A recent business transaction, regarding the establishment of a company in Turkey, has given us the opportunity for a brief overview about the possibilities for Italian companies wishing to produce goods or provide services in the Turkish market to set up a company.
In 2021, the Turkish economy grew by 11%: with an average annual growth rate of real Gross Domestic Product (GDP) of 5.1% in the period 2002-2021, Turkey ranks eleventh in the ranking of the largest world economies (overcoming Italy being at twelfth place – TurkStat, Eurostat, IMF, PPP).
As a natural hub between Europe, Asia and North Africa, many multinationals keep choosing to have their regional headquarters or manufacturing facilities located in this country (including, among the others, Nestle, Unilever, Ford, Mercedes, Toyota, BOSCH, Renault).
The sectors in which Turkey attract most foreign investments are those of the automotive industry (fourteenth in the world and fourth in Europe), Machinery & Equipment, Defense and Aerospace, Energy, Agri-food, Infrastructure, Finance (Turkstat, OSD, ODD 2020).
The reasons for choosing Turkey, besides the strategic geographic position, are represented by a series of incentives, among which, tax deductions in the manufacturing, labor law, R&D fields and the presence of free zones in the territory.
Turkey has also signed bilateral agreements against double taxation with numerous European and non-European countries (Agreement signed with Italy on December 1, 1993) which guarantee the exclusion of any form of tax discrimination against foreigners.
Based on Turkstat data, in 2020, Italy is confirmed as fifth Turkey supplier, after China, Germany, Russia and USA and as fifth customer after Germany, UK, USA and Iraq.
Corporate Company Models in Turkey
A foreign investor interested in undertaking a business activity in Turkey, can choose between two categories of corporate enterprises, regulated by the Turkish Commercial Code, which came into force on July 1, 2012.
On one hand, the so-called private partnerships, characterized by a joint and several liability regime of the partners and, on the other hand, commercial companies which are represented by joint stock companies (anonim şirket) and limited liability companies (limited şirket).
These last two kinds of companies are the most frequently used by foreign investors in Turkey, generally, for the limited liability of the shareholders to the investment made in the company.
The choice is obviously based upon the investor’s needs, but we will hereby highlight the main characteristics of these two types of corporate models, in order to provide useful elements to select the most suitable model for each specific case.
Anonim Şirket (A.S.)
As a general rule, the establishment of a joint stock company is not subject to any regulatory or government consent, except for some specific sectors (by way of example banking, energy, holding company, etc.) where investors are obliged to obtain the consent of the Department of Commerce and/or of the competent regulatory authority; moreover, in some specific sectors (banking and insurance, real estate, financial, brokerage, financial services), it is possible to operate only through the A. S. company type.
It is possible to establish an A.S. with a single shareholder as weel as with no limit to the number of shareholders (even if, according to the capital markets’ law, a company is considered public if it has more than 500 shareholders); however, shareholders can be either individuals or legal entities, without restriction of nationality.
The minimum share capital must not be less than 50,000 Turkish Lira; however, only 25% of the share capital shall be deposited in an account with a Turkish bank before the establishment of the company while the remaining 75% shall be paid within two years since the establishment; furthermore, it is not necessary to issue share certificates.
In A.S., the liability of the shareholders for the social obligations is limited to the subscribed share capital.
The management of an A.S. is entrusted to two distinctcorporate bodies, the Board of Directors and the General Assembly.
The Board can also be composed by single-member and is appointed, for the first time, with the Deed of Incorporation and, subsequently, elected by the shareholders’ meeting.
The executive officers do not necessarily have to be shareholders nor are there any restrictions on their nationality: however, if an executive officer is a foreign citizen, it is necessary to obtain a Turkish tax code.
An important difference compared to the Italian corporate model and to many other systems, is that in case of a shortfall in the corporate assets for tax and labor debts of the company, there is a patrimonial liability of the directors.
Two other important aspects must be highlighted: (i) the impossibility of inserting put and call, tag-along and drag along clauses in the A.S. articles of association (which must be included in specific shareholders’ agreements) and (ii) particular rights recognized to the minority shareholders (such as the right to request the Board of directors to call the general meeting and, if already called, to request an integration of the agenda, to postpone the date of the meeting to discuss the balance sheet, to legally request, in case of justified reasons, the liquidation of the company and to challenge the extinction of the liability of the founding shareholders, directors and auditors of the company), given that, according to the provisions of the Turkish Commercial Code, in closed companies, the qualification of minority shareholder only belongs to those who hold at least 10% of the share capital (5% if the company’s shares are listed on a stock exchange).
During the general meeting the shareholders shall supervise the activity and management of the company and, among other things, shall decide on any changes of the articles of association, on the Board of directors’ nomination, on the distribution of profits or on the sale of a significant portion of the company’s assets.
The number of partners may indifferently range from a minimum of 1 and a maximum of 50. The partners can be either individuals or legal entities, resident or non-resident in Turkey.
The minimum share capital shall not be less than 10,000 Turkish liras and does not require a prior payment of 25%: consequently, the prior opening of a specific Turkish account is not compulsory.
The liability of the shareholders is, generally, limited and proportional to the value of the [paid-in]/[subscribed] shares; however, in the event of non-payment of taxes or social contributions, the shareholders are jointly and severally liable towards the tax authorities, on the basis of the shares held, if the share capital is not enough to cover the debt.
The management of the company is entrusted to one or more managers, specifically elected by the General Assembly, at least one of whom must necessarily be a shareholder, but without resrictions relating to nationality or residence.
In the case of a company not wholly owned, it is important to bear in mind, prior to incorporation, that the articles of association of an AS shall not provide limitations on the transfer of shares and that, therefore, these provisions shall be included in a specific shareholders’ agreement between the shareholders, which therefore plays a very important role in the management of corporate relations in Turkey.
The time required for the establishment of the LS is certainly faster and cheaper but the personal liability of the members must be considered.
Finally, it is worthy to note the strong volatility of the Turkish lira. That’s why the Turkish counterparts, whether they are advisors or economic operators, prefer Euro-denominated payments.
Landolfi & Associati corporate lawyers are available for any further insight and information on internationalization strategies in Turkey and both in EU or extra EU countries, either of Civil Law or of Common Law, and on international commercial contracts in English, French and Spanish.
Edited by Daniela D’Orsi and Antonio Landolfi