Over the past decade, Turkey has entered the world’s Top 20 largest economies thanks to creating favorable conditions for partnerships between local and overseas companies. Typically, these partnerships have been formed in Turkish JV registration agreements, which have been recently incorporated into foreign investment laws.
Most often, the deals to establish a JV in Turkey are concluded in energy, infrastructure and health projects, and where local know-how is critical to project implementation.
This blog post will be of interest to those who are interested in registering a JV with a Turkish partner as it describes some intricacies of the process which you’d better know before you start.
Jurisdictional advantages
Investors' interest in the Turkish state has always been high despite all the economic crises and instability in the region.
The main advantage of doing business in this area is its location. As you know, the country occupies a transcontinental position, separating Europe from Asia. This means that most of the trade routes pass here, attracting a huge number of investors.
One of the essential advantages of doing business in Turkey is that it treats foreign and domestic investments in the same way. When investing in a Turkish company, foreigners are subject to the same rules as domestic investors. Also, overseas investors are allowed to carry out FDI in Turkey without restrictions on the repatriation of capital and dividends.
Investors can take advantage of tax breaks and incentives in technology development zones, industrial zones and free zones, including exemptions from corporate income tax, and a lot of other pleasant benefits.
Types of JVs
JCS and LLC are the most common types of JVs for foreign investors in Turkey. When the parties enter into a JV agreement, they create contractual rights that govern their relationship as shareholders of the company during the term of the JV existence. In both JSC and LLC in Turkey, the obligations of the partners will be limited to the amount of capital they contribute.
Competition
The establishment of a fully functional JV in Turkey requires the approval of the Competition Council if it implies a change of control in the target company. This is the role of the Antimonopoly Committee to decide to either approve or investigate the transaction for compliance with the local competition rules.
Rules for foreign participants
The fundamental principle of local investment rules is the principle of equal attitude to both foreign and domestic investment. It means the overseas investors are subject to the same requirements as the locals.
As a rule, foreigners are free to acquire shares in Turkish commercial enterprises. The number of foreign participation in companies is not limited. However, certain industries have restrictions on foreign investment such as broadcasting, aviation, maritime and transportation. In addition, the acquisition of real estate rights in Turkey by companies with more than 50% share capital or voting rights is subject to verification by the local regulator.
Ultimate beneficial ownership in Turkey
Participants in the transaction are required to disclose information on the JV ultimate ownership when submitting a merger control application. Transferring existing shares to new partners may be another option, especially if the JV is part of a global M&A deal in Turkey. A transfer of shares in a Turkish JSC can be tax neutral if the seller and buyer are non-residents.
By the way, you can request advice on a JV setting up in accordance with the requirements of Turkish legislation from the specialists of our company.
Labor rights
Turkey provides a skilled and competitive workforce. However, if you intend to establish a JV in Turkey and employ this workforce, then it is worth taking a closer look at the local labor legislation. In Turkey, like in many advanced European countries, there is a pronounced tendency to give preference to employees, rather than employers, in labor relations. This sometimes creates obstacles in cases of termination of employment contracts. Employers can not just fire an employee without any explanation. A valid reason for terminating an employment contract must be provided, as well as severance pay and two to eight weeks' advance notice to the employee. It is also noteworthy that you can transfer employment contracts to another employer only after obtaining the written consent of the employee.
Obtaining IP rights in Turkey
Parties can contribute IP rights to the share capital of a JV upon registration. IP rights owned by one of the partners may be authorized for use through licensing agreements between the respective JV partner and the company.
By contacting our company, you will receive professional advice on the protection of IP rights in Turkey.
JV financing in Turkey
Fixed capital contributions, bank loans and shareholder loans are the most commonly used financing methods for Turkish JVs. Although JV's partners capitalize and leverage bank loans are fairly straightforward financing methods, the following elements should be carefully structured.
With regard to financing a JV through loans in Turkey, recent amendments to Decree on protection of the local currency introduced restrictions on the use of loans in foreign currency by local residents. As a result, Turkish JVs can no longer receive loans in foreign currency from its shareholders. To better understand financing issues, consult our experienced professionals on raising funds for JVs in Turkey.
JV Dispute Resolution in Turkey
In accordance with Turkey's international private law, the parties to a contract are free to determine the law applicable to their contractual relationship. However, it should be noted that some issues can only be regulated by Turkish law, such as real estate, IP, bankruptcy and a number of others. Thus, the choice of foreign law does not exclude binding Turkish rules, regulations or obligations of the Turkish license holder.
IQ Decision UK specialists consult on JV registration in Turkey. Also, by contacting our company, you will receive professional advice on drafting an agreement on a JV setting up in Turkey.
