Chinese Outbound Investment Guide 2018: Turkey
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Chinese Outbound Investment Guide 2018: Turkey

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Istanbul the capital of Turkey, eastern tourist city.

Ümit Hergüner, Senem Denktaş and Deniz Tuncel, Hergüner Bilgen Özeke Attorney Partnership


SECTION 1: General outlook

1.1 Please summarise the broad trends and patterns in Chinese investment into your jurisdiction, citing any recent specific examples.

China is among Turkey's top trade partners. Turkey's imports from China reached $23.4 billion in 2017. Turkish exports to China amounted to about $2.1 billion in the same period, resulting in substantial trade imbalance in favour of China. Policy makers of both countries seem to recognise the importance of Chinese direct investment into Turkey to work towards an equilibrium yielding greater benefits for both economies.

The project that seems to be stirring up most excitement is the One Belt One Road Initiative. The project route goes through Turkey, a natural gateway for Asian exports with its proximity to European markets, as did the historical Silk Road. In 2015, Cosco Pacific of China acquired majority shares in Kumport, the third largest port in Turkey with substantial container handling capacity to serve the industrialised area surrounding Istanbul. This $940 million acquisition was the largest Chinese direct investment into Turkey to date and complements the 21st Century Maritime Silk Route.

Chinese direct investment has also targeted sectors such as energy, mining, banking, internet and technology, agriculture and tourism. The China Development Bank has recently lent $600 million to Ziraat Bank of Turkey. Another sign of Chinese confidence in Turkey's development was ICBC's participation in the bond issuance for financing the Elazığ City Hospital PPP project, a landmark social infrastructure project that is part of Turkey's large pipeline of healthcare PPP projects.

1.2 How would you summarise your jurisdiction's attitude towards Chinese investment?

Turkey has taken important steps in recent decades to encourage foreign investors in a non-discriminatory manner. The Foreign Direct Investments Law paved the way by removing minimum investment requirements, and facilitating issuance of residence and work permit to foreign employees. Turkey favours Chinese investment, as China is Turkey's second trade partner globally (after Germany) and the largest source of imports to Turkey.

1.3 What is your outlook for Chinese investment into your jurisdiction over the next 12 months?

In 2016, Turkey ratified the Agreement Between the Government of the Republic of Turkey and the Government of the People's Republic of China for Cooperation in the Peaceful Uses of Nuclear Energy. Turkey is planning to commission its first nuclear power generation unit in Akkuyu by 2023, to be followed by nuclear power plants to be built in Sinop and a third plant planned to be built in Kırklareli province located in Northwestern Turkey. China is pronounced as a strong candidate to invest in the construction and operation of this pipeline of nuclear power plants in Turkey, which is planned to account for 15% of the total power generation capacity by 2030.

Significant Chinese investment in renewable energy, transportation infrastructure, mining, the automotive sector and logistics are also expected in the near future. Chinese investors may also benefit from Turkish businesses' resources and experience in markets such as the Middle East, Africa and the CIS as a co-investor with a strong track record.

SECTION 2: Investment approval

2.1 Explain the process and timings for foreign investment approval.

In principle, there is no approval requirement for foreign investors. Foreign investors and local Turkish investors are treated indiscriminately, apart from a few regulated sectors, where foreign control is restricted (further explained under 2.2 below).

There is a national security screening process applicable to the acquisition of real property by Turkish companies controlled by foreign shareholders in proximity to certain designated areas (i.e., military forbidden zone, military security zone and private security zone). The review must be concluded within 60 days following filing for the same.

2.2 Briefly explain the investment restrictions for any specially regulated/restricted sectors, including whether the government is entitled to any special rights in those sectors.

A limited number of regulated sectors are subject to certain foreign control or ownership restrictions. The most notable examples are domestic shipping, broadcasting and aviation industries.

The only instance of a golden share in a privatised entity is Turk Telekom, the telecoms company enjoying a natural monopoly over landline and broadband internet services due to its ownership of the infrastructure. The golden share grants the Turkish treasury negative control rights despite its minority shareholding stake. The government also has monopoly rights in certain other businesses, such as the exploration and production of boron.

2.3 Which authority oversees competition clearance?

The independent regulatory authority overseeing competition clearance is the Turkish Competition Authority (Rekabet Kurumu) (TCA). All decisions of the Competition Board, the decision making organ of TCA, are subject to judicial review by administrative tribunals if challenged.

2.4 Briefly explain the merger clearance process.

M&A transactions that cause a change in control and have a significant impact on the product or services markets are subject to the approval of the TCA, in the case that the relevant parties' turnovers exceed certain thresholds.

Transactions are to be notified to the TCA before the ultimate transfer of control, which is usually made after signing and prior to closing of the contemplated share or asset transfer.

After the merger clearance filing has been submitted, the TCA has 30 days (Phase I) to either approve the transaction, or to issue a letter of preliminary objection, in which the Competition Board will declare that the proposed transaction will be investigated further in a Phase II review. In Phase II, the case handlers are equipped with full investigative powers, including the possibility to make on-the-spot inspections. Phase II may last six months following the inception of the Phase II and may be extended for an additional period of up to six months.

Any supplementary information requested by the TCA suspends the 30 day period and the clock restarts upon submission of the requested information. In practice, this procedure to ask for additional information or documents is used quite often by the TCA, especially when the case handlers consider that the case does not necessarily need a Phase II review, but more time is needed to complete their evaluation. Where the TCA does not take any action concerning a transaction within 30 days after the submission of the complete notification, the proposed transaction is deemed to be approved by the TCA.

A case that does not raise significant competition concerns takes six to eight weeks to pass through the TCA's review.

2.5 Are there approval requirements when a foreign investor increases or exits its investments?

There are pre-closing regulatory approval requirements for change of shareholding structure in companies active in certain sectors such as banking, financial services, energy, oil and gas, mining, insurance, broadcasting, aviation, and telecommunications. However, these approval requirements are applicable to both foreign and local investors.

SECTION 3: Investment techniques

3.1 What are the most common legal entities and vehicles used for Chinese outbound investment in your jurisdiction?

Chinese investors, like most other foreign investors, can establish a joint stock corporation (JSC) or a limited liability partnership (LLP) or acquire shares in an existing JSC or LLP, as the liability of shareholders is limited to their capital contribution in these frequently used limited liability company forms. Legal representatives of both LLPs and JSCs (board members of JSCs and managers of LLPs) and shareholders of LLPs can be held liable for unpaid public debts (such as tax, social security premiums of employees or fines owed to public authorities) of the company that cannot be collected from the company. This potential shareholder exposure in the case of LLP, leads the majority of investors to opt for the JSC.

3.2 What are the key requirements for establishment and operation of these vehicles which are relevant to China outbound investment?

JSCs and LLPs can be established with a single partner or shareholder and with a minimum share capital of TRY50,000 ($12,500) or TRY10,000, respectively. For both types of companies, one-quarter of the share capital must be paid before registration and the remainder must be paid within 24 months.

The incorporation or establishment procedures for a JSC and an LLP are very similar and include the following steps:

  • Preparation of the company's articles of association;

  • Registration of the company with the relevant trade registry office;

  • Announcement of incorporation or establishment in the Turkish Trade Registry Gazette.

Once the articles of association of the company are signed and notarised and the company has obtained a potential tax number, it can establish a bank account, which is required for depositing one-quarter of the share capital of the company.

All companies must register with the trade registry of the city where the company will have its headquarters, by submitting its notarized articles of association along with other requisite documentation.

SECTION 4: Dispute resolution

4.1 Does your jurisdiction have a bilateral investment protection treaty with China or other jurisdictions commonly used for investing into the country?

A bilateral investment protection treaty (BIT) was signed between Turkey and China on November 13 1990 and has been in force since August 20 1994 to promote greater economic cooperation. Turkey has executed 94 BITs so far and 75 of them are in effect.

4.2 How efficient are local courts' enforcement and dispute resolution proceedings, and are there any procedural idiosyncrasies foreign investors must be aware of?

The new Civil Procedure Code (CPC) No. 6100 entered into force in 2011 with an agenda to increase the speed and overall efficiency of procedure.

In order to initiate legal proceedings in Turkey, foreign legal or natural persons have to provide a security at the court's discretion pursuant to Article 48 of the Code on Private International Law and Law of Civil Procedure (Law No. 5718). Turkey and People's Republic of China has executed a bilateral treaty named Agreement on Judicial Assistance in Civil, Commercial and Penal Matters on 27/09/1994 providing mutual exemption from security payment.

Recently, alternative dispute resolution procedures have gained significance in Turkey. Obligatory mediation was adopted for employment disputes, which makes it mandatory for the parties to try to settle through mediation before resorting to court proceedings.

4.3 Do local courts respect foreign judgments and are international arbitration awards enforceable?

The conditions of enforcement of a foreign judgment in Turkey are governed by the Law No. 5718, which provides that the competent Turkish court shall render enforcement without re-examination of the merits if it satisfies the following conditions:

  • the judgment must be final and binding without any possible recourse to appeal;

  • de facto or de jure reciprocity must exist between Turkey and the country rendering the judgment;

  • the subject matter of the judgment must not fall under the exclusive jurisdiction of Turkish courts such as real estate matters;

  • due process must be respected and the right to be heard should be respected;

  • the judgment must not be contrary to a pending case with same Parties and same subject matter or to a former foreign judgment that satisfies the same criteria which is enforceable in Turkey; and

  • the court decision shall not contradict Turkish public policy.

In terms of enforcing foreign arbitral awards, the New York Convention has precedence and is treated as part of the Turkish domestic legal system. Turkey ratified the Convention with two reservations, which means that the enforcement of foreign awards will be subject to the Convention if the award was rendered in another signatory state and the relevant dispute is defined as commercial under the Turkish Commercial Code. The People's Republic of China (PRC) also ratified the Convention on January 22 1987.

4.4 Are local judgments and arbitration awards from your jurisdiction generally enforceable in other jurisdictions?

Turkey has entered into BITs with many countries, including the PRC (September 8 2016), for the reciprocal recognition and enforcement of judgments on civil and commercial matters.

As stated above, Turkey is party to the New York Convention that enables recognition and enforcement of Turkish decisions or awards in other contracting parties' jurisdictions.

SECTION 5: Forex controls and local operations

5.1 What foreign currency or exchange restrictions should foreign investors be aware of?

Article 3 of the Foreign Direct Investment Law No. 4875 assures investors unrestricted repatriation of profits. Foreign investors are free to repatriate net profits, dividends, proceeds from the sale or liquidation of all or any part of an investment; royalties or fees from licence, management and similar agreements; or principal and interest payments of loans.

Decree No. 32 on the Protection of the Value of Turkish Currency recently restricted Turkish companies that do not have foreign exchange income from borrowing foreign currency loans. Several noteworthy exceptions apply to this restriction in the case of banks or financial institutions or in the financing of public-private partnership projects.


6.1 Are there tax structures and/or favourable intermediary tax jurisdictions that are particularly useful for foreign direct investment (FDI) into the country?

European jurisdictions with favourable taxation regimes, such as the Netherlands or Luxembourg are sometimes used as intermediate holding companies to acquire Turkish target companies. The motivation behind these structures are tax benefits available under the tax treaty between the respective countries and Turkey, such as the reduction of Turkish withholding tax rates on dividends and interest and exemption from local capital gains taxes realized on exit from investment in a Turkish target company.

6.2 What are the applicable rates of corporate tax and withholding tax on dividends?

The corporate income tax rate is 22%. The withholding tax on dividends is 15%.

6.3 Does the government have any FDI tax incentive schemes in place?

The following incentives are available within the Turkish Incentive System, subject to certain terms and conditions: VAT exemption; customs duty exemption; tax reduction; social security premium support; interest support; land allocation; VAT refund and income tax withholding support.

Investors should apply for an Investment Incentive Certificate to benefit from one of the incentive schemes that its investment qualifies for, e.g., the General Investment Incentives System, Large-Scale Investment Incentives System, Regional Investment Incentives System or Strategic Investment Incentive System. These schemes offer varying advantages and are offered based on the regions or sectors that the intended investment relates to.

6.4 Are there any reciprocal tax arrangements between your jurisdiction and Chin a? If so, how can they aid investors?

The Agreement Between The People's Republic of China and The Republic of Turkey for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion With Respect to Taxes on Income was signed on May 23 1995 between Turkey and China to address double taxation. The withholding tax rate for dividends shall not exceed 10% of gross dividends if the beneficial owner is a resident of the other contracting party. Effective withholding tax charged for interest shall not exceed 10% of the gross amount of interest or royalties.

About the author



Ümit Hergüner

Senior partner, Hergüner Bilgen Özeke Attorney Partnership

Istanbul, Turkey

T: +90 212 310 18 00

F: +90 212 310 18 99



Ümit Hergüner co-founded Hergüner Bilgen Özeke in 1989, where, as senior partner, he takes the lead on every major matter involving joint-ventures; private equity; acquisitions; restructuring; corporate governance; franchising & distributiorship; contract management; public tenders; procurement; government relations; government contracts; defence contracts; and public international law.

Hergüner is a member of the International Relations & European Union Center advisory board of the Union of Turkish Bar Associations (TBB) in Ankara and the Turkish Industrialists and Businessmen Association (TÜSİAD). He has served as the American Bar Association (ABA) and TBB Representative to the International Bar Association's (IBA) Working Group on UN Guidelines on Human Rights and Business. He is a board member of the International Law Institute (ILI) in Washington, DC, and a former President of the Istanbul chapter of ILI. He has also been heavily involved in the Corporate Governance Association of Turkey (TKYD), having served as its president, as well as serving on the TKYD advisory board.

Hergüner holds an undergraduate and a master's degree from Istanbul University School of Law, as well as LLM degrees from the American University Washington College of Law and the University of Virginia School of Law.

About the author



Senem Denktaş

Managing partner, Hergüner Bilgen Özeke Attorney Partnership

Istanbul, Turkey

T: +90 212 310 18 00

F: +90 212 310 18 99



Senem Denktaş has been with Hergüner Bilgen Özeke for 20 years, where she has significant experience in PPPs; concessions agreements and privatisation; joint-ventures; private equity; acquisitions; restructuring; intellectual property; data protection; and cyber-security. Denktaş also practices in the area of technology, media and telecommunications law, including the regulation and policy of telecommunications, media, the internet, and e-commerce.

Prior to joining the firm, Denktaş served as the international director of institutional relations for the European Law Students' Association (ELSA) in Brussels. Denktaş is a member of the Istanbul Bar Association and the European Law Students Association (ELSA).

Denktaş received her bachelor of laws from Istanbul University School of Law in 1996 and her master of laws in international business law from the London School of Economics and Political Science in 1998.

About the author



Deniz Tuncel

Partner, Hergüner Bilgen Özeke Attorney Partnership

Istanbul, Turkey

T: +90 212 310 18 00

F: +90 212 310 18 99



Deniz Tuncel has been with Hergüner Bilgen Özeke for nine years, where he is a partner in the corporate and M&A and energy practice groups, generally advising as transactional counsel for cross-border mergers and acquisitions and joint-ventures aimed at facilitating direct investment into Turkey. Having joined the firm in 2009, Tuncel was seconded to the Tokyo office of the prominent Japanese law firm of Mori Hamada & Matsumoto in 2014. His major work with Hergüner has included acquisitions of power generation plants, upstream and downstream oil & gas (e.g., E&P and distribution business) transactions, and advising cross-border natural gas pipeline projects.

Tuncel is a member of the Istanbul Bar Association and the Harvard Law School Alumni Association; he is a member of the supervisory board of the Istanbul chapter of the International Law Institute (ILI); and he is a member of the editorial board of the Turkish Commercial Law Review.

Tuncel is a graduate of Istanbul University, and after qualifying as a Turkish lawyer, he received his first LLM degree from İstanbul Bilgi University, and a second LLM degree from Harvard Law School. In addition to his native Turkish, he speaks fluent English and intermediate Japanese.

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