In an effort to simplify its foreign investment legislation and bring it into line with international standards, Turkey passed Law Number 4875 on Foreign Direct Investment in June 2003. The law eliminates the previous inequalities between foreign and local investors and simplifies the process for establishing a company in Turkey, demonstrating the country's dedication to promoting foreign investment.
One of the most important aspects of the new law is the creation of a notification-based system. Under the previous foreign investment legislation, the establishment of new companies, branches, liaison offices or the participation in existing companies by foreign investors was subject to the prior permission of the Foreign Capital General Directorate (FCGD). Although permission must still be obtained for liaison offices, the new law removes the requirement to obtain permission from the FCGD for all other investments, and foreign investors are now only required to submit information, merely for statistical purposes, about investments made.
The new law also removes the requirement whereby each foreign investor must bring €50,000 ($57,234) into Turkey. Under the previous legislation, each foreign investor, whether forming a new company or participating in an established company, was required to bring a minimum amount of €50,000 into Turkey. Under the new law, foreign investors are free to make foreign direct investments in Turkey without any extra requirements.
The main principle behind the law is the freedom to invest and the equal treatment of foreign investors. Although the national treatment principle existed under the previous legislation, it was limited to the post-establishment stage. The new law ensures that there is no difference in the treatment of foreign, as opposed to national, investors in the pre-establishment stage. This is evident in the removal of the prior permission requirement, thereby placing foreign and national investors on an equal footing. Also, while under the previous law foreign investors were limited to forming joint stock corporations, limited liability companies or branches, under the new law, foreign investors are now able to form partnerships or any other type of legal entity available to Turkish investors, without limitation.
The new law addresses the adjustments that have to be made for accession to the EU where foreign investors can freely invest in EU countries and are provided national treatment in their cross-border investments, and is also a sign that Turkey is taking foreign investment seriously.