2013 Investment Climate Statement - Turkey

2013 Investment Climate Statement
Bureau of Economic and Business Affairs
February 2013

Turkey is the 17th largest economy in the world, with a GDP of USD 774.2 billion. Over the last three years, Turkey has been one of the fastest growing economies, with an ambitious target to become one of the ten largest economies in the world by 2023, the centenary of the foundation of the Turkish republic. Achieving this goal will require Turkey to triple its economy to more than USD 2 trillion, develop an export sector of USD 500 billion, and make significant upgrades to its energy, information technology, finance, and physical infrastructures. While this will be a challenge, Turkey has more than doubled the size of its economy since 1990 and transformed it from roughly 20% industrial/ 80% lightly processed or raw materials to 75% industrial and manufactured. Regardless of whether Turkey is able to become a top 10 economy by 2023, we believe many positive economic reforms will come out of trying to meet such an ambitious goal, and the U.S. strongly supports Turkey’s efforts in this regard.

The Turkish Government announced a new investment incentive program in April 2012, which went into effect retroactively on January 1, 2012, aimed at encouraging strategic investments and investment in less developed regions in order to eliminate regional disparities, reduce Turkey’s dependence on imported intermediate goods, and increase technology transfer. In December 2012, the World Bank and the U.S. Department of Commerce hosted an “Ease of Doing Business” seminar for the Turkish interagency to help the Turkish Government understand what reforms are needed to make Turkey more investor friendly and competitive in the international arena. The seminar highlighted that Turkey still needs to improve overall governmental transparency, continue regulatory reforms, increase predictability in regulatory development, better protect intellectual property, and translate rules and regulations into action. The World Bank’s Ease of Doing Business Index (http://www.doingbusiness.org/reports/global-reports/doing-business-2013), as well as the Heritage Foundation-Wall Street Journal’s Index of Economic Freedom (http://www.heritage.org/index/country/Turkey), offer useful summaries of key issues regarding doing business in Turkey.

Turkey’s economic growth will slow significantly in 2013, projected at 2.6%, due mainly from weakening demand in Turkey’s main export market – the EU. As a result, Turkey is actively seeking new and expanded export markets in the Middle East, Africa, and the United States. Turkish exports are projected to be around USD 153 billion at the end of 2012, a 13% year-on-year increase. The Turkish Government has set its export target for 2013 at USD 158 billion.

Turkey’s Current Account Deficit (CAD), which was around 8.5% of GDP at the end of 2011, declined significantly in 2012 and is expected to be 6.5-7% of GDP when final 2012 figures are released. This decline is mainly attributable to the decreasing foreign trade deficit, increasing net services income and decreasing net income outflows. Inflation increased to over 10% during 2012 but by the end of 2012 is expected to be around 6.5%. The Turkish Central Bank is aiming for an inflation rate of 5% in 2013. Due to these positive trends, in November 2012, Fitch Ratings upgraded Turkey to investment grade for the first time in almost two decades, citing a moderating debt burden, healthy banking system, and sound economic management. This should help to increase institutional investment in Turkey.

In Turkey, the proportion of urban to rural population has changed significantly over the last decade. Turkey has broadened the base of its economy beyond the traditional industrial centers of Istanbul, Ankara, and Izmir to encompass a number of other Anatolian cities that exported more than USD 1 billion in 2012. This expansion is particularly notable in cities such as Adana, Denizli, Trabzon, Gaziantep, Hatay, Kayseri, Konya, Manisa, Sakarya, and Şırnak.

Relations with the United States

In 2009, President Obama called for the elevation of U.S.-Turkey economic and commercial ties to the same strategic level as our security and political ties. In October 2010, the United States and Turkey held the first meeting of the Framework for Strategic Economic and Commercial Cooperation (FSECC), a Cabinet-level dialogue aimed at enhancing economic relations and boosting bilateral trade and investment. Under the FSECC process, the two governments hold a regular series of working groups, including the Economic Partnership Commission (EPC) and the Trade and Investment Framework Agreement Council (TIFA), aimed at addressing specific trade and investment issues, as well as opening new areas of economic cooperation. Under the State Department-led EPC, the two sides are discussing specific steps to increase bilateral cooperation on finance, energy, innovation, and infrastructure sectors, as well as increasing cooperation in third countries. The two countries held the ninth EPC in November 2012 in Washington and will next meet in May 2013 in Ankara. The United States and Turkey have also established an FSECC Business Council, which held its first meeting in September 2011, and has suggested ways to improve bilateral business ties.

The United States and Turkey signed a Science and Technology (S&T) agreement that will deepen and diversify relations by facilitating more joint research; exchanges of scientists, researchers, and specialists; and establishment of science-based public-private partnerships. In April 2013, the inaugural meeting of the Joint S&T Commission will be held in Ankara, which will encompass working groups co-chaired by Turkish and American scientists on issues such as biomedical research, engineering for a sustainable future, education technologies, material sciences, energy research, innovative technologies in agricultural research, and natural hazards.

The United States and Turkey continue to cooperate on a range of entrepreneurship programs, including the State Department’s Global Entrepreneurship Program (GEP) and the private-sector-led Partners for a New Beginning (PNB). Turkey has been a leader in both initiatives, which are aimed at supporting growth of entrepreneurship and small and medium enterprises in Turkey and the region.

Strong bilateral political relations, as well as cooperation in the region, have helped support a significant increase in U.S.-Turkey bilateral trade over the last three years. According to Turkish Statistical Institute data, trade during 2009-2012 increased approximately 70%. In 2012, bilateral trade will be lower than 2011, but Turkey continues to be one of the top six U.S. export markets and an important part of the Administration’s National Export Initiative (NEI).

















Source: Turkish Statistical Institute (In thousands of USD)

Openness to Foreign Investment

In 2011, the ruling Justice and Development Party (AKP) won a third term in office. As part of its election campaign, the AKP has heavily promoted its plan to become a top ten economy by 2023 (http://www.akparti.org.tr/english). In order to achieve this goal, the Government of Turkey (GOT) has developed specific strategies for 24 industrial sectors, including eight priority sectors. It has also established specific plans for physical infrastructure upgrades, as well as a major expansion of Turkey’s health, information technology, and education sectors, all of which are geared to make the Turkish workforce and companies more competitive. GOT recognizes that the domestic economy alone will not be sufficient to reach these goals and that Turkey will need to attract significant new foreign direct investment (FDI).

Turkey has one of the most liberal legal regimes for FDI in Europe. In 2011, Turkey attracted USD 15.7 billion in FDI, although a significant portion of this came from portfolio investment. However, this level is still far below Turkey’s potential, as well as below the levels needed for Turkey to reach its 2023 goal, and GOT is actively seeking greater U.S. FDI. In order to attract U.S. FDI, Turkey needs to increase trade advocacy and export promotion efforts, as well as access to credit, especially for small and medium-sized businesses involved in high value-added goods and services. Turkey must also better enforce international trade rules; increase engagement with foreign investors on policy issues; and pursue policies to promote strong, sustainable, and balanced growth.

According to the United Nations Conference on Trade and Development (UNCTAD) World Investment Report 2012, Turkey performed below its potential in 2011 despite the fact that it climbed six notches in its global ranking from 29th place in 2010 to 23rd place (http://www.unctad-docs.org/files/UNCTAD-Turkey). UNCTAD also ranked Turkey as the 12th most attractive destination for FDI among developing countries. A number of measures have served to increase national and foreign investors’ confidence in Turkey’s economy: structural reforms undertaken by GOT over the last decade, a strong banking sector, tight fiscal controls, efforts to reduce the size of the informal economy, increasing flexibility of the labor market, improving skills of workers, and continuing privatization of state economic enterprises. GOT has privatized state economic enterprises through block sales, public offerings, or a combination of both. Transactions completed under the Turkish privatization program generated USD 3 billion in 2012. GOT is committed to continuing the privatization process despite contraction in global capital flows.

With the exception of some sectors (highlighted below), areas open to the Turkish private sector are also generally open to foreign participation and investment. However, all investors – regardless of nationality – face some challenges: excessive bureaucracy, a slow judicial system, high and sometimes inconsistently applied taxes, weaknesses in corporate governance, sometimes unpredictable decisions made at the local government level, and frequent changes in the legal and regulatory environment. The Parliament amended the Law of Obligations (debt regulations), and a new Commercial Code became effective in July 2012. Major structural reforms are expected in 2013 that will create a more transparent, equal, fair, and modern investment and business environment and improve Turkey’s rankings in global indices. Venture capital and angel investing is currently nascent in Turkey, but new legislation that went into effect in late 2012 will facilitate greater development of these sorts of financing opportunities.

Turkish Industrial Strategy

In January 2011, the Ministry of Science, Industry, and Technology (MSIT) announced Turkey’s Industrial Strategy, which identifies 24 key areas to increase Turkey’s competitiveness and productivity, and targets aimed at transforming Turkey into a technology base for manufacturing of medium- to high-technology products. MSIT has developed specific strategies and action plans for six priority sectors: iron and steel, automotive, chemicals, machinery, electrionic equipment, and ceramics. GOT additionally announced in early 2013 that medicines and medical devices are now priority sectors; MSIT is working on the pharmaceutical industry sector strategy and action plan which is expected to be released in the first half of 2013. The Industrial Strategy identifies the following areas as major potential drivers that can help increase exports and FDI, and transform Turkey into Eurasia’s technology base: innovation-led productivity; increasing production of medium- and high-technology goods; increasing capital for knowledge-intensive sectors; creation of a stronger knowledge-based economy; and a developing a well-educated and highly qualified work force. (http://www.sanayi.gov.tr/Default.aspx?lng=en)

Partnerships in Improving the Investment Climate

Since 2001, GOT has pursued a comprehensive investment climate reform program aimed at streamlining investment-related procedures and attracting more FDI. The Coordination Council for the Improvement of Investment Environment (YOIKK), a national platform jointly formed by the public and private sectors, provides technical guidance for issues relating to the investment environment.

In 2004, the Investment Advisory Council of Turkey (IAC) was created to provide an international perspective for Turkey’s reform agenda. IAC members include executives from multinational companies, representatives of international institutions such as the IMF, World Bank and European Investment Bank, and the heads of Turkish NGOs representing the private sector. The Council, chaired by the Prime Minister, convenes yearly to advise the Turkey Government on the direction of its reform program. The Council’s recommendations serve as guidelines for the YOIKK platform, and Council recommendations are published in the Turkish Treasury’s annual IAC Progress Reports.

In addition to structural reforms, Turkey’s Investment Support and Promotion Agency (ISPAT), whose main objective is to support new investors throughout the business establishment process and solve problems that arise after establishment, plays an important role in facilitating a business and investment-friendly environment. ISPAT serves as an advocate within the GOT for reforms that promote investment and works to raise both domestic and international awareness of the benefits of investment.

Investment Issues

Renewable Energy: GOT continues to promote investment in renewable energy production as well as equipment manufacture, with a goal to develop 20,000 megawatts (MW) of wind power, 600 MW of geothermal power, and up to 9,000 MW of solar power by 2023. Under the 2010 Renewable Energy Incentives Law, GOT offers power purchase guarantees and a feed-in tariff for electricity produced from renewable sources, but does not offer similar power purchase agreements for thermal power plants, which must sell to the spot market or through bilateral contracts. In 2012, the Ministry of Energy and Natural Resources developed implementing regulations for the Renewable Energy Incentives Law that clarified minimum local content thresholds for a product to qualify for additional feed-in tariff bonuses. The Energy Market Regulatory Authority continues to award licenses for new wind and geothermal projects and is expected to begin accepting applications for new solar power projects in June 2013.

Health Care, Transportation, and Information Technology: To meet ambitious export goals, GOT is planning significant new investment in infrastructure, including in the health care (particularly hospitals) and transportation sectors (ports, airports, and rail, light-rail, and road infrastructure). The Ministry of Health has thus far announced tenders for16 public-private partnership health campus projects all over Turkey at a cost of USD10 billion. Project agreements have been signed for three projects: the Kayseri Integrated Health Campus, Ankara Bilkent Integrated Health Campus, and the Ankara Etlik Integrated Health Campus.

Turkey plans to make significant infrastructure upgrades for ports, airports, road, and rail over the next decade. The Turkish private sector is also spear-heading projects with neighboring countries aimed at establishing an intermodal transportation network to revive the ancient Silk Road.

As part of an effort to improve Turkey’s education system, GOT has embarked on a multibillion dollar project to provide Turkish students with tablet computers and schools with smart boards. The project will require expanding internet broadband throughout Turkey, as well as developing educational content and applications for tablets and smart boards. Turkey is also planning to develop greater cloud computing capacity. All these projects will provide significant opportunities for U.S. information and communication technology (ICT) companies, and the Turkish Government is actively seeking U.S. investors and partners, including for financing.

Pharmaceuticals: Turkey’s pharmaceutical sector is a good example of a sector in which GOT policies complicate Turkey’s ability to fully realize its development potential. Health sector reform in 2006 created a much larger pharmaceutical market dominated by Turkey’s state health care system. Coupled with Turkey’s young and growing population, this should have made Turkey an attractive market for pharmaceutical investment. However, two significant issues continue to inhibit innovative pharmaceutical firms’ trade and investment in Turkey: a pricing/exchange rate issue and delays in obtaining GMP (Good Manufacturing Practices) inspection approvals from the Turkish Ministry of Health (MOH).

The MOH and the Turkish Ministry of Labor and Social Security (MLSS) both play important roles in pharmaceutical pricing. The MOH sets the maximum price that can be charged for medicines, and the MLSS negotiates pharmaceutical bulk prices for products that are distributed through Turkey’s national health care system. In 2009 the MOH negotiated a pharmaceutical budget with industry that provided significant discounts on pharmaceutical purchases of products distributed through the Turkey’s national health care system, within the context of an overall gradual increase in pharmaceutical spending each year through 2012. However, in mid 2010 and late 2011, MOH and MLSS noted budget shortfalls and requested greater discounts from companies, which they were compelled to give given GOT’s dominant role in pharmaceutical spending. In December 2012, MLSS indicated to industry that the new pharmaceutical budget for 2013-2015 was almost finalized. However, new budget figures are well below industry’s expectations, and GOT did not propose to provide any relief in regard to discounts or the exchange rate.

In addition to the pricing/exchange rate issues, innovative pharmaceutical firms complain about the slow pace of MOH GMP inspections. Two years ago the MOH began enforcing an existing law requiring that all companies applying to market pharmaceutical products in Turkey have a GMP certificate issued by the MOH. The MOH continues to build inspection capacity, and its inspection rate has improved. Late in December 2012, after significant appeals from industry, the Minister of Health committed to start parallel submissions, which will allow for simultaneous marketing authorization and GMP inspections – an action that will likely expedite the entry of innovative pharmaceutical into the Turkish market and help reduce the GMP backlog. MOH also committed to publishing implementation guidelines for the parallel submission process beginning in February 2013.

There is increasing awareness among GOT agencies that the pharmaceutical sector should be a strategic sector for Turkey, and the dialogue between industry and GOT officials has improved significantly over the last two years. GOT announced in early 2013 that medicines and medical devices are now priority sectors. However, despite several new investments and positive policy developments in 2012, innovative pharmaceutical companies still complain about lack of predictability and transparency in regulation making, which continues to inhibit pharmaceutical investment in Turkey.

Business Registration: Recent reforms in Turkey have simplified procedures to establish a company, reduced permit requirements, instituted a single company registration form, and enabled individuals to register their companies through local commercial registry offices of the Union of Chambers and Commodity Exchanges of Turkey (TOBB). However, according to the International Finance Corporation/World Bank 2013 ‘Doing Business’ Report for Turkey, Turkey ranked 71 among 185 world economies, dropping three places from its 2012 ranking. According to the report, Turkey did relatively better in dealing with construction permits, registering property, enforcing contracts, and resolving insolvency compared to the previous year. Starting a business in Turkey requires a similar number of procedures as in other European countries, but it takes half the number of days, and it costs almost 140% more to start a business in Turkey. The Doing Business in Turkey report can be found at: http://www.doingbusiness.org/data/exploreeconomies/turkey/

Judicial Reforms: GOT continues to implement judicial reforms aimed at attracting foreign investment to Turkey. The National Judiciary Network project on automation and integration, overseen by the Ministry of Justice, is speeding up processing of commercial cases by facilitating document-sharing and court records, as well as allowing for filing suits online. GOT has also improved foreign investors’ access to judiciary recourse, including legal aid and Alternative Dispute Resolution mechanisms supported by the U.S., the EU, and the World Bank. The Competition Authority in Turkey is an autonomous agency that plays an important role in assuring equal, fair, and transparent competition and consumer welfare-oriented market mechanisms, regardless of corporate nationality.

Taxation: In recent years, Turkish Government policies have made the taxation system more investor-friendly. In 2006, the basic corporate tax rate was reduced from 30% to 20%. GOT also cancelled the withholding tax for foreign investors' holdings of bonds, bills, and stocks - while retaining it for bank deposits and repurchase agreements. In addition, the Tax Administration established a separate unit in 2007 to handle tax collection from large corporations. Despite these improvements, GOT has not yet been able to implement further planned tax reforms, including reducing the employment tax, which is among the highest among members of the Organization for Economic Cooperation and Development (OECD).

In December 2010, the Turkish Finance Ministry announced new tax rates for capital accounts aimed at encouraging the issuance of corporate bonds with longer-term maturity. For non-domestic bonds, the withholding tax on interest is 0% for 5-year-maturity or higher bonds, 5% for bonds with 3 to 5-year maturity, and 10% for bonds with maturity less than three years. In addition, banking and insurance transactions tax applied to sale or repo transactions of domestically issued corporate bonds was reduced from 5% to 1. GOT also decreased withholding taxes on bank deposits with longer maturity aiming at attracting longer term savings. Withholding tax on Turkish Lira time deposits with maturity longer than one year decreased to 10% from 15% while rates for the deposits up to 6 months are kept at 15%. On Foreign Currency (FX) accounts, withholding tax rate is decreased to 13% from 15% on deposits with maturity more than one year and the rate is increased to 18% for FX deposits up to six months.

The GOT is aware that between 30-50% of the economy is unregistered, which represents a competitive disadvantage for legitimate firms. Turkish industrialists anticipate that GOT will implement more tax reform in 2013 that will help to reduce the unregistered economy and broaden the tax base while also improving Turkey’s competitiveness.

Currency Conversion and Capital Transfer Policies

Turkish law guarantees the free transfer of profits, fees, and royalties, and repatriation of capital. This guarantee is reflected in Turkey's 1990 Bilateral Investment Treaty (BIT) with the United States, which mandates unrestricted and prompt transfer in a freely-usable currency at a legal market-clearing rate for all investment- related funds. There is no difficulty in obtaining foreign exchange, and there are no foreign exchange restrictions. However, foreign petroleum companies operating in Turkey complain that amendments to the Turkish Petroleum law make it difficult for foreign companies to transfer profits. Affected companies have unsuccessfully challenged this in court. A new Petroleum Law that would alleviate this problem and improve the investment environment for oil and gas exploration is in development.

Expropriation and Compensation

Under the U.S.-Turkey BIT, expropriation can only occur in accordance with due process of law, can only be for a public purpose, and must be non-discriminatory. Compensation must be reasonably prompt, adequate, and effective. The BIT ensures U.S. investors have full access to Turkey’s local courts and the ability to take the host government directly to third-party international binding arbitration to settle investment disputes. There is also a provision for state-to-state dispute settlement.

GOT occasionally expropriates private real property for public works or for state industrial projects. The GOT agency expropriating the property negotiates the purchase price. If owners of the property do not agree with the proposed price, they are able to challenge the expropriation in court and ask for additional compensation. There are no outstanding expropriation or nationalization cases.

Dispute Settlement

There are some outstanding investment disputes between U.S. companies and Turkish governmental bodies, particularly in the energy sector.

Turkey’s legal system provides means for enforcing property and contractual rights, and there are written commercial and bankruptcy laws. However, Turkey’s court system is overburdened, which sometimes results in slow decisions and judges lacking sufficient time to grasp complex issues. Judgments of foreign courts, under certain circumstances, need to be upheld by local courts before they are accepted and enforced. Monetary judgments are usually made in local currency, but there are provisions for incorporating exchange rate differentials in claims. The Turkish Government is working on judiciary reform that aims at shortening the duration of judicial proceeding and bring greater efficiency to the Turkish judiciary system through specialized courts (such as Intellectual Property Rights courts, a number of which already exist in Turkey).

Turkey is a member of the International Center for the Settlement of Investment Disputes (ICSID) and is a signatory of the New York Convention of 1958 on the Recognition and Enforcement of Foreign Arbitral Awards. Turkey ratified the Convention of the Multinational Investment Guarantee Agency (MIGA) in 1987. There are no arbitration cases involving a U.S. company pending before ICSID. The U.S.-Turkey BIT affords protection to U.S. investments in Turkey by providing certain mutual guarantees and creating a more stable and predictable legal framework for U.S. investors.

Turkish law accepts binding international arbitration of investment disputes between foreign investors and the state. In practice, however, Turkish courts have on occasion failed to uphold an international arbitration ruling involving private companies.

Performance Requirements/Incentives

Turkey is a party to the WTO Agreement on Trade Related Investment Measures (TRIMS). Turkey's investment incentive system was substantially amended in 2006 and again in 2012 to promote investment and encourage exports. In 2009 the Turkish Parliament passed a state investment incentive decree that provides tax benefits and increased credit opportunities. It is applied in diverse ways according to the location, scale, and subject of the investment and includes exemption from customs duties and fund levies, customs, and value-added (VAT) tax exemptions for locally-purchased or imported machinery and equipment. The Turkish Treasury also covers selected parts of investment credit interest rates for SMEs, research and development projects, environmental projects, and projects in prioritized development provinces that have annual per capita income below USD 1,500.

There are no performance requirements imposed as a condition for establishing, maintaining, or expanding investment in Turkey. There are no requirements that investors purchase from local sources or export a certain percentage of output. Investors’ access to foreign exchange is not conditioned on exports.

There are no requirements that nationals own shares in foreign investments, that the shares of foreign equity be reduced over time, or that the investor transfer technology on certain terms. There are no government-imposed conditions on permission to invest, including location in specific geographical areas, specific percentage of local content – for goods or services – or local equity, import substitution, export requirements or targets, technology transfer, or local financing.

GOT requirements for disclosure of proprietary information as part of the regulatory approval process are consistent with internationally accepted practices. Enterprises with foreign capital must send their activity report submitted to shareholders, their auditor’s report, and their balance sheets to the Treasury’s Foreign Investment Directorate every year by May.

With the exceptions noted above under “Openness to Foreign Investment” and below under “Transparency of the Regulatory System,” Turkey grants all rights, incentives, exemptions, and privileges available to national businesses to foreign business on a most-favored-nation (MFN) basis. U.S. and other foreign firms can participate in government-financed and/or subsidized research and development programs on a national treatment basis.

GOT announced new incentives in 2012 that give priority to high-tech, high value-added, globally competitive sectors and put in place new regional incentive programs to reduce regional economic disparities and increase regional competitiveness. The new investment incentives involve a “tiered” system which provide for greater incentives to invest in less developed parts of the country. The map and explanation of the program can be found at: http://www.invest.gov.tr/en-US/Maps/Pages/InteractiveMap.aspx.

Turkish law and regulations affecting the investment climate continue to evolve. Potential investors should check with appropriate Turkish government sources for current detailed information. ISPAT’s web site provides the text of regulations governing foreign investment and incentives, as well as other useful background information: www.invest.gov.tr.

Offsets are an important aspect of Turkey’s military procurement, and offset guidelines have been modified to encourage direct investment and technology transfer.


Turkey pays close attention to the impact microeconomic factors have on business development and growth and is seeking to foster entrepreneurship and small and medium-sized enterprises (SMEs). Through the Small and Medium Enterprises Development Organization (KOSGEB), the Turkish Government provides various incentives for innovative ideas and cutting edge technologies, in addition to providing SMEs easier access to medium and long-term funds. There is also a number of technology development zones (TDZs) in Turkey where entreprenuers are given assistance in commercializing business ideas. GOT provides support to TDZs, including infrastructure and facilities; exemption from income and corporate taxes for profits derived from software and R&D activities (through December 2013); exemption from all taxes for the wages of researchers, software, and R&D personnel employed within the TDZ (through December 2013); value-added tax (VAT) and corporate tax exemptions for IT specific sectors; and customs and duties exemptions.

Turkey’s Scientific and Technological Research Council (TUBITAK) has special programs for entrepreneurs in the technology sector, and the Turkish Technology Development Foundation (TTGV) has programs that provide capital loans for R&D projects and/or cover R&D-related expenses. Projects eligible for such incentives include concept development, technological research, technical feasibility research, laboratory studies to transform concept into design, design and sketching studies, prototype production, construction of pilot facilities, test production, patent and license studies, and activities related to post-scale problems stemming from product design. In November 2012, TUBITAK announced a Technology Transfer Office Support Program, which will provide USD 1 million in grants to establish Technology Transfer Offices (TTOs) in Turkey.

Right to Private Ownership and Establishment

Foreign-owned interests in the petroleum, mining, broadcasting, maritime transportation, and aviation sectors are subject to special regulatory requirements. In broadcasting, equity participation of foreign shareholders is restricted to 25%. Foreign equity participation in the aviation and maritime transportation sectors is 49%.

With the exceptions noted above, private entities may freely establish, acquire, and dispose of interests in business enterprises, and foreign participation is permitted up to 100%. Turkey has an independent Competition Board. With respect to access to markets, credit, and other business operations, competitive equality is the standard applied to private enterprises that seek to compete with public enterprises. Regulations governing foreign investment in Turkey are, in general, transparent. In most sectors Turkey does not have an investment screening system for foreign investors; only notification is required.

The Ministry of Environment and Urbanization completed a new draft law on title deed registration in 2012. This law abandoned the former requirement that foreign purchasers of real estate in Turkey had to be in partnership with a Turkish individual or company that owns at least a 50% share in the property and is much more flexible in allowing international companies to purchase real property. The new law also increases the upper limit on real estate purchases by foreign individuals to 30 hectares and allows further increases up to 60 hectares with permission from the Council of Ministers.

Protection of Property Rights

Secured interests in property, both movable and real, are recognized and enforced, and there is a reliable system of recording such security interests. For example, there is a land registry office where real estate is registered. Turkey's legal system protects and facilitates acquisition and disposal of property rights, including land, buildings, and mortgages, although some parties have complained that the courts are slow to render decisions and are susceptible to external influence (see "Dispute Settlement").

Turkey is signatory to a number of international conventions, including the Stockholm Act of the Paris Convention, the Patent Cooperation Treaty, and the Strasbourg Agreement. In 2008, Turkey acceded to the WIPO Copyright Treaty and Performances and Phonograms Treaty. Turkey accepts patent applications in compliance with the TRIPS agreement “mailbox” provisions.

Turkey's intellectual property rights regime has improved in recent years, but deficiencies remain. In 2008, Turkey was on the U.S. Special 301 Priority Watch List. In 2009 it was upgraded to the U.S. Special 301 Watch List, where it remained in 2010, 2011, and 2012. Although there has been increased IPR enforcement actions and successful public awareness campaigns, piracy and counterfeiting remain serious problems. There is widespread and often sophisticated counterfeiting of trademarked items, especially apparel. Business software and online music piracy are increasing, and book and entertainment software piracy remain areas of concern.

Turkey has not yet completed legislative reforms needed to ensure effective IPR protection and enforcement. Delays in the judicial and legislative processes contribute to deficiencies in the overall IPR protection and enforcement regime. Turkey's copyright law, as amended in 2004, provides deterrent penalties for copyright infringement. The law contains several strong anti-piracy provisions, including a ban on street sales of all copyrighted products and authorization for law enforcement authorities to take action without a complaint by the rights holder. In 2012, the Turkish Ministry of Culture and Tourism drafted amendments to Turkey’s copyright law and undertook a lengthy process of soliciting stakeholder opinions, including other GOT agencies and 40 different collecting societies. These amendments are currently awaiting approval by the Turkish Prime Ministry. After Prime Ministry approval, the amendments will be submitted to the Turkish Parliament for ratification.

Turkey’s patent law has been in force since 1995 and was amended in 2004. Patents are granted for 20 years to any invention in any field of technology which is novel, involves an inventive step, and has industrial applications. In 2012, the Turkish Patent Institute (TPI) completed a new draft patent law, which we expect will come before the Turkish Parliament in 2013.

The United States has a Copyright Working Group and the EU has an IPR Working Group with GOT to address intellectual property related issues and exchange views on developing more efficient and effective IPR enforcement.

In general, the Turkish Ministry of Health provides protection for confidential test data submitted in support of applications to market pharmaceutical products. However, several provisions undermine protection for confidential test data. Due to the relatively short six-year data-exclusivity period and delays by the Turkish MOH in granting Good Manufacturing Practice inspection certificates and marketing approvals, pharmaceutical data protection remains a concern, particularly for innovative products. In addition, Turkey’s patent law does not contain interim protection for pharmaceuticals in the research and development pipeline. Research-based pharmaceutical companies have criticized patent provisions which delay the initiation of infringement suits until after the patent is approved and published, permit use of a patented invention to generate data needed for the marketing approval of generic pharmaceutical products, and give judges wider discretion over penalties in infringement cases.

Trademark holders also note that Turkey provides protection for commercial seed under its Plant Variety Protection (PVP) Law.

Turkish intellectual property (IP) law allows both civil and criminal actions. In general, civil actions include requests for determination of infringement, cessation of acts of infringement, seizure of counterfeit goods, and compensation of damages. Criminal actions include imprisonment, pecuniary punishment, closure of job sites, and prohibition from commerce.

Turkey has specialized intellectual property IP courts, presided over by judges who have had training in intellectual property law, in Istanbul, Ankara, and Izmir. IP litigation in Turkey generally begins in these courts and moves to the Supreme Court if an appeal is filed. If the alleged offense does not occur in Istanbul, Ankara or Izmir, the case begins in civil courts that act as IP courts.

The Seventh Global Congress on Combating Counterfeiting and Piracy will be held in Istanbul in April 2013 under the auspices of Turkish Ministry of Customs and Trade. The Congress aims to build cooperation between countries to enhance public awareness, develop concerted action to confront problems arising from counterfeiting and piracy, and find sustainable solutions to stop trade in IPR-infringing goods.

Further information on the intellectual property situation in Turkey is available in the U.S. National Trade Estimate and Special 301 reports, available under the “reports” tab on the U.S. Trade Representative’s website: www.ustr.gov.

Transparency of the Regulatory System

GOT has adopted policies and laws that in principle should foster competition and transparency. However, foreign companies in several sectors claim that regulations are sometimes applied in a nontransparent manner.

Turkey is an observer to the WTO Government Procurement Agreement. Turkish legislation generally requires competitive bidding procedures in the public sector. A Public Procurement board exists to oversee public tenders, and there are minimum bidding thresholds under which foreign companies are prohibited from bidding on public tenders. The law gives preference to domestic bidders, Turkish citizens, and legal entities established by them, as well as to corporate entities established under Turkish law by foreign companies. The public procurement law has been amended eight times since its enactment and has been cited by the EU as not being in conformity with the EU acquis communautaire.

In general, labor, health and safety laws and policies do not distort or impede investment, although legal restrictions on discharging employees may provide a disincentive to labor-intensive activity in the formal economy. Generous tax preferences for free zones have provided a stimulus to investment in these zones. Similarly, incentives for investment in certain low-income provinces appear to be stimulating investment there (see “Performance Requirements/Incentives”).

Efficient Capital Markets and Portfolio Investment

GOT has taken a number of important steps in recent years to strengthen and better regulate the banking system. A 2005 revision of the Banking Law brought tighter bank regulation, notably by broadening the range of expertise inspectors can draw on when conducting on-site inspections. GOT adopted a new Capital Markets Law in 2012, which will bring about greater corporate accountability, protection of minority share-holders, and financial statement transparency.

As of January 2013, there are 26 deposit-taking commercial banks and 13 development and investment banks operating in Turkey. Sector assets as of September 2012 totaled approximately USD 690 billion according to data from the Banks’ Association of Turkey. Total loans for the banking sector totaled USD 404.3 billion for the same period. The independent Banking and Regulation Supervision Agency (BRSA) monitors and supervises Turkey’s banks. The BRSA is headed by a board whose seven members are appointed for six-year terms. In addition, bank deposits are protected by an independent deposit insurance agency, the State Deposit Insurance Fund (SDIF).

Because of historically high local borrowing costs and short repayment periods, foreign and local firms have frequently sought credit from international markets to finance their activities. In November 2012, Fitch Ratings upgraded Turkey to investment grade for the first time in almost two decades (since 1994), citing a moderating debt burden, healthy banking system, and sound economic management. With investors increasingly viewing Turkey as a strong emerging economy, Turkey’s risk premium has begun to decrease, while accessibility to medium and long-term financing at lower costs has increased. However, growing economic problems in Europe are expected to continue to impede external financing in 2013.

The Istanbul Stock Exchange (ISE), formed in 1985, is becoming a significant emerging market stock exchange. Although Turkey must further develop its capital markets, the 2012 Capital Markets Law allowed ISE to expand to include the Istanbul Gold Exchange Market and the Futures Contract Market. As of October 2012, 402 companies were listed on the exchange with total market capitalization of USD 269 billion. The Capital Markets Board is responsible for overseeing activities, including activities of ISE-quoted companies and securities and investment houses. The Turkish private sector continues to be dominated by a number of large holding companies, many of which are family-owned, and most large businesses continue to float publicly only a minority portion of shares in order to limit outside interference in company management. There has been no recent hostile takeover attempt by either international or domestic parties. Capital market instruments are still developing in Turkey. Turkey's first mortgage law was adopted in 2007. Venture capital and hedging instruments are also currently very limited, but a new law came into effect in 2012 that will increase financing opportunities through venture capital and angel investing.

Political Violence

Terrorist groups operating in Turkey include the Kurdish separatists and Marxist-Leninists, as well as Al-Qa’ida and its affiliates.

The Revolutionary People’s Liberation Party/Front (DHKP/C) is a virulent Marxist-Leninist group with anti-U.S. and anti-NATO views and which has been designated by the United States as a terrorist since 1997. On February 1, 2013 a DHKP/C suicide bomber attacked U.S. Embassy Ankara at a security-check entrance, killing one security guard and seriously injuring a Turkish journalist. A DKHP/C suicide bomber also attacked a police station Istanbul on September 11, 2012, killing one police officer and injuring seven bystanders.

Most prominent among the terrorist groups operating in Turkey is Kongra-Gel (KGK, also known as the Kurdistan Workers’ Party or PKK). Composed primarily of ethnic Kurds with a separatist agenda, the PKK has historically operated from areas in southeastern Turkey and northern Iraq and targeted mainly Turkish security forces. After a calmer 2011, due in part to a cease-fire in the lead-up to national elections in June 2011, the rate of PKK terror attacks and Turkish military operations to counter them increased significantly in 2012. Typical tactics included roadside checkpoints forcing vehicles to stop, kidnapping of political figures and teachers (although most victims were returned in a few days), ambushes of military patrols in the countryside, improvised explosive devices along known military or police routes, and bombings of both security and civilian targets in urban areas (nearly all in the southeastern part of Turkey). At the end of 2012, GOT revealed that it was in private talks with imprisoned PKK leader Abdullah Ocalan, aimed at a possible political settlement of the PKK armed conflict.

For the latest security information on Turkey and other countries, see http://travel.state.gov, where current Worldwide Caution Public Announcements, Travel Warnings, and Public Announcements can be found.


Corruption is somewhat of a problem in Turkey. Parliament continues to probe corruption allegations involving senior officials in previous governments, particularly in connection with energy projects. The judicial system is also perceived to be susceptible to external influence and to be biased against outsiders to some degree.

Public procurement reforms were designed to make procurement more transparent and less susceptible to political interference, including through the establishment of an independent public procurement board with the power to void contracts. Turkey is not yet a signatory to the WTO Government Procurement Agreement (GPA), although it has maintained observer status for over a decade.

Turkish legislation outlaws bribery, and some prosecutions of government officials for corruption have taken place. However, enforcement is uneven. Turkey ratified the OECD Convention on Combating Bribery of Public Officials and passed implementing legislation in January 2003 to provide that bribes of foreign officials, as well as domestic, are illegal. In 2006, Turkey’s Parliament ratified the UN Convention against Corruption.

Turkey’s Criminal Code makes it unlawful to promise or to give any advantage to foreign government officials in exchange for their assistance in providing improper advantage in the conduct of international business. In the event that such a crime makes an unlawful benefit to a legal entity, such legal entity shall be subject to certain security measures. The provisions of the Criminal Law regarding bribing of foreign governmental officials are in line with the provisions of the Foreign Corrupt Practices Act of 1977 of the United States (FCPA).

There are, however, a number of differences between Turkish law and the FCPA. For example, there is not an exception under Turkish law for payments to facilitate or expedite performance of a “routine governmental action” in terms of the FCPA. Another difference is that the FCPA does not provide for punishment by imprisonment, while the Turkish law provides for punishment by imprisonment from 4 to 12 years. The Prime Ministry’s Inspection Board, which advises the Corruption Investigations Committee, is responsible for investigating major corruption cases brought to its attention by the Committee. Nearly every state agency has its own inspector corps responsible for investigating internal corruption. The Parliament can establish investigative commissions to examine corruption allegations concerning cabinet ministers; a majority vote is needed to send these cases to the Supreme Court for further action.

According to Transparency International’s (TI) annual Corruption Perception Index Data, Turkey moved from 61st to 54th in TI’s ranking of 176 countries and territories among the world in 2012 (see http://www.transparency.org/cpi2012/results). Transparency International has an affiliated NGO in Istanbul.

Bilateral Investment Agreements

Since 1962, Turkey has been negotiating and signing agreements for the reciprocal promotion and protection of investments. As of January 1, 2013, Turkey had 75 bilateral investment agreements in force with: Afghanistan, Albania, Argentina, Austria, Australia, Azerbaijan, Bangladesh, Belarus, Belgium, Bosnia and Herzegovina, Bulgaria, China, Croatia, Cuba, Czech Republic, Denmark, Egypt, Estonia, Ethiopia, Finland, France, Georgia, Germany, Greece, Hungary, India, Indonesia, Iran, Israel, Italy, Japan, Jordan, Kazakhstan, Kuwait, Kyrgyzstan, Latvia, Lebanon, Libya, Lithuania, Luxembourg, Macedonia, Malaysia, Malta, Moldova, Mongolia, Morocco, Netherlands, Oman, Saudi Arabia, Pakistan, Philippines, Poland, Portugal, Qatar, Romania, Russian Federation, Serbia, Singapore, Slovakia, Slovenia, South Korea, Spain, Sweden, Switzerland, Syria, Tajikistan, Thailand, Tunisia, Turkmenistan, United Arab Emirates, United Kingdom, United States, Ukraine, Uzbekistan, and Yemen.

OPIC and Other Investment Insurance Programs

The Overseas Private Investment Corporation (OPIC) offers a full range of programs in Turkey, including political risk insurance for U.S. investors, under its bilateral agreement with Turkey. OPIC is also active in financing private investment projects implemented by U.S. investors in Turkey. OPIC-supported direct equity funds, including the USD 200 million Soros Private Equity Fund, can make direct equity investments in private sector projects in Turkey. Currently, OPIC is looking to support increased lending for renewable energy and energy efficiency projects in Turkey. Small and medium-sized U.S. investors in Turkey are also eligible to utilize the Small Business Center facility at OPIC, offering OPIC finance and insurance support on an expedited basis for loans from USD 100,000 to USD 10 million. In 1987, Turkey became a member of the Multinational Investment Guarantee Agency (MIGA).


Turkey has a population of 75.6 million, with 30% under the age of 14. Over 76% of the Turkish population lives in urban areas. The Turkish labor force numbers 26.8 million, of which 24.3 million are employed. Approximately 26.2% of the workforce works in agriculture; 19% works in industrial sector. The official unemployment rate was 9.1% as of September 2012, with 18% youth unemployment (15-24 years old). Students are required to complete eight years of schooling and remain in school until they are 15 years old. 98.17% of Turkey’s population completes primary school; 36% of those who complete primary school get vocational or higher education.

Turkey has an abundance of unskilled and semi-skilled labor, and Turkey's labor force has a reputation for being hardworking, productive, and dependable. Vocational training schools exist at the high school level. Some formal apprenticeship programs remain, but informal training in traditional occupations is decreasing rapidly. Although the Ministry of Education launched projects within the framework of EU programs to meet the needs of high-tech industries - which has increased the number of qualified high-tech workers in recent years - there remains a shortage. Individual high-tech firms, both local and foreign-owned, typically conduct their own training programs. The Ministry of Science, Industry, and Technology has launched a program with TOBB to provide skilled laborers to meet manufacturing sector needs. Turkey has also undertaken a significant expansion of university programs, building dozens of new colleges and universities over the last decade to increase the skills and competitiveness of its workforce. GOT has also initiated the FATİH project that will expand internet coverage to all Turkish schools, equip Turkish classrooms with interactive smart boards, and provide students with tablet PCs.

Labor unions report their relations with management of Turkish companies is often adversarial. Employers are obliged by law to negotiate in good faith with unions that have been certified as bargaining agents. Strikes are usually of short duration and almost always peaceful. The law prohibits discrimination on the basis of union membership. While exact unionization rates are not available, they are low - a percentage probably in the single digits. There is no obligation for a worker to become a member of a union, and there is no obligation to make a collective labor agreement for any sector. However, in order to be covered by a collective labor agreement, a worker must be a member of a union. Historically, in order to be a bargaining agent, a union must have membership of more than forty percent of the workers employed in a work place and include at least three percent of the workers employed in that specific work branch. Turkish labor law mandates that a series of steps be followed - including mediation by an Arbitration Board - before a union may initiate a strike.

In October 2012, the Turkish Parliament approved the “Unions and Collective Bargaining Law,” which revised regulations on trade union formation and collective bargaining. The new law lowers two thresholds for a labor union to be authorized as an agent of collective bargaining. The first relates to any given work place: where previously the union had to represent 50 percent plus one of a firm’s employees, the share is now 40 percent. The second measure relates to a nationwide industry branch: where a bona fide union was previously required to have membership of at least 10 percent of workers in its sector, the new rate has been lowered to one percent from January 1, 2013 through June 30, 2016; two percent from July 1, 2016 to June 30, 2018; and three percent after July 1, 2018.

Turkey’s Economic and Social Council was established by law in 2001, headed by the Prime Minister. The Council aims to maintain an effective dialogue between the state and social parties to encourage compromise in industrial relations. It is composed of representatives from governmental bodies, labor and employer confederations, employee associations, and chambers of commerce and industry.

Turkey has signed many International Labor Organization (ILO) conventions protecting workers’ rights, including conventions on Freedom of Association and Protection of the Right to Organize; Rights to Organize and to Bargain Collectively; Abolition of Forced Labor; Minimum Wage; Occupational Health and Safety; Termination of Employment; and Elimination of the Worst Forms of Child Labor. Since 1980, Turkey has faced criticism by the ILO, particularly for shortcomings in enforcement of ILO Convention 87 (Convention Concerning Freedom of Association and Protection of the Right to Organize) and Convention 98 (Convention Concerning the Application of the Principles of the Right to Organize and to Bargain Collectively).

GOT maintains a number of restrictions on the right of association and the right to strike. Civil servants (defined broadly as all employees of central government ministries, including teachers) are allowed to form trade unions and to engage in limited collective negotiations, but are prohibited from striking. Certain vital public employees, such as military and police, cannot form unions. According to the new Unions Law, the list of sectors barred from striking has also been expanded to: life or property rescuing; funeral and mortuary work; production; refining/distillation; distribution of city water; electricity; natural gas and oil; petrochemical works, including with naphtha and natural gas; work places directly run by Defense Ministry, Gendarmerie, and Coast Guard; banking and public notaries; hospitals; firefighting; land, sea, railway service; and all urban public transportation. (Aviation is not included.)

The EU’s October 2012 Progress Report underscores that Turkey’s 2012 amended legislation on collective bargaining by civil servants “is not fully in line with the EU acquis and ILO conventions, especially with regard to the right to strike for public servants, the process of collective bargaining and dispute settlement, as well as restrictions on large categories of public servants to form and join trade unions.”

Foreign Trade Zones/Free Ports

Firms operating in Turkey's free zones have historically enjoyed many advantages. The zones are open to a wide range of activities, including manufacturing, storage, packaging, trading, banking, and insurance. Foreign products enter and leave the free zones without payment of customs or duties. Income generated in the zones is exempt from corporate and individual income taxation and from the value-added tax, but firms are required to make social security contributions for their employees. Additionally, standardization regulations in Turkey do not apply to the activities in the free zones, unless the products are imported into Turkey. Sales to the Turkish domestic market are allowed, with goods and revenues transported from the zones into Turkey subject to all relevant import regulations. There are no restrictions on foreign firm operating in the free zones.

Taxpayers who possessed an operating license as of February 6, 2004, do not have to pay income or corporate tax on their earnings in free zones for the duration of their license. Earnings based on sale of goods manufactured in free zones is exempt from income and corporate tax until the end of the year in which Turkey becomes a member of the European Union. Earnings secured in a free zone under corporate tax immunity and paid as dividends to real person shareholders in Turkey, or to real person or legal-entity shareholders abroad, are subject to 10% withholding tax. The tax immunity of the wage and salary income earned by persons employed in the zones by taxpayers possessing an operating license expired on December 31, 2008, except for producers that export more than 85% of their products. GOT passed a law in November 2008, according to which producers’ immunities from income and corporate tax and taxes on wage income earned in free zones were extended to coincide with Turkey’s membership in the European Union. More information can be found on the Ministry of Economy’s website: www.ekonomi.gov.tr.

Foreign Direct Investment (FDI) Statistics

According to Central Bank of Turkey data, FDI inflows to Turkey in 2007 of USD 22 billion decreased by 12% in 2008 to USD 19.5 billion and plummeted by 57% in 2009 to USD 8.4 billion, due largely to the negative impact of the global financial crisis on investment flows worldwide. In 2010, FDI inflows began to rebound - increasing by almost 11% over 2009 to USD 9.1 billion - and continued to grow in 2011 - reaching USD 16.04 billion. During the first eleven months of 2012, FDI reached USD 11.3 billion, of which USD 8.5 billion represented net foreign capital inflows, USD 2.3 billion represented real estate purchases by foreigners, and USD 446 million represented intra-company loans.

In the January-November 2012 period, EU countries accounted for 75% of FDI capital inflow to Turkey, as compared to 85.8% in 2011; Asian and Gulf countries accounted for 14.9%, as compared to 5.4% in 2011; U.S. companies accounted for 3.9%, as compared to 5.5% in 2011; European countries other than the EU accounted for 5.3%, as compared to 2.7% in 2011; Canada accounted for 0.2%, as compared to 0.15 % in 2011, and Central and South American and Caribbean countries accounted for 0.2%, as compared to 0.48% in 2011.

In the first eleven months of 2012, according to the Central Bank of Turkey, breakdown of FDI inflows into Turkey’s manufacturing industry were:

  • food products, beverages and tobacco 23.8%
  • electrical and optical equipment 1.8%
  • chemical products 5.2%
  • textiles and textile products 4.1%
  • transport equipment 1.2%
  • other 9.5%

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Source for both tables: Central Bank of Turkey

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