Foreign investment is considered a significant element of Turkey’s economy. With that in mind, the Turkish government constantly formulate improved strategies and actions to encourage foreign investors in order to ensure a resilient, competitive and dynamic economic infrastructure. This positive approach has also been reflected in the main piece of legislation governing foreign direct investments in Turkey, Law on Foreign Direct Investment (published in the Official Gazette dated June 17, 2003, and numbered 25141) (Law No. 4875) (the “FDI Law”). As per the FDI Law, unless stipulated by international agreements and other specific laws, foreign investors are free to make foreign direct investments in Turkey. Foreign investors shall be subject to equivalent treatment with domestic investors.

However, certain sectors such as media, civil aviation, and energy are regulated more conservatively in terms of foreign investments than others, which will be further detailed below.

It is safe to say that after the eighties, the effects of globalization became more considerable in Turkey. As a result, the liberalist approach to foreign direct investment became predominant in the Turkish economy. In the mid-90s, the Turkish government took serious steps to encourage foreign investors to participate in the Turkish market while maintaining its protective approach in favor of domestic investors by restricting certain activities based on national security concerns. That said, the Turkish economic regime may be briefly summarized as “liberal with a hint of economic protectionism and national security”. Nevertheless, the negative effects of the COVID-19 outbreak have also taken their toll on the liberalist economy approach as a result of the increased customs duties introduced with a view to protecting domestic investors suffering from the economic recession.

Pursuant to Article 2/a of the FDI Law, a foreign investor is determined as a real person who possesses foreign nationality and Turkish citizens resident abroad, and foreign legal entities established under the laws of foreign countries and international institutions who make foreign direct investments in Turkey. In this respect, “foreign investor” is defined in the broadest way including Turkish citizens resident abroad. Therefore, nationality is not an element for investors to be considered as a “foreign investor.”

As mentioned above, pursuant to Article 3/a of the FDI Law, unless stipulated by international agreements and other special laws, foreign investors are free to make foreign direct investments in Turkey. Foreign investors shall be subject to equivalent treatment with domestic investors. In line with this, there are no general limits on foreign ownership or control. However, there are certain restrictions regarding foreign investors in certain sectors such as media, civil aviation and the energy sector.

In terms of the media-broadcasting sector, the total direct foreign capital share in a media service provider cannot exceed 50 percent of the paid capital. Moreover, a foreign natural or legal person can only be a direct shareholder for two media service provider organizations. A similar shareholding threshold is also applicable for foreign investors in the aviation sector given that the authorized representatives of the companies are required to be Turkish citizens and the majority of the votes are required to be held by Turkish shareholders. There is also a further restriction for foreign real and legal persons who contemplate investing in real estate in Turkey. Thus, foreign real person investors can only acquire real estate corresponding to a maximum area of 10 percent of the relevant district. In any case, the total area of real estate a foreign natural person investor can acquire cannot exceed 30 hectares nationwide. In any case, the President of the Republic of Turkey has the authority to increase the amount that can be acquired nationwide per capita by up to two times. Furthermore, with respect to legal entities, commercial companies incorporated in a foreign country can only acquire real estate in Turkiye in accordance with provisions of the applicable laws. Other legal entities are forbidden to acquire real estate in Turkey. Although, they can acquire an easement or usufruct rights in certain circumstances.

Additionally, the regulatory authorities governing various sectors such as the energy sector foresees a merger control scheme by requiring a share transfer notification. In addition, in this sector-specific merger control filing, both foreign and local investments are subject to screening of the Competition Authority pursuant to the Law on Protection of Competition (published in the Official Gazette dated December 13, 1994, and numbered 22140) ("Law No. 4054"). Accordingly, both foreign and local investors shall file a mandatory merger control filing before the Competition Authority if (a) the aggregate Turkey turnover of the transaction parties exceeds TL 750 million and Turkey turnover of at least two transaction parties individually exceeds TL 250 million; or (b) (i) the Turkey turnover of the transferred assets or businesses in acquisitions exceeding TL 250 million and the worldwide turnover of at least one of the other parties to the transaction exceeds TL 3 billion, or (ii) the Turkiye turnover of any of the parties in mergers exceeding TL 250 million and the worldwide turnover of at least one of the other parties to the transaction exceeds TL 3 billion. These notifications are mandatory and administrative fines may arise if the relevant institution is not notified.

As stated above, in the sectors that are governed by the regulatory authorities, certain businesses and processes are subject to the notification of the Authority. For instance, in the energy sector, permission and approval by the  Energy Market Regulatory Authority ("EMRA") is mandatory for the share transfers of licensed companies. Furthermore, the companies, that are subject to the merger or acquisition process, shall notify before the commencement of the process to the Competition Authority. This notification made by the parties is mandatory for the merger control examined by the Authority. In cases where the parties do not notify the merger or acquisition, administrative fines may be imposed on the parties of the transaction. The transaction under examination by the aforementioned institutions may be declared illegitimate, and the business under review may have its licenses revoked.

In the scope of the energy sector, the share transfer permission shall be given by the EMRA before the transaction. Similarly, the above-stated notification requirement including sector-specific notifications and merger control filings before the Competition Authority shall be performed prior to the closing of the transaction. 

In order to mitigate the negative effects of the COVID-19 outbreak, the Turkish government adopted certain measures protecting the domestic investors by increasing customs duties, although these measures were not specifically directed at foreign investors. Therefore, the Turkish government continues to maintain its liberal approach to foreign investments.

As mentioned under "Please provide a short summary of the Foreign Investment Restrictions adopted by your jurisdiction?" the principle is the freedom of foreign investors to make foreign direct investments in Turkey. Furthermore, the General Directorate of Incentive Implementation and Foreign Investment, the governing agency for foreign direct investments, does not have the authority to review, delay, modify or block foreign investments and has no active role in such activities.

With reference to the requirements detailed under “What are the relevant thresholds?” foreign investors must fulfill the applicable threshold/notification obligations in order not to get rejected by the relevant regulatory authority. On the other hand, considering the current approach of the regulatory authorities stimulating foreign investments, they do not block foreign investment and they are highly active in gaining the attraction of foreign investors in Turkey even at the level of the Minister of the Ministry of Finance and the presidents of the Central Bank of Turkey.

We do not expect any regulatory development towards restriction on foreign investment. On the contrary, Turkish regulatory authorities continuously work to facilitate the procedures for foreign investments; such as company incorporation procedures and investment incentives. Additionally, the Turkish government continues to enhance the bilateral relationship with other countries with the aim of empowering foreign investors. In this respect, Turkey has signed more than 100 bilateral Investment Treaties and they are more in line with the agenda of the Turkish government.