand in Turkey until 2023 is credit crisis, banks are reluctant US dollar, as well as generally quality and wide product range. needs, eased housing credits producer of motor vehicles estimated at around US$130 bn. to reflect the CBT’s rate cuts competitive prices, made allowing people to upgrade in Europe by 2015. to their loan rates as fast as Turkey a favourable destination •  Since the start of the new their homes, an increase in • Since transportation and the decrease in the cost of for foreign tourists. Turkey was millennium, in particular, the number of large-scale • t A present, Turkey’s energy logistics is one of the main deposits. Given the maturity visited by 26.5 m tourists and Turkey has attracted foreign Turkish contracting firms, and utilities sector is attracting pillars of both national and mismatch on bank’s balance 27.3 m tourists in 2008 and 2009 direct investment. This positive and the growth of the building significant interest from international trade, the Turkish sheets with deposits having respectively. With this number economic development was materials sector. Turkey is foreign investors, following the government is making ongoing one and half month maturity of tourists, Turkey was ranked felt more intensely in certain currently a market leader split of Turkey’s main energy investments to create a new versus an average of one year the eighth and seventh most industries – retail in particular. in terms of cement exports provider into many regional infrastructure. According to asset duration, the decline in visited country in the world in The Turkish retail industry still and is in strict competition companies. The government ‘Strategic Plan 2009-2013’ interest rates helped to improve 2008 and 2009, respectively. featured a traditional structure with Egypt to be the ruling has been privatising these by the Ministry of Transportation, the Bank’s net interest margin Turkey received US$22 bn until the beginning of the cement producer of the whole companies, providing significant highways are given the utmost in the past 2 years. Strong of tourism revenue in 2008 2000s; its modernisation Mediterranean basin. Turkey’s opportunity for investment, importance and will be subject asset structure and high CAR and US$21.3 bn in 2009. The period then began and gained crude steel production for however, there is some public to an important amount (Capital Adequacy Ratio) due tourism sector aims to reach momentum, with a tremendous nine months reached 2.51 m opposition. The government of investment. to the close monitoring of the the top five countries in the positive effect on the national tonnes by September 2010, plans to complete the sell off of requlatory bodies, resulted world in terms of both tourist economy. According to Planet the highest in the last four distribution companies by the • Despite the uncertainties in Turkey’s banks being in a numbers and tourism revenue Retail’s report, consumer years. Accordingly, Turkey is end of 2010. It should be noted caused by its being in a secure position in the financial by 2023. expenditure in Turkey is ranked tenth worldwide for that the share of private sector transition period, the Turkish crisis. Soundness of the Turkish expected to rise to 948 bn unprocessed steel production. interest in electricity distribution healthcare sector offers great economy and the finance •  Textiles and clothing is one of Turkish lira in 2013. Retail sales, was only 20.1% in 2008. opportunities for the private sector has been proved during the most important industries which stood at 23 bn Turkish •  The automotive industry is Additionally, Turkey wants to sector, which is forecast to the financial crisis, and the of the Turkish economy and lira in 1998, grew to 128 bn very important. At present, generate 5% of its electricity be a significant contributor of financial sector has acted as the the country’s foreign trade. Turkish lira in 2003, 329 bn Turkey is the largest producer from nuclear energy by 2020 growth going forward. A total growth engine of the economy. These industries have an annual Turkish lira in 2008, and 317 of buses in Europe. It is also while the share of renewable of 13 significant deals took production value of US$30 bn bn Turkish lira in 2009. In line responsible for more than energy by 2023 is targeted at place between 2007 and 2009 • Taking into account the and had a 19% share with rising GDP, retail sales 7% of Europe’s motor vehicle 20%. Currently, hydropower in the healthcare industry, moderate recovery in the in total export volume in 2009. are expected to reach 448 bn production. Turkey’s automotive accounts for approximately with a total announced deal economic activity in 2010, CBT There are more than 35,000 Turkish lira in 2013. exports decreased by 33% and one-third of the electricity value exceeding US$850 m. has stated that inflation would textile and clothing companies amounted to US$14.5 bn by the generated in Turkey. The Financial and strategic increase temporarily in the in Turkey and the country is •  Between 2002 and 2008, end of 2009. The total number country is heavily reliant on investors search for investment short term and again decided a major player in the world the Turkish construction of vehicles produced was in imported fuel supplies for the opportunities in the Turkish to decrease one-week repo clothing industry. The Turkish sector experienced a significant the region of 870,000 in 2009. remainder of its power needs. healthcare market due to rate (the policy rate) from 7% clothing industry is the fifth- compound annual real growth The total number of vehicles to 6.5% in the fourth quarter largest supplier in the world of 6.3%, higher than Turkey’s produced in Turkey for the first of the year 2010. 10 • Additionally, the fact that enhance financial stability, Incentives for classified as either a tax or a maturities of liabilities are it will be useful to differentiate Foreign Investors non-tax incentive. The principal shorter than those of assets the required reserve ratios prerequisite for benefiting in the Turkish banking sector for different maturities of TL The Turkish government from state aids is to obtain an exposes the sector to liquidity deposits in order to encourage provides investment incentives Investment Incentive Certificate and interest rate risk, which longer-term funding and to – so-called State Aid – in order (IIC) which is granted to increases the sensitivity of widen the scope of the to eliminate inter-regional investors for their investments the banking system to shocks. reserve requirements. economic imbalances, to by the Undersecretariat for In this regard, starting from facilitate a larger capital the Treasury. the year 2011, the Turkish • The main challenge for the contribution by the public and lira required reserve ratio, Turkish Banking Sector is foreign investors to the capital Turkish investment incentive which is currently at 6%, is the decreasing interest build-up of the country and also legislation is formed of three differentiated according to the margins due to the rate to support activities that have a separate types of incentives: maturity structure of deposits cuts by CBT. In a low interest positive effect on employment. and set as higher for short-term rate environment, banks focus The investment incentives 1. General investment maturities and lower for on commission generation. scheme is continuously incentive regime. long-term maturities. Volume growth, expanding being amended to encourage 2.  Incentives for large-scale insurance and asset investments in manufacturing investments. • n I this respect, a lower interest management businesses, and services, the energy sector 3.  Region and sector-based rate, combined with higher and the introduction of new and exports. Local and foreign incentives. required reserve ratios would financial instruments will be investors have equal access to serve as a more effective the main trends in this investment incentives. Generally The graph opposite illustrates policy mix. Moreover, with environment in the year 2011. speaking, state aid can be the FDI net inflows of Turkey regard to policy measures to according to the World Bank:

FDI net inflows of Turkey

25,000,000,000

20,000,000,000

15,000,000,000

10,000,000,000

5,000,000,000

0 1974 1972 1976 1970 1978 1984 1994 1982 1992 1986 1990 1998 1980 1988 1996 2004 2002 2000 2006 2008 12 Conducting business in Turkey

Forms of business

The Turkish legal framework It should be noted that the Company offers a level playing field to Turkish Parliament has approved foreign investors and domestic the New Turkish Commercial A company is an incorporated companies. Foreign ownership Code (the ‘New TCC’), on entity with a legal status is unrestricted, with no pre- 12/01/2011. The New TCC separate and distinct from entry screening requirements. has introduced various its owners that allows it to sue Since 2003, foreign investment different provisions and new and be sued in its own name. has been regulated in a more legal concepts to the existing The TCC provides several liberalised manner under legislation. Although the New company structures in Turkey: Foreign Direct Investment Law TCC is to be entered into force joint stock companies, limited No.4875. Under this law foreign as of 12/07/2012, the significant liability companies, collective investors may freely start up changes introduced by this code companies, partnerships limited businesses in company, branch in term of business formation by shares and cooperative office or liaison office forms. structures have been pointed associations. The legal Law No. 4875 has significantly out in this section. differences between those simplified the establishment company structures mainly process for all business forms. Business Formation concern the allocation of The incorporation process of Structures liability and the legal form these types of companies is a of the entity. However, largely simple procedure and normally Foreign investors that need due to the favourable position does not take more than to have a physical presence concerning the liabilities borne four weeks. in Turkey may choose between by shareholders, joint stock a company, branch and liaison companies and limited liability Companies established by office at the formation stage. companies are the corporate foreign shareholders are structures in Turkey most entitled to all the rights available commonly chosen by foreign to Turkish companies under investors, along with the other the Turkish Commercial Code business setup forms of branch (TCC). However, commercial offices and liaison offices. activities and/or ratio of foreign shareholding of such T wo types of companies, companies, particularly those namely joint stock companies operating in the civil aviation, (JSC) and limited liability maritime transport, media, companies (LLC), are those etc. sectors are currently in which shareholders are restricted and acquisition not liable for the debts of ownership and/or limited of the company in terms real rights on real estate by of their personal assets. referred companies are subject There are some basic to pre-evaluation by the differences between these relevant authorities. two types of companies.

14 Setting up a business

An LLC can be incorporated it also includes the audit of Branch Liaison Office Liaison offices are granted Registration Formalities by at least two individuals or groups of companies. Moreover, operation permits of three corporations and the number an unaudited financial A branch is a legal entity A liaison office, often also years at most. For extensions, Company of the shareholders cannot statement shall be legally null registered with the Trade called ‘representative office’, successive extensions of a In order to establish either exceed 50, while a JSC can and void as per the New TCC. Registry and represented is primarily established to maximum of three years each a JSC or LLC, all documentation be incorporated by at least by a representative/branch provide preparatory and may be granted by taking into regarding the incorporation shall five individuals or corporations. There is a legal provision manager. Even though a branch auxiliary services. (i.e. gathering consideration the activities be notarised and translated A JSC can issue debentures, regarding the collection of has separate capital, which information on the Turkish of previous years and plans into Turkish, the incorporation while a LLC is prohibited from public receivables stating that is allocated by the head office, economy, customers, suppliers and objectives for the future. shall be registered before the doing so. A JSC can go public if such receivables pertaining it may not have a separate and competitors); performing Liaison offices of banks are Trade Registry corresponding while a LLC cannot offer its to the last five years cannot articles of association and surveys on markets and regulated by the Banking to the company’s headquarters shares to the public. A statutory be collected from LLCs, such consequently must act within the activities of distributors, Regulation and Supervision and registered before the auditor is required for a LLC, receivables can be collected the same field of activity agents or licensees; following Agency (BRSA) and are subject corresponding Tax Office only if and when it has more from the personal property as that of its head office. developments and changes to special rules and reporting in order to obtain a tax than 20 partners, while it is of its shareholders in the Even though the branch is in the local regulations and requirements determined number and therefore enable required for a JSC regardless ratio of their share, whereas dependent on its head office (if necessary) lobbying; by BRSA. the company to conduct of number of shareholders. shareholders of JSCs do not in internal relations, it may surveying the possibility commercial activities. The have any personal liability act independently and trade of establishing a branch Foreign Investment Directorate According to the New TCC, against debts of their in its own account in external or incorporation in Turkey, (FID) shall be notified with on the other hand, both JSCs companies. relations. It is considered to providing information relating respect to the establishment and LLCs can be incorporated have separate tax personality to the activities of the head of the company. The minimum by one individual or corporation. It has been observed that, than that of its head office. office and representing its capital requirement for an Furthermore, The New TCC in some cases, having the products to suppliers or LLC is TRY5,000 while a offers a fundamental system form of a JSC may have A branch should be represented customers as long as this does JSC shall be established with change with a reformist advantages when compared by a representative/branch not constitute active solicitation, minimum capital of TRY50,000. understanding and a to a LLC from the commercial manager with full authority, etc. for its head office. It is Special rules apply for certain contemporary evolution in practice perspective. Financial who is residing in Turkey. prohibited from carrying out fields of business (e.g. the auditing of JSCs and LLCs. institutions usually find the To this end, either a Turkish any kind of ‘commercial banks, brokerage, portfolio JSC structure more reliable citizen or a foreigner who has activities’ in Turkey. management, insurance In this sense, instead of a and prestigious when they work and residence permits leasing, financing, asset statutory auditing mechanism, are acting as creditors. may be appointed branch L iaison offices may not act for management companies, etc.). independent auditing has been Furthermore, in certain tenders, representative. However, the profit, although they are entitled established by the New TCC. formation in the form of JSC representatives of legal entity to employ liaison officers and The New TCC introduces In other words, JSCs and might be required in order to licensees having full authority rent office accommodation, additional procedures for LLCs are vested with the qualify as a bidder. Moreover, to manage and represent their activities are curtailed company establishment obligation for their financial in certain fields of business the entity have to be Turkish with certain limits. A liaison, procedures. In this respect, statements to be audited (e.g. finance) it is obligatory citizens. Every branch shall office cannot issue any invoices a JSC or LLC shall be deemed by independent audit firms to use the JSC type. use the parent company name and cannot negotiate contracts as established when the pursuant to International and  by indicating that it is a branch. with potential customers articles of association are Turkish Accounting Standards. The branch model is more in a binding manner on notarised. However, a JSC It should be noted that audit frequently used, especially in behalf of its head office. As or LLC shall have a legal under the New TCC’s system, banking, and in certain fields such, they are deemed as personality upon the registration as opposed to the current TCC, of business (e.g. brokerage, commercial activities and/or formalities realised before is not limited to the audit of a portfolio management, etc.) a materially internal element the Trade Registry. single capital stock company; it is not allowed. of a commercial activity.

16 At this point, the New TCC shall be made with the Trade Ongoing filing requirements Repatriation of Profit In LLCs, the shareholders Branch and Liaison Office regulates that the founders Registry, where the branch are liable for public debts. of a JSC or a LLC shall prepare office is located and the tax Branches shall submit to T here is no restriction on A non-shareholder director The rights and liabilities arising a ‘Founders’ Declaration’ in office, as well. Furthermore, the FID the information an Turkish subsidiaries repatriating of a LLC is not personally out of the activities of a branch which they should declare the the FID shall be notified with their capital and operations, profits, except for certain legal liable unless the public debt office/liaison office belong to resources of company’s capital, respect to the establishment in accordance with the ‘FDI reserve requirements and taxes. occurs due to his fault. In the parent company. In general, the reasons for such capital of the branch office, within Operations Data Form’, on an A branch may also repatriate JSCs the members of the the parent company will be resource subscriptions, material a certain period. There is no annual basis, at the latest by the profits to the parent BoD have the objective liable towards third parties undertakings given by the minimum capital requirement the end of May every year and company, subject to taxation. liability for public debts for the transactions realised company and benefits granted for branches. In practice, head information on the payments which means that it is their by the branch/liaison office to founders. In addition to this offices allocate a minimum of made to their equity accounts, Liability obligation to prove that they in Turkey. In principle, in case declaration, an audit report to US$1,000 as the branch capital. in accordance with the ‘FDI are not faulty or negligent, as the branch/liaison office be issued by an auditor should Special rules apply for certain Capital Data Form’, within one Company well as that the public debts representative misuses his/ be provided by the founders fields of business (e.g. banks). month following the payment. The directors of a LLC and did not occur due to their her authorities, the parent before the Trade Registry the members of the Board intentional fault or negligence company would be responsible concerning the establishment Liaison Office According to the New TCC, of Directors (BoD) of a JSC (causality). This responsibility towards a bona fide third party. procedure. For medium- and the branch manager of a are not personally liable for of the members of the BoD In case of tort, the branch/liaison small-sized JSCs that are not In order to realise the liaison foreign entity shall announce the transactions and contracts is considered as a secondary office representative would be publicly held, this report may office establishment, an in the Turkish Trade Registry concluded on behalf of the responsibility which means personally liable to third parties. be issued by one sworn auditor application shall be made Gazette the branch’s financial company. They shall be, that the government should or certified public accountant. to the FID. The establishment statements, summaries of however, jointly and severally demand its receivables from permit can be granted for the financial statements and liable towards the company, the company first. If they According to the New TCC, up to a period of three years annual reports belonging to shareholders and the creditors cannot collect its receivables the minimum capital and can be extended at the its parent company and the of the company if the payments from the company, then requirement for JSCs is expiration. However, the FID holding company (if any), within made by shareholders on the government would regulated as TRY50,000. has the right to terminate the 6 months as of the relevant account of the price of shares have the right to demand Furthermore, since the New establishment permit of the approvals required as per the are not exact or, the dividends its receivables from the TCC enables the non-publicly liaison office whenever any national law applicable to the distributed and paid are members of the BoD. If the held JSCs to have registered kind of breach of the legislation parent company are obtained. fictitious or, the books to be members of the BoD pay the capital system, the initial capital is ascertained. Applications kept in accordance with the receivables, although they are requirement for such JSCs of foreign companies to Liaison offices shall send the law are non-existent or kept not responsible for the public is accepted as TRY100,000. establish liaison offices, so as ‘Data Form for Liaison Office irregularly or, the resolutions debts, then they have the Finally, the minimum capital to operate in sectors subject Activities’ to the FID every of the general meeting are not right of recourse against requirement for LLCs is to special legislation, will be year, at the latest by the end executed properly or, the other the company. TRY25,000 as per the assessed by authorities and of May, so as to inform the duties incumbent on them New TCC. institutions authorised by the FID about their activities of in accordance with the law Although the circumstances related special legislation. previous years. Documents or the articles of association leading to liability for a BoD Branch For instance, BRSA rules certifying that the previous are not fulfilled intentionally member or a LLC director apply for banks which set forth year’s expenses of the office or through neglect. are almost the same under In order to set up a branch certain approval requirements have been covered by foreign the New TCC, the several of a foreign company in Turkey, at the establishment stage. currency transferred from liability of such persons are the approval of the Ministry After the completion of the abroad, have to be enclosed abolished and BoD members of Industry of Commerce of establishment procedure, an as well. Special filing and LLC partners are to be the Republic of Turkey (‘the application shall be made to the requirements apply for banks. liable in proportion of their Ministry’) has to be obtained. relevant tax office. There is no fault or negligence. Afterwards a registration foreign capital requirement in 18 establishing a liaison office. Taxation in Turkey

Corporation Income Tax

Corporate Income Tax headquarters of a company The last date of submission of • Second-level legal reserves • Previous years’ losses, provided are located outside Turkey, the corporate income tax return The second-level reserves that they have not been carried Corporate income, as adjusted the company is regarded as a is the 25th of the fourth month correspond to 10% of profits forward for more than five for exemptions and deductions non-resident entity. If either of following the fiscal year end. actually distributed after the years (on the condition that and including prior year losses them is located within Turkey, The advance tax return should deduction of the first-level legal loss corresponding to each year (tax losses may be carried the company is regarded as be submitted at the latest by reserves and the minimum is specified in the corporate forward for five years but a resident entity. Resident the 14th of the second month obligatory dividend pay-out income tax return); losses may not be carried entities are subject to tax following the quarter period. (5% of the paid-up capital). back) is subject to corporate on their worldwide income, Second-level legal reserves • All of the donations made for income tax at a rate of 20%, whereas non-resident entities Payment of Tax amount to approximately 1/11th construction of dormitories, irrespective of the legal form are taxed solely on the income of the profit to be distributed. nursery schools, rest homes (i.e. JSC, LLC, branch office). derived from activities Corporate income tax must There is no ceiling for second and rehabilitation centres, in Turkey. be paid by 30 April of the year legal reserves and they are subject to certain conditions; Dividend distributions to of filing; taxable income is accumulated every year. individual and non-resident Advance Corporate declared on a quarterly basis • Losses incurred in foreign corporate shareholders are Income Tax as advance tax on the 14th of According to the Turkish jurisdictions (subject to subject to withholding tax the second month following Commercial Code, if the legal certain conditions); (WHT) at a rate of 15%. Corporations are required to each quarter, and is payable on reserves exceed 50% of the This rate may be reduced for pay advance corporate income the 17th of the same period. paid-up capital, they shall be • Depreciation of fixed assets; foreign shareholders if a tax tax based on their quarterly Advance corporate tax paid used to cover losses, maintain treaty is present. Please note profits at the rate of 20%. is offset against the final business activities in the case • Depreciation and expenses that dividend distributions to Advance corporate income corporate tax calculated in the of poor business conditions, of company cars provided to resident entities and branches taxes paid during the tax year annual tax return. prevent unemployment or employees (Please note that of non-resident entities are not are offset against the ultimate offset the negative effects company cars are not subject subject to dividend WHT. For corporate income tax liability Legal Reserves of unemployment. to income tax as they are non-resident entities operating of the company, which is classified as fringe benefits in Turkey (i.e. branches, determined in the related year’s Under the Turkish Commercial Calculation of Corporate to employees); other type of permanent corporate income tax return. Code, Turkish companies are Income Tax Base establishments such as The balance of advance tax can required to set aside first and • Social security contributions; permanent representatives/ be refunded or used to offset second level legal reserves out Deductible expenses agents) WHT will only be other tax liabilities. of their profits. Please note that In principle, general expenses • Compensation paid or losses applicable on the portion of the a branch is not subject to the incurred for the generation and incurred in line with contracts profit that is transferred to the Tax Returns legal reserve requirements. maintenance of commercial or court rulings, provided that headquarters/principal, in other income are allowed as they are related to the words repatriated from Turkey. Resident and non-resident • First-level legal reserves deductions for corporate business; and The rate of WHT is 15% but entities having a permanent Joint stock and limited income tax purposes. can be reduced by a tax treaty. establishment in Turkey are companies are required to set • Travel and accommodation obliged to file annual corporate aside 5% of their net profits Deductible expenses, inter alia, expenses related to, and Corporate Residence income tax and quarterly each year as a first-level legal include the following: commensurate with, the advance corporate income tax reserve. The ceiling on the first- volume of business. According to Turkish tax returns (on a calendar year level legal reserves is 20% of • Start-up costs (these costs legislation, corporate income basis unless permission to the the paid-up capital. The reserve are to be either expensed or  taxation differs significantly contrary is specifically obtained requirement ends when the capitalised at the discretion based on the taxpayer’s from the Ministry of Finance). 20% of paid-up capital level of the taxpayer); place of residence. If both has been reached. the legal and the business 20 Non-deductible expenses • The portion of expenses line method. However, the In addition to the interest paid Anti-Tax Haven Provisions in the capital or dividends or In general, non-deductible items incurred that is considered maximum applicable rate for or accrued, foreign exchange voting rights are considered are limited to those types of being in violation of transfer declining-balance method is losses and other similar All sorts of payments made to be CFCs, provided that the expenditures that either cannot pricing regulations; and 50%. On the other hand the expenses calculated over to corporations (including conditions below are fulfilled: be properly documented or declining balance method the loans that are considered branches of resident that are regarded as abuses in • The portion of expenses cannot be used for some as thin capital are treated as corporations) that are • 25% or more of the gross respect to ‘business-related’ incurred that is considered items. For example, goodwill is non-deductible for corporate established or operational in revenue of the foreign or ‘business-promoting’ criteria being in violation of thin depreciated within five years in income tax purposes. The countries which are regarded subsidiary must be composed (e.g., excessive entertainment, capitalisation rules. equal instalments and leasehold interest paid or accrued and by the Turkish Council of of passive income; representation and travel improvements are depreciated similar payments on thin capital Ministers to undermine fair expenses). Needless to say, Depreciation methods over the rental period at a are reclassified at the end tax competition due to tax • The CFC must be subject to an disallowable expenses increase flat rate. of the relevant fiscal year as and other practices, may be effective income tax rate lower the corporate income tax Fixed assets acquired after dividend distributed from the subject to taxation in Turkey than 10% for its commercial burden of companies since such 1 January 2004, are subject to Related-party Transactions perspective of the borrower at a rate of 30% irrespective profit in its home country; and expenses are not eligible for depreciation over rates to be and as dividend received from of whether the payments in deduction from the corporate determined by the Ministry of In principle, transactions the perspective of the lender, question are subject to tax or • Gross revenue of the CFC income tax base. Disallowable Finance, based on their useful between related parties must and as repatriated profit for not, or the corporation receiving must exceed the equivalent expenses, inter alia, can be life. Note that rates announced be carried out on an arm’s non-resident taxpayers. the payment is a taxpayer or of TRY100,000 in a foreign listed as follows: differ from 2% to 33%. Fixed length basis. There are specific not. However, there are certain currency in the related period. assets acquired before rules in this respect in Turkish • Transfer Pricing exemptions. Moreover, as • Interests, foreign exchange 1 January 2004 are depreciated tax legislation, as explained in Corporate income tax law of today, the Turkish Council The CFC’s prorated profit losses and other financial under the previous rules, in detailed below. includes transfer pricing of Ministers has not yet would be included in the expenses on capital and on loans which the maximum rate regulations which are adopted determined which countries corporate income tax base that are regarded as thin capital; applicable was 20% per year. • Thin Capitalisation from the OECD’s guidelines. receiving payments shall be of the controlling resident According to the thin If a taxpayer enters into considered as ‘tax havens’. corporation at the rate of the • Fines and penalties and other Depreciation may be calculated capitalisation regulation, transactions regarding the shares controlled, irrespective indemnities arising from the by applying either the straight- if the ratio of the borrowings sale or purchase of goods and Treatment of Group of whether it is distributed or breach of the tax laws; line or declining-balance from shareholders or from services with related parties, Companies’ Entities not, in the fiscal period covering method, at the discretion of the persons related to the in which prices are not set in the month of closing of the • Legal reserves; taxpayer. All tangibles, except shareholders exceeds three accordance with the arm’s Consolidation of the accounts according of CFC. for land, and intangible assets times the shareholders’ equity length principle, the related of group companies’ entities • Donations to foundations are depreciable over a minimum of the borrower company at profits are considered to be for tax purposes is not allowed T he Control rate is considered (that are granted a tax of five years. Under the previous any time within the relevant distributed in a disguised in Turkey, since each company as the highest rate owned in exemption by the Council of rules, buildings were an year, the exceeding portion manner through transfer entity is regarded as a separate the related fiscal period. Ministers) or to government exception and were depreciated of the borrowing will be pricing. Such disguised profit taxpayer unit for tax purposes institutions exceeding 5% at a rate of between 2% and considered as thin capital. distributions through transfer in Turkey. The CFC’s profit that has of corporate profit; 10% per year, over a minimum Excluding loans received pricing are not accepted as tax- already been taxed in Turkey of ten or fifty years, depending from credit institutions that deductible for corporate income Controlled Foreign as per this article will not be • Expenses recorded through on the type of building. provide loans only to their tax purposes. The methods Corporation Rules subject to additional tax in severance pay provisions related companies, the loans prescribed in the law are the Turkey in the event of dividend (Severance pay shall be Generally, assets are considered received from related banks traditional transaction methods Corporations established distribution; whereas the accepted as tax deductible to be placed in service when and similar institutions alone described in the OECD’s abroad and controlled directly portion of the profit distributed only when actual payments they are capitalised and ready will not be considered thin transfer pricing guidelines. or indirectly 50% or more by that had not been previously are made to employees); for use. The applicable rate capital until the amount of the tax-resident companies and taxed in Turkey will be subject for declining-balance method borrowing exceeds 6 times real persons by means of to taxation. is twice the rate of straight- the shareholders’ equity. separate or joint participation 22 Taxes that the CFC pays over participation shares by an According to investment In general, activities such development (R&D) activities expenditure on failed projects its profit in the related foreign international Turkish holding incentive legislation, in order as manufacturing, storage, in Turkey. The three primary can be expensed immediately. country will be offset from the company can also be exempted to obtain an IIC, the minimum packing, general trading, R&D incentives include tax calculated for the same from corporate income tax amount of total investment banking, and insurance and significant advantages granted C ompanies with separate R&D income in Turkey. exemption, but subject should be at least TRY1,000,000. trade, may be performed in to investors planning R&D centres employing more than to certain pre-conditions.  Turkish free trade zones. activities in science, software 500 R&D personnel can, in Tax incentives The advantages of an IIC can Goods moving between and technology in special addition to the aforementioned Investment incentives be summarised as exemption Turkey and the zones are zones known as ‘techno- deduction, deduct half of any The major corporate income from customs duty, RUSF treated, for all purposes, as parks’, cash subsidies from increase in R&D expenditures tax incentives available are The Turkish government and VAT. exports or imports. However, the Scientific and Technological over similar money spent in the as follows: provides investment incentives operations within the zones Research Council of Turkey previous period. (state aids) to eliminate inter- On the other hand, from an are subject to the supervision (TÜB TAK) and corporate tax • Participation exemption regional economic imbalance, income tax perspective, the of the zone management (and deductions. In April 2008, a A ny unutilised R&D deduction for dividends facilitate a larger capital legislation related to investment customs authorities), to whom new R&D law was enacted can be carried forward for There is an unconditional contribution by public and incentives has changed regular activity reports must to broaden incentives. One an unlimited period of time, corporate tax and dividend foreign investors to the capital substantially. be submitted. Consequently, of the objectives of the law indexed to the revaluation rate, WHT exemption for dividend build-up of the country and there is a requirement for is to attract foreign investors which is an approximation of income that the Turkish resident support activities that have a There are six main zone users to maintain full with significant R&D activities the inflation rate. company and/or Turkish positive effect on employment. components of the new accounting records (in Turkish) abroad to invest in Turkey, permanent establishment of Generally speaking, state aid investment regulation: with respect to their activities. by enabling non-resident Income tax exemption a foreign company receives can be classified as either a These accounting requirements companies with a subsidiary from another Turkish resident tax or a non-tax incentive. 1. Reduced corporate tax rate. extend to inventory records. or branch in Turkey to benefit 80% of the salary income company, except investment 2. VAT exemption. Customs duty is levied on any from R&D tax incentives. of eligible R&D and support funds and companies. If The principal prerequisite 3. Exemption for social unexplained inventory losses T he main incentives introduced personnel is exempt from a Turkish company has a for benefiting from state security premium as though the goods had been by the new R&D law were: income tax. However, this shareholding in a foreign aid, except the investment (employer’s portion). imported into the country. rate is increased to 90% company, dividend income can allowance, is to obtain an 4. Customs duty exemption. R&D deduction for personnel with a be exempted from corporate Investment Incentive 5. Interest support. The right to operate in a doctorate degree. income tax but subject to Certificate (IIC). The IIC 6. Allocation of land for free zone is conferred by an All eligible innovation and certain pre-conditions. is a document granted to investments. operating licence obtained R&D expenditures made in S ocial security premium support investors for their investments from the Undersecretariat for technology centres or R&D • Capital gains exemption by the Undersecretariat for Free trade zone Foreign Trade, which reviews centres, which must employ The Ministry of Finance will A corporate tax exemption is the Treasury. It allows utilisation the application for conformity at least 50 full-time equivalent pay half the employer portion applicable for 75% capital gains of the said benefits. The import Free trade zones are special with the objectives and R&D personnel, or R&D and of social security premiums generated from the sale of of machinery and equipment sites that lie geographically types of activity specified innovation projects supported for R&D and support personnel participation shares in a Turkish (excluding raw materials, within the country, but are by the Economic Affairs by foundations established for five years. resident company, and/or real intermediate and operating deemed to be outside the Coordination Council. by law or international funds property that is held for at least products) is exempt from customs territory. In these can be deducted from the Stamp tax (stamp duty) exemption two years, as long as such customs duty and Resource regions, the normal regulations Research and development corporate income tax base exempted gain is reserved in Utilisation Support Fund (RUSF) related to foreign trade and (R&D) activities at a rate of 100%. The same Documents prepared in relation special reserve account within payments. In addition, a VAT other financial and economic expenditures can also be to R&D activities are exempt the equity and not distributed exemption is also applicable areas are either inapplicable, I n the last decade, the Turkish capitalised and expensed from stamp tax. for five years. 100% of capital on the importation of eligible partly applicable or superseded Parliament has enacted through amortisation over five gains from the sale of foreign machinery and equipment. by new regulations. several regulations to provide years in the case of successful incentives for research and projects, whereas the R&D

24 Income derived by non-resident individual/ Being considered as a Exemptions • Fees calculated based on • for loans provided by Turkish % company without a PE in Turkey transaction tax, BITT is only export transportation and life Banks and financial institutions applicable on the income Income generated from the insurance policies, agricultural Rental from immovable assets 20 generated from transactions. following transactions is insurance policies for – 15% for consumer loans Leasing of goods (within the scope of the conditions To this end, the generally exempt from BITT, such as: un-harvested agricultural (only to real persons for 1 accepted principle is that products, cattle and herd and commercial purposes) regulated under Turkish Financial Leasing Law No. 3226) income that is not generated • Income generated from the nuclear risk insurance policies; Royalties (e.g. on patents, copyrights, licence, etc.) 20 from a transaction, such as transactions carried out by – 0% for other loans; evaluation income, is not Turkish resident banks with • The commissions, premiums Professional services 20 subject to BITT. Furthermore, their branch offices or agents and analogous fees obtained • for the loans obtained by Premium services 5 as BITT is applied on a per and the transactions carried for transactions regarding Turkish banks and financial transaction basis, netting off out in between those branch reassurance and institutions from abroad – 0%; Interest on loan arrangements 10 income and loss from different offices and agents; retrocession; and Interest income derived from time deposits 15 transactions is not permissible. • for the loans obtained from Reverse-repo income 15 BITT applies at the time of • Income generated from • The income generated from foreign companies – 3%; and accrual regardless of the the transactions carried out in arbitrage transactions and Wages and salaries 15-325 fact that income (e.g. fee or between Turkish branch offices trading income generated by • for import payments (via interest) is actually received. or agents of non-resident banks; banks and financial companies acceptance credit, deferred operating in Turkey on derivative payment letter of credit or Withholding Taxes (‘BITT’) regardless of the Rates • Coupon and interest income of contracts performed in the cash against goods) – 3%. nature of the transaction. tax exempt bonds and bills; Turkish exchange markets. There is no withholding tax Likewise, the income generated The current rate of BITT is If the loan is denominated in on payments to resident by insurance companies from 5% in general. However, the • The cash obtained by the Declaration and Payment TRY, RUSF, is calculated over corporations by other resident both insurance and non- applicable rate of BITT is 1% bank from its client and totally of BITT the interest amount. RUSF is corporations, except for a 3% insurance activities is also for the income arising from transferred to a third-party calculated over the principal withholding tax on progress subject to BITT. Their income the deposit transactions service provider for the purpose Taxpayers must file and submit if the loan is denominated in payments to contractors, both from financial leasing under between the following: of making a service fee their returns to the local tax a foreign currency domestic and foreign, within the Financial Leasing Law is payment on behalf of the client; office within 15 days of the end the scope of construction not subject to BITT. On the • banks; of each month. BITT payments Please note that certain loan work spanning more than other hand, the transactional • The dividends obtained by are made at the same date as transactions are exempt from one calendar year. income generated by bankers • stock exchange money banks, insurance companies the submission of tax returns RUSF, such as foreign currency operating in Turkey is subject market transactions; and bankers from their to the relevant tax office. loans obtained by Turkish The local WHT rates are to BITT but only if it arises industrial subsidiaries; residents from abroad with an as per the table above: from financing and/or financial • repo and reverse-repo Resource Utilisation Support average maturity of more than intermediation services (e.g. transactions; and • The portion of dividends Fund (‘RUSF’) one year. Banking and Insurance interest income of consumer obtained by banks, insurance Transactions Tax (BITT) finance companies, brokerage • the sale of Treasury Bills, companies and bankers from The loans provided by banks fees of brokerage houses). Government Bonds, indexed their subsidiaries, which also and consumer financing General Information Thus, income generated from bonds and Turkish corporate qualify as bank, banker or companies operating in Turkey In Turkey banks and insurance non-financial activities of the bonds issued and sold in Turkey insurance company, arising and by overseas companies companies are exempted from bankers, such as gains from prior to their maturity. from the transactions over are subject to the RUSF levy. VAT. However, the income disposal of assets is not subject which BITT has already  generated by banks from both to BITT. Their non-financial been calculated; The RUSF rates applicable banking and non-banking transactions may be subject to loans are as follows: activities is subject to Banking to VAT. and Insurance Transactions Tax 26 Personal Income Tax

Tax Residency The tax rates and brackets Tax Rates Employers’ Obligations However, foreign nationals applicable for personal income who are citizens of a country Liability to Turkish individual apart from employment income There are two issued income In accordance with the existing with which Turkey has signed taxation is based on the earned in calendar year 2011 tax tariffs, one for employment regulations, Turkish resident a totalisation agreement (such status of residency. Resident are as follows: income and another for other employers have a withholding as the UK, Denmark, Germany, individuals are deemed as full income, which are subject to responsibility in respect of the France, the Netherlands, etc.) Taxable Tax on lower Percentage taxpayers and they are taxable Not over income tax. compensation and benefits that can be exempted from the on their worldwide income. income over amount on excess they provide to the employees. Turkish social security scheme, Non-residents, on the other 0 TRY9,400 0 15% Administration of the regime Accordingly, the income tax, if they remain covered by hand, are classified as limited social contributions and the their home country schemes taxpayers and liable to Turkish TRY9,400 TRY23,000 TRY1,410 20% Not every ‘employee’ or stamp duty on the salary during the Turkish assignment tax only on their Turkish TRY23,000 TRY53,000 TRY4,130 27% ‘individual’ is required to file payments must all be withheld and providing that they can source earnings. a tax return in Turkey. Based on a monthly basis and paid present evidence by obtaining TRY53,000 And above TRY12,230 35% on the tax residency status, over to the relevant authorities a certificate of coverage from As per Turkish Income Tax Law, the salary payment structure by the employer, on behalf of the relevant authorities in their an individual will be deemed as Legal residence: In the Turkish civil code, legal residence is defined as the place where of the employee as well as the employees. home countries. one lives, with the intention of settling down. However, there is no guidance on how tax resident: such intention is to be measured, nor are there any relevant rulings on the issue. We the types, sources and believe that if a foreign national purchases a home in Turkey and lives together with amounts of his/her personal Social Security Premiums Stamp Duty • if they stay in Turkey their family, this could be considered as intention of settling down. Then again, each income (under separate continuously for more than individual’s status should be analysed based on a broader perspective of all their combinations) for the year, In principle, all individuals who Stamp duty currently applies six months in a calendar year personal circumstances before an opinion could be formed in this respect. it can be determinedthat the work in Turkey are required to at the rate of 0.66% over the (temporary departures are not individual is not required to be covered by Turkish social gross salary for individuals considered as interruption); or The tax rates and brackets report their employment or security. On the other hand, receiving their income from applicable for employment personal income. since social contributions are a local payroll. For individuals • if their ‘legal residence’ income earned in calendar calculated over the gross salary filing tax returns, this duty is in Turkey. year 2011 are as follows: For individuals who would be (subject to a cap, at 15% for is replaced with fixed filing required to file a tax return, the the employee and 21.5% for fees currently amounting to If a foreign national meets Taxable Tax on lower Percentage annual Turkish tax return for the the employer. The cap currently TRY30.00. either of the two conditions Not over income generated during each applies as TRY5,177.40 per income over amount on excess mentioned above, he would calendar year is due by month between 1 January be considered as tax resident 0 TRY9,400 0 15% 25 March of the following year 2011 and 30 June 2011, and in Turkey. and the tax is payable in two TRY5,440.50 per month TRY9,400 TRY23,000 TRY1,410 20% equal instalments in March between 1 July 2011 and The only exception to the TRY23,000 TRY80,000 TRY4,130 27% and July. 31 December 2011) on the aforementioned residency rule, local payroll, in practice, only provided under the same law, TRY80,000 And above TRY19,520 35% individuals who are paid or is for foreign nationals who taxed via a local payroll are stay in Turkey for more than subject to these contributions. six months exclusively for the fulfilment of a ‘specific and temporary’ assignment.

28 VAT Other Taxes

The Turkish tax system levies that is authorised with respect Exemptions Capital duty value added tax on the supply to individual or corporate and the importation of goods income tax. There are two basic forms of No duty is applied on share and services. The Turkish name exemption under the Turkish capital. However, there is a for Value Added Tax is ‘Katma Please note that there is no VAT Law: compulsory contribution to Deger Vergisi’, abbreviated single ‘VAT registration’ the Competition Board equal to KDV. approach in Turkey because Exemption without credit to 0.04% of the capital amount it is not possible to register for previously paid VAT committed when the company Liability for VAT arises: only for VAT purposes in Turkey. is established. In the case of a When a person or entity In order to register for VAT In this form, the input VAT subsequent increases in capital, performs commercial, purposes, a foreign company cannot be deducted or this 0.04% levy is applied on industrial, agricultural or should have a permanent reclaimed but can only be the increased amount. independent professional establishment (PE) in Turkey recorded as a cost or an activities within Turkey; and and be obliged to register for expense. Transactions that Stamp tax b When goods or services are all tax purposes (i.e. VAT, are subject to ‘exemption imported into Turkey. corporate income tax, without credit for previously Documents within the scope withholding tax and stamp duty, paid VAT’ are the supply of stamp tax are papers VAT is levied at each stage etc.) to a tax office in Turkey. of goods and services for which are legally valid and of the production and the cultural, educational, exercisable, bearing a signature distribution process. Although Tax Rates recreational, scientific, social (or a sign replacing signature, liability for the tax falls on the and military objectives and or electronic signature) and person who supplies or imports The Turkish VAT system certain other categories. prepared for the purpose of the goods or services, the real employs multiple rates and proving any legal subject. In burden of VAT is borne by the the Council of Ministers is Exemption with credit for this sense, stamp tax applies final consumer. This result is authorised to change the VAT previously paid VAT to a wide range of documents achieved by a tax-credit method rates within certain limits. including written agreements. where the computation of the Certain transactions are not VAT liability is based on the Standard rate taxable and at the same time Stamp tax rate on the difference between the VAT The standard rate of VAT on the taxpayer has the right to taxable papers is 0.825%, liability of a person on his sales taxable transactions is set at claim a credit and a refund. This with an exception that the (output VAT) and the amount of 10% in the VAT Law, but this mechanism operates under the lease agreements are taxed VAT he has already paid on his rate was increased to 18% as name ‘exemption with credit at 0.125%. Stamp tax is purchases (input VAT). of 15 May 2001. for previously paid VAT’ and is calculated on the highest issued principally for exports. value stated or calculable VAT Registration Reduced rates from the taxable paper or For the deliveries and services on the maximum amount Any person or entity engaged mentioned in List No.1, 1% stated on the paper. There in an activity within the scope (e.g. agricultural products such is a cap of TRY1,161,915.90 of the VAT Law must notify as raw cotton, dried hazelnuts per agreement for 2010. the local tax office where his and etc). For the deliveries and place of business is located. services mentioned in List No.2, If there is more than one place 8% (e.g. basic food stuffs, of business, registration is books and similar publications). performed at the tax office

30 Audit and accountancy

All banks that operate in Turkey Banks are required to present Quarterly audited/reviewed are regulated and supervised quarterly financial statements financial statements of the by the BRSA. According to audited by an independent Banks operating in Turkey are BRSA regulations, banks must audit firm according to Turkish posted on the BRSA website. be audited by an independent Financial Reporting Standards Financial statements of the audit company and prepare an (which is almost the same as Banks and other entities quoted ‘Independent Audit Report’ on IFRS) and BRSA Regulations on the Istanbul Stock Exchange a quarterly basis. The total on Independent Audit. Quoted (ISE) are also publicly available period an independent auditor entities are required to present on the Public Disclosure can audit a Bank is eight half-yearly financial statements Platform (www.kap.gov.tr). successive years with a cool-off audited by an independent period of three years. audit firm according to Turkish Banks and quoted entities are Financial Reporting Standards obliged to pay miscellaneous Entities that are quoted on the and CMB regulations. fees to regulatory bodies Istanbul Stock Exchange are (e.g. BRSA, Capital Markets regulated and supervised by Non-quoted entities are not Board (CMB), Central Bank, the Capital Markets Board bound to prepare and issue etc.) depending on the nature (CMB). According to CMB TFRS financial statements. of filing. regulations, quoted entities Such entities generally keep must be audited by an their accounts in accordance Accounts of banks and quoted independent audit company and with Tax Procedures Law. entities need to be produced in prepare an ‘Independent Audit Turkish Accounting Standards Report’ on a half-yearly basis. Banks must file their accounts and Turkish Financial Reporting The total period an independent according to the Uniform Chart Standards which are local auditor can audit a quoted of Accounts issued by the version of IAS and IFRS. There entity is seven successive BRSA. Quoted entities must file is no such requirement for non- years with a cool-off period of their accounts in accordance quoted entities. three years (one-year cool-off with TFRS. An Independent period for those audit firms Audit Report for a bank or a According to Banking Law meeting specified criteria). quoted entity must be prepared and also CMB regulations, according to the defined maintaining local books and  structure of Turkish Financial records is a requirement and Reporting Standards (TFRS). books and records need to There is no such requirement be maintained in the Turkish for non-quoted entities. language and in Turkish lira.  

32 Human Resources and Employment Law

Employment relationships are However, if the employment the daily working hours do not The break periods shown If necessary, these periods may • 1 January is the New regulated by the Turkish Labour relationship is established for exceed eleven hours on any opposite are the minimum be extended depending on the Year holiday. Law No.4857 (TLL). an indefinite period, then the one working day. entitlement, and should be health of the employee and the written employment contract given without interruption. special requirements of the job, • 1 May is Labour Day. The provisions of the TLL becomes obligatory one year Overtime The break hours are not subject to a medical report. rule the general terms after the commencement of included in the working hours. One day of the week should be and conditions as well as the relationship. Pursuant to the TLL, overtime Female employees may, upon given to employees as holiday. the statutory issues of an is permitted over and above the Annual Vacation their request, be granted unpaid employment relationship. Under all circumstances, working hours fixed by law, for leave for a period of up to six As per the Turkish Labour Law, the employer, as a minimum, reasons such as national interest Employees shall be granted paid months following the 16-week one week’s illness is legally Moreover, besides the general should provide the employee or the particular requirements annual vacation for the periods maternity leave period. This considered to be within work terms regulated by the TLL, with a sheet of working of the work or for increasing indicated below, if they have period shall not be taken into time and, although not worked, the employment contract is conditions in writing that production. Overtime is defined worked for at least one year, account in the calculation of this time shall be counted as the most important tool of specifies the following details: in the TLL as the working hours including the probationary period. paid annual vacation. work days. In this case, the an employment relationship that exceed 45 hours in a week. employee should submit a either by re-defining the i. names and residence The approval of the employee In addition, until the child doctor’s report to the employer. general terms of the TLL addresses of the employer should be obtained for overtime. reaches the age of one, the Length of Holiday or by specifying the private and employee, In no event may the total period female employee is entitled Employees are also entitled conditions of the relationship. ii. date employment began, of overtime in a year exceed services Period (days) to one and a half hours a day to have 3 days paid leave for iii. salary and the full benefit 270 hours. 1 to 5 years 14 for feeding. marriage and in the case of the Employment Contracts package granted, (incl.) funeral of first degree relatives. iv. hours of work, holiday pay In general, overtime payment Minimum Wage Employment contracts should and entitlement, time off for is calculated as the normal 5 to 15 years 20 Recruitment be in line with the TLL and sickness and pay, if they are hourly rate plus 50%. Instead 15 years and 26 For the period between should not include provisions different than regulated by of getting extra payment, the over 1 January 2011 – 30 June 2011, Turkey is a large country against the fundamental rules the TLL, employee has the right to get the minimum wage is gross and there is a difference of the TLL. v. job title and job description, free time, the amount of which Paid annual vacation may TRY796.50 for employees who between the geographical vi. whether the employment is set forth within the provisions not be less than 20 days for are older than 16. regions in terms of the labour There are different types relationship includes a of the TLL. employees 18 years of age market. For the recruitment of employment contracts probationary period or not. or younger and 50 years of Legal Holidays process, most companies work regulated by the TLL. They are: Break Hours age or older. These periods with the recruitment firms that An employee is also entitled may be increased by • 29 October (Republic Day) is a know the market and have i. Employment contract with to receive a payslip with each Towards the middle of the employment contracts. national holiday and the holiday a candidate pool. a definite period. payment of wages or salary. working hours and according starts on 28 October at 13:00. ii. Employment contract with to local custom and working Maternity Leave Immigration Permit an indefinite period. Working Hours requirements, employees are • 23 April (National Sovereignty Requirements iii. Employment contract for entitled to a break of: Pursuant to the TLL, female Day), 19 May (Youth Day) and part-time employment. In general, the duration of employees are entitled to 30 August (Victory Day) are Foreign national individuals to work may be a maximum of 45 Total Working Break Hours take maternity leave for a public holidays. be employed in Turkey need If the employment contract hours per week. This is applied Hours a Day (by minutes) period of 16 weeks, i.e. eight work and residence permits in is made for a definite period equally to the working days of weeks before and eight weeks • Festival of Ramadan (3.5 days) order to be eligible to work and 4 or less 15 or for a part-time employment, the week. However, with the after giving birth. Upon their and the Festival of the Sacrifice reside in Turkey. then it must be written as approval of both parties, the 4 to 7.5 (incl.) 30 request and subject to doctor’s (4.5 days) are religious holidays. such from the beginning of normal working hours may approval, female employees Every year the dates of these More than 7.5 60 the commencement of the be distributed unevenly over may work until three weeks holidays change according to employment relationship. working days provided that before giving birth. the Hegira Calendar. 34 As per the recent minimum share and amount conferences for the career one month after his/her Notification Payment Benefits announcements of the work of capital share must be met. development of its members etc. application. The court shall permit authority, work permit determine the amount of such Pursuant to Article 17 of In Turkey, all benefits apart applications are to be finalised Role of unions/collective Termination of employment compensation. The salary and the TLL, both the employee from the ones listed in the within one month. This being bargaining, etc. or redundancy all other rights of the employee and employer are entitled TLL are voluntary, and the said, these newly introduced covering at most 4 months is to terminate employment below-listed ones are the most durations are yet to be tested. According to the Union Law As per Article 18 of the TLL, paid to the employee for the contracts for an indefinite common benefits in practice; (UL), all employees working termination of the employment period discontinued to work until period by observing the Due to the fact that professional under an employment contract of an employee having the final judgment of the court following minimum • Lunch. services such as engineering, agreement and aged 16 or at least 6 months’ service with is received. This amount is paid notification periods, city planning and architecture above are eligible to become the employer in a workplace to the employee whether or not depending upon the length • Transportation. are carefully regulated, the a member of a labour union. operating with 30 or more the employer re-employs the of service of the employee. work permit applications for The employees below the age employees should be based employee or not. • Private Health Insurance foreign nationals holding one of 16 can become a member of on a valid reason relating to The employer may terminate of these degrees differ from the a labour union provided that the efficiency or behaviour of Severance Payment the contract of the employee • Private Life Insurance regular work permit applications written consents of their legal the employee, or the by paying in advance the and Pension. and take up to a year. As per representatives are obtained. requirements of the enterprise, In cases where the salary of the employee the recent changes in the workplace or the work. In such employment contract of an corresponding to the period • Company car and phone immigration legislation, such As explicitly set forth in the termination, severance and employee is terminated after at of notice. Any party failing to for managerial staff. individuals might be granted UL, individuals are free to notification payments are made least one year by the employer fulfil notification obligation is to with a pre-approval to work. become members of a labour to the employee. for reasons other than cases pay compensation, equivalent • Stock option plans. union. It is further stated that which are incompatible with to the wage corresponding to The following evaluation no one shall be forced to However, even being fully paid morals and goodwill and similar notification period. • Private pension plans. criteria for the work permit become or not to become with his/her legal rights, the circumstances, the employer applications have recently a member of a trade union. employee whose contract is shall pay the employee a been determined by the terminated has the right to file severance payment at the Length of the Notice Ministry of Labour as follows: According to Article 12 of a lawsuit against the employer rate of 30 days’ wages for Employment Period the Collective Bargaining within 1 month as of the date each full year since the date Less than 2 weeks • a local employment quota is Agreement, Strike and of notification for termination of of employment. Payment shall 6 months introduced (five local Lockout Law, labour unions the contract if the reasons for be made pro rata for a portion employees per foreign national); have the right to sign collective termination are not defined in the of a year. 6-18 months 4 weeks bargaining agreements with notification or the employee is of 18 months- 6 weeks • a certain minimum amount employers provided that more the opinion that the considered Calculation of severance pay of paid-in capital or gross sales than half of the total number reason is invalid. shall be made based on the 3 years or exports figures will need to of the employees of that latest salary drawn. However, More than 8 weeks be met; employer are members of If the court decided that the ceiling limit for severance 3 years the labour union. the termination is invalid or pay is TRY2,623,23 for the first • minimum salary levels ranging groundless, the employer half of 2011. between TRY1,140.75 and As per Article 33 of the UL, is obliged to re-employ the TRY4,943.25 (to be revised in labour unions are entitled to employee within 1 month.  January 2011) must be paid to provide certain benefits and The employer is obliged to pay  foreign national employees; and support to their members compensation to the employee such as legal aid for retirement, corresponding to at least • if the foreign individual is to be establishing library and 4 months’ salary, at most the shareholder of the company, sport grounds for the use of 8 months’ salary, if he fails to a requirement for a certain the employees, organising re-employ the employee within 36 Trade

Turkey has great strength in In 2008, Turkey’s exports and Turkey became a member In 2009, approximately 67% of Trade due to its geographic imports reached an all-time of the World Trade all Tax Revenues were collected location. Turkey has taken high; exports increased 23%, Organisation (WTO) in from Indirect Taxes. The major advantage of a customs union reaching US$132 bn, while 1995. Following this move, portion of Indirect Taxes are with the European Union, imports rose 19%, hitting it finalised an agreement with VAT and Excise. VAT collected signed in 1995, to increase US$202 bn. During 2009, the the European Union, enabling during importation covered industrial production for year of the global financial it to join the Customs Union 15% of all Tax Revenues. It is exports, while benefiting from crisis, Turkey managed to on 1 January 1996. Turkey is clear that most of the taxes are EU-origin foreign investment secure US$102 bn of exports also a member of the World collected at Customs. into the country. and US$141 bn of imports. Customs Organisation and It should also be noted that mainly follows WTO and WCO Free Trade Agreements There is a deep trade Turkey is expected to be principles. But to protect local relationship between Turkey the highest growing OECD businesses, some necessary Turkey has Free Trade and the EU. Indeed, the EU member country between measures are put in place by Agreements with the ranks as number one by far 2011 and 2017, with an annual the Authorities. following countries: Albania, in both Turkey’s imports and average growth rate of 6.7%. Bosnia Herzegovina, Croatia, exports, while Turkey ranks 7th Customs EFTA member countries in the EU’s top imports and 5th Due to the implementation (Switzerland, Norway, Iceland in export markets. of the liberalisation process Turkey signed the Customs and Liechtenstein), Egypt, since the 1980s, the Turkish Union Agreement with the EU Georgia, Israel, Macedonia, Main Turkish export markets economy has experienced a on 1 January 1996 and has Montenegro, Morocco, in 2009 were the EU (36.086 m period of high growth. Foreign amended its customs code Palestine, Tunisia and Syria. of Euro), Russia, USA, trade, both in exports and and legislation in line with Romania, United Arab Emirates imports, has grown rapidly those of the EU customs code. and Iraq. Textiles and transport and notable changes in the In that perspective, the general equipment dominate EU structure of exports have outline of Turkish customs imports from Turkey, both been observed. In this practices are similar (specially accounting for about 24% regard, industrial products the classification and duty of the total. Other important have gained prominence rates) to its EU counterparts. imports are machinery and over agricultural products. According to the Customs agricultural products. Union Agreement, with the exception of certain goods Imports into Turkey came such as agricultural products, from the following key markets: no customs tax is incurred on the EU (43.780 m of Euro), the trade between Turkey and Russia, China, USA, Iran and the EU, as long as the goods Switzerland. Main EU exports are imported to Turkey with to Turkey are machinery an ATR movement certificate (approx. 35%), transport proving that the goods are material (approx. 20%) and in free circulation in the EU. clothing. Customs duty rates are mainly in line with the EU practice (except the agricultural products).

38 Banking in Turkey

Types of bank accounts; Setting up a bank account Ability to access local financing • TRY-denominated and FX- In order to open a bank account, denominated accounts: the only requirement is to Entities can easily access An account can be opened have a passport or certificate local financing based upon in TRY or in any currency of residence for identification their credit rating. However, convertible in Turkey. purposes, relevant address local financing becomes There are no limits on the proof document, tax ID more difficult to raise as the number of FX-based accounts. number from a local tax office amount of financing rises. or foreigner’s ID number. In raising high amounts of • Saving and current accounts. financing with extended In order to open an account maturities, the local entities for a company established are frequently mandated to abroad which is referred from use foreign currency borrowings, a HSBC Group Member, HSBC generally with floating interest Turkey requires the following rates. Therefore, local entities documentation: also prefer to engage in cross- currency swap transactions • Articles of Association and to eliminate the almost amending supplements (if any); inevitable foreign currency and interest rate risks of • Turkish Tax Identity Card large scale borrowings. and Number of the company; With the development of • Board Resolution or technology in daily life, the Signature Circular; ways to reach a loan have increased. Entities and • Identification of individuals can easily access Authorised Signatories; local financing through branches, ATM machines, • Trade/Commercial Registry telephone, internet branch Certificate confirming the and even instant messaging business name, trade/ via mobile phone. commercial registry number, field of activity, address, telephone numbers, fax numbers and email address (if any) of the company;

• Shareholding Structure;

• Smartform-Turkey; and

• Banking Transactions Agreement.

40 HSBC in Turkey

Overview

HSBC Bank A.S. serves Key events in the growth 2004 HSBC Portfolio Corporate Sustainability freshwater and cities. HSBC’s Turkey with a full range of HSBC Turkey Management A.S. programme partners are carrying of products and services, was launched. For HSBC, Corporate For out original scientific research, an uncompromising dedication 1990 HSBC becomes the first HSBC, Corporate Sustainability developing demonstration to customer satisfaction, and British bank to enter the Turkish 2006 HSBC extended its is about bringing social and projects, creating working a commitment to making the market. The Bank is established segmentation model to environmental issues together models, and proving clear world’s local bank Turkey’s in Istanbul as Midland Bank Inc. target smaller businesses with financial performance to solutions so that governments favourite bank. with 100% foreign capital. and Business Banking was maintain and grow a successful can enact legislation for the HSBC established a established. business for the benefit of adoption of low-carbon policies. Having entered the Turkish commercial banking operation our stakeholders. market in 1990, the Bank in Turkey in 1990, targeting 2006 The first Private Banking HSBC Turkey plays an active established its presence on corporate customers. branch opened at Mayadrom •e W apply clear policies role in Corporate Sustainability the pillars of the strength on August 11, 2006. and processes to manage projects. Formed by employees and prowess of the HSBC 1997 HSBC launches Personal potential social and HSBC Volunteers club runs Group. It built on this Financial Services with an 2008 HSBC Advantage environmental risk in our sustainable long-term projects foundation with a deep and extensive product range in Credit Card celebrated its lending and other financial such as Partner Schools. broad understanding of the addition to corporate banking 10th anniversary in Turkey. activities in sensitive sectors. Present in more than 50 local economy and markets and capital markets. cities and 120 schools, HSBC and through specialisation in Awards • e W help our clients to seize employees takes an important corporate banking and capital 1999 The name of the Bank the opportunities presented role to enhance education markets activities. is changed from Midland Bank – ‘Best Debt House’ Award by the shift to a low-carbon standards. From school books A.S¸. to HSBC Bank A.S. 2008-2010 in Turkey economy. to clothes to keeping children HSBC Turkey plays an by Euromoney. warm – all the needs of these important role in Continental 2001 HSBC Bank A.S. acquires • e W try to reduce our own students are evaluated fairly Europe Region with 335 Demirbank T.A.S., Turkey’s – ‘Best Corporate Banking environmental footprint and timely. Partner School branches and over 3 m fifth largest private bank. The Website’ 2010 in Turkey, and share good practice project generated a network customers serving with nearly acquisition extends HSBC’s by Global Finance. on this with our clients and starting from HQ buildings 7,000 employees. The CMB local network of branches and other stakeholders. to branches to schools. HSBC division, a valuable part of delivery channels as well as – ‘Best User-Friendly Website’ Turkey also a keen believer of HSBC Turkey serves customers its customer base in personal 2010 in Turkey by Golden • e W focus our community HSBC Group projects and takes across 117 branches. banking and client portfolio in Web Awards. investment (philanthropic part in most of it. JA More than corporate banking. activities) on education and Money, Climate Champions, With its expertise in the – ‘Top Recruiter’ 2009 the environment. ESU Public Speaking domestic market and devotion 2002 HSBC Bank A.S. acquires in Turkey by HR Summit. Competition, Future First are to serving that market in the Benkar Tuketici Finansmani O ur education programmes among many other Corporate forefront of the competition, ve Kart Hizmetleri A.S., one – ‘Best Personal Banking help to lift people out of Sustainability activities. combined with its distinct of the country’s top providers Provider Online’, 2009 poverty, build financial advantage in providing of consumer finance, from by Global Finance. literacy and promote privileged access to one of Boyner Holding A.S. The environmental awareness. the world’s largest financial acquisition includes the –  ‘World’s Leading Banking O ur environmental programme networks, HSBC Bank A.S. Advantage Card, the largest Brand’, 2007-2009 by focuses on the HSBC Climate is well-placed to set the card organisation in Turkey Euromoney Magazine. Partnership – a five-year pace of banking in Turkey. outside the banking sector. environmental programme to reduce the impact of climate change on people, forests,

42 Country overview

Capital city Ankara

Area and population 814,578 sq km / 72.6m

Language Turkish

Currency Turkish Lira

International dialling code 90

National Holidays New Year’s Day 1 January National Sovereignty and 23 April Children’s Day Labour and Solidarity Day 1 May Commemoration of Ataturk, Youth and Sports Day 19 May Victory Day 30 August Republic Day 29 October

Business and banking hours 09.00 – 17.00

Stock exchanges ISE

Political structure Democratic and secular republic

44 Contacts

Umurcan Gago

Tel: +90 212 326 60 98

Email: [email protected]

Website: www.hsbc.com.tr

Phone: +90 212 376 40 00

Head Office: HSBC Bank A.S¸. Esentepe Mah. Büyükdere Caddesi, No:128, S¸is¸li, 34394 Istanbul

1st Edition: December 2010

Copyright

Copyright 2010. All rights reserved.

‘PwC’ and ‘PricewaterhouseCoopers’ refer to the network of member firms of PricewaterhouseCoopers International Limited (PwCIL), or, as the context requires, individual member firms of the PwC network. Each member firm is a separate legal entity and does not act as agent of PwCIL or any other member firm. PwCIL does not provide any services to clients. PwCIL is not responsible or liable for the acts or omissions of any of its member firms nor can it control the exercise of their professional judgment or bind them in any way. No member firm is responsible or liable for the acts or omissions of any other member firm nor can it control the exercise of another member firm’s professional judgment or bind another member firm or PwCIL in any way.

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