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1 Andersen Tax | Doing Business in Turkey AndersenTax.tr 1

Doing Business

in Turkey

2 Andersen Tax | Doing Business in Turkey

Content

1. About Us 4

2. General Information 5

3. Concessions and Investments incentives 6

4. Ways of doing business 7

a. Overview 12b. Types of business organizations 12c. Setting up a business 15d. Corporate Compliance 16e. M&A 17

5. Tax 21

a. Overview 21b. Corporate income tax 21c. Personal income tax 23d. Non-resident 24e. Indirect Taxes 25f. Real Estate Taxes 28g. Inheritance Taxes 28h. M&A 28i. Transfer Pricing 29

6. Employment matters 33

a. Overview 33b. Employment contracts 33c. Salaries 33d. Working hours 34e. Functional and Geographical Mobility 34f. Termination of employment 34g. Temporary employment 35h. Social Security 35i. Workers representatives and trade unions 35


7. Anti-Trust 37

a. Overview 37b. Merger control 39

8. Real Estate 41

a. Overview 41b. Procedure to acquire a real estate property 41c. Types of property investments 43d. Tax related matters 44

9. Data protection and IP 47

a. Overview 47b. Intellectual property 48c. Industrial property 49d. Contracting and Licensing 49e. Data Protection and Privacy 50

10. Dispute resolution 53

a. Overview 53b. Civil litigation 54c. Arbitration 55

11. Restructuring 57

a. Overview 57b. Restructuring – Out of the Court and Formal Proceedings (Concordatum) 58c. Trading in Distressed Situations 58d. Creditor’s Rights 59

12. Public and Regulatory 61

a. Overview 61b. Public Administrations involved 61c. Permits and Authorizations 62


About Us1.

Andersen Global

Andersen Global® was established in 2013 as an association of legally separate, independent member firms, with a worldwide presence and comprised of professionals that share a common background and the same vision no matter the location where they are.

Our growth is a byproduct of the outstanding client service delivered by our people, the best professionals in the industry and our objective isn’t to be the biggest firm, it is to provide best-in-class client services in seamless fashion across the globe.

Our professionals are selected based on quality, like-mindedness, and commitment to client service and each and every one of the professionals that are a part of Andersen Global share our core values.

Andersen Global was established to create an enduring place – ONe FIrM where clients across the globe are afforded the best, most comprehensive tax and legal services provided by skilled staff with the highest standards.

Outstanding client service has and will continue to be our top priority.

Andersen Tax in Turkey

Andersen Tax in Turkey provides tax and legal consultancy services in a wide range of industries to many domestic and international clients including tax compliance, corporate and commercial law, Mergers & Acquisitions and corporate finance, domestic and international corporate restructuring, data protection and intellectual property law, social security and employment law, customs and foreign trade law, and litigation-enforcement and bankruptcy law.

Andersen Tax in Turkey also offers book keeping, accounting, tax certification, tax due diligence and tax dispute resolution services by its expert and experienced team. With five offices in Turkey, Andersen Tax is able to offer national and international clients the benefits of a global vision, but a focused attention, thanks to the various skills and experience accrued, without depriving them of services tailored to local needs.


General Information

Overview

Turkey is located on two continents, europe and Asia. The Asian side is called Anatolia and european side called is eastern Thrace. Bosphorus, Marmara Sea and the Dardanelles separate Anatolia and the eastern Thrace.

Surface area of Turkey is 814,578 square kilometres. Ninety-seven percent of the area is located on the Asian side. Neighbouring countries are Bulgaria and Greece in the west, Iraq and Syria in the south and Azerbaijan, Georgia and Iran in the east.

Turkey is surrounded by Black Sea, Marmara Sea, Aegean Sea and the Mediterranean. The country has 8,333 kilometres of coastline. The country is mountainous. The most well-know rivers are the euphrates and Tigris.

The population of Turkey is around 82 million and continues to increase at a steady rate around 1.29% per year. Thirty percent of the population is under 15 years. The population density is highest on the touristic and industrial areas of the Aegean, Marmara and the Mediterranean regions and lowest in the rural areas of the southeast Turkey.

Political System

Turkey is a republic in which power is divided between the legislature, executive and judiciary. under the 1982 Constitution, the Turkish parliament is the sole legislative body, exercising supreme power. executive power is exercised by the President of the republic

in accordance with the constitution and the law. The judiciary operates independently, on behalf of the State.

The President of the republic is the head of state and represents the republic of Turkey and the unity of the Turkish nation. The President is elected by popular vote among the Turkish parliament members who are over 40 years of age and have completed higher education, or among ordinary Turkish citizens who fulfill these requirements and are eligible to be deputies. The President’s term of office is five years and one can be elected for two terms at most. The President of the republic has duties and power related to the legislative, executive, and judicial branches, and is responsible for ensuring the implementation of the Constitution and the regular and harmonious functioning of the organs of state. Ministers are designated by the President of the republic among Turkish citizens who are eligible to be deputies and can be dismissed from their duties by the President.

Economic Atmosphere

Turkey is one of the largest economies in europe and has established open trade relations with foreign countries opening up its areas of foreign investments. The major industries in Turkey are based on agricultural production with products such as pomegranates, hazelnuts, quinces and watermelons, tea, tomatoes, eggplants, tobacco, apples, wheat and rye. The industries include textiles, food processing, automotive,

2.


electronics, tourism, mining of coal, chromate, copper and boron, steel, petroleum, construction, lumber, and paper.

In 2018, Turkey had a total export of uSD $168.2 billion and import of uSD $223.4 billion. The top exports include motor land vehicles, vehicle parts, iron and steel, machineries, electronic and mechanic devices, jewelry, and textiles. The top export partners include Germany 9.6%, uk 6.6%, Italy 5.7%, Iraq 5.0% and uSA 4.9%.

The top imports include machinery, chemicals, semi-finished goods, mineral fuel and petroleum, transport equipment, iron and steel. The top import partners are russia 9.9%, China 9.3%, Germany 9.1%, uS 5.5% and Italy 4.6%. The value of Turkey’s imports is higher than exports leading to a negative trade balance of about uSD $50 billion.


1. Research Development and Design Activities

The institutions which are authorized to establish r&D or Design Center can benefit from the following incentives for expenditures made for the realization of the r&D or design act, fees paid to the staff who works in r&D or Design activities, employer’s contribution of social security premiums and papers made out regarding r&D innovation or design activities.

2. Free Trade Zones (FTZ)

The companies which target to invest in FTZs should obtain a special license to be able to do business in the FTZs. The delivery of goods to free trade zones and performance of services in free trade zones, earnings derived from manufacturing activities in FTZs, wages of the workers employed by the taxpayers are subject to certain tax exemptions.

3. Technology Development Zones (TDZ)

TDZs are set up by the state in some locations which are suitable for the technology operations. Income derived from software, design and r&D activities

performed in the TDZ, salaries, social security premiums, delivery of goods and services which are produced exclusively in these zones are subject to support and tax exemptions.

4. Centre of Attraction Program

Turkey started Centre of Attraction Program to reduce regional development inequalities, boost the export and to minimize unemployment ratio by revitalizing investment in 23 cities. Within the scope of Centre of Attraction Program, private sector investments in manufacturing industry, call center and data center projects in these 23 cities are supported by the government.

Investors should apply to Centre of Attraction evaluation Committee to benefit from incentives of the program.

5. Investment Incentives

Supports provided by this new Investment Incentive Program have been available for all investments with an incentive certificate since 2012. Companies established in Turkey by real persons of foreign nationality and/or by legal persons according to the laws of foreign

3. Concessions and Investments Incentives


countries are eligible for benefiting from all supports within the scope of the Investment Incentives Schemes under equal conditions with domestic investors, as they are also classified as Turkish companies. Branches, without company status, founded in Turkey in accordance with the Turkish Commercial Law

by foreign companies based in other countries can also benefit from these supports.

Investment types and the relevant incentives are displayed at the below table.

Support Measures General Investment

Regional Investment

Priority Investment

Large Scale Investment

Strategic Investment

Project Based Investment

VAT Exemption

VAT Refund

Customs Duty Exemption

Tax Deduction

Social Security Premium Support (Employer’s Share)

Interest Support

Land Allocation

Social Security Premium Support (Employee’s Share)

Income Tax Withholding Support

Employee Wage Support

Energy Consumption Support

Investment Partnership


6. Export Incentives andService Sector IncentivesGiven by Ministry ofEconomy

6.1 Export Incentives• Branding and Turquality Incentives

• Improvement of InternationalCompetition Incentives

• education Incentives

• research and Market PenetrationIncentives

• Design Project Incentives

• Brand and Promotion Incentives

• Taxes and Funds Exemption Certificate

• Export of Agrıcultural ProductsIncentives

• employment Incentives

• Business environment Cost Support

• Informatıon Sector Support

6.2 Service Sector Incentives• Service export Incentives

• Service of Technical Adviser Incentives

7. Small and Medium-Sized Enterprises (SME)Incentives

SME are classified as following:

a. Micro-enterprises: The category of micro

enterprises is made up enterprises which

employ fewer than ten persons and which

have annual turnover or one of annual

financial balance sheet not exceeding TRY

1 million.

b. Small enterprises: The category of small

enterprises is made up enterprises which

employ fewer than 50 persons and which

have annual turnover or one of annual

financial balance sheet not exceeding TRY

8 million.

c. Medium enterprises: The category of

medium enterprises is made up enterprises

which employ fewer than two hundred and

fifty persons and which have annual

turnover or one of annual financial balance

sheet not exceeding forty million Turkish

Liras.

Type EmployeesRevenue

(Million TL)Net Sales (Million TL)

Micro <10 ≤1 ≤1

Small <50 ≤8 ≤8

Medium <250 ≤40 ≤40

7.1 Incentives ProgramsSupports provided by SME:

• SMe Development Support Programme

• Temeatik Project Support Programme

• emerging Companies Market SMeSupport Programme

• r&D and Innovation Support Programme

• Industrial Application SupportProgramme

• entrepreneurship Support Programme

• General Support Programme

• Cooperation Collaboration SupportProgramme

• SMe Development Support Programme


8. Tax Incentives

• Exemptıon Of Investment Deductıon

• Deductıon Of R&D

• Other Incentıves Regardıng Research & Development R&D Actıvıtıes

• Gaın Exemptıon On Educatıon And Instructıon Busınesses

• Exemptıon In Vehıcles, Oıl Searchıng And Incentıve Certıfıcated Investments

• Tax Incentıves In Industrıal Zones

• Tax Incentıves In Technology Developıng Zones

• Tax Incentıves Applıed In Free Zones

• Tax Incentıves Applıed In Organızed Industrıal Zones

• Tax, Duty And Fees Exemptıon In Provıdıng Credıts

• Tax Incentıves For Increasıng The Investment And employment

• Tax Incentıves For Cultural Investments And Enterprıses

• Deducted Corporate Tax

• Income Wıthholdıng Tax Incentıve Regardıng State Aıds

• Incentıves In 4490 Numbered Turkısh Internatıonal Shıp Regısters Law And The Law

• Makıng Amendments In 491 Numbered Decree Law

• Discounted excise Tax

• SMe Technological Product Investment Support Programme

• Technologic Product Promotion and Marketing Suppport Programme

• Strategic Product Support Programme

• Laboraty Services

• Internation Accelerator Support Programme

• Credit Interest Support Programme


Overview

According to Turkish Commercial Code (TCC) No. 6102, main company types are as follows:

Types of Business Organizations

Joint Stock CompanyA joint stock company is established with the participation of a minimum of 1 real or legal person as shareholders. The minimum capital requirement for the establishment of a joint stock company is Try 50,000.

The structuring and organization of joint stock companies are subject to the regulations set forth in the TCC. Joint stock companies having more than 500 shareholders, or who issue stocks and bonds that are quoted in the stock exchange, are subject to the provisions of the Capital Markets Law.

The capital of joint stock companies is divided into shares each having equal value. Share certificates having the nature of negotiable instruments can be issued for representing the capital of a joint stock company. Such

The most common types of companies in Turkey that could be formed as a legal entity are joint stock companies and limited companies that are both known as corporation.

Ways of doing business4.

Types of companies

Cooperative Partnership

Collective Company

Limited Liability

Company

Joint Stock Company

Comanded Company


share certificates may be bearer certificates or registered certificates. Unless a specific provision is incorporated in the articles of association prohibiting transfer of registered share certificates, such certificates are transferable without any restrictions. Meanwhile, bearer share certificates may be transferred without any restrictions, subject to the provisions of the TCC.

In joint stock companies, the Board of Directors has been granted the authority to represent and bind the company. Dividend distribution, appointment of board of directors and auditors, capital increases, and other important issues to be determined by the articles of association require General Assembly resolution.

Although, the investors are free to opt for the business structure they wish to pursue, some of the business are subject to compulsory

establishment types as per the relevant applicable laws and regulations. Some of the businesses that needs to be established as joint stock companies are listed as follows:

• Banks

• Insurance companies

• Financial leasing companies

• Factoring companies

• Holding companies

• Stock exchanges

• Venture capital investment companies

Limited Liability CompanyLimited liability companies may be formed of real persons or legal entities and consist of minimum of one, maximum of 50 shareholders. The minimum capital requirement is Try 10,000.


Limited liability companies have two organs for management and representation of the company—General Assembly and manager(s). It is possible to delegate the responsibility of management and representation of the company to managers.

Amendment of the articles of association, appointment and dismissal of directors and profit distribution require a shareholders’general assembly decision.

Shares held in a limited company can be transferred only before Notary Public (official procedure). Besides this, the approval of the general assembly is required for closing the share transfer.

Joint VenturesJoint ventures are defined as partnerships which are established by and between capital corporations, cooperatives, economical enterprises of associations and foundations, economical public institutions and partnership companies or real persons undertaking to achieve certain business and share the income arising from such business.

Liaison OfficeLiaison offices are a special type of office established to conduct only market research and feasibility studies and to search for investment opportunities in the Turkish market on behalf of their head offices. They are not allowed to be involved in any commercial activity.

The establishment permit can be granted by the Ministry of economy for up to a period

of three years and can be extended after expiration. However, the activity period of the Liaison Offices, which are established to engage in activities on market research and promotion of parent company products or services, cannot be extended and the Ministry of economy has the right to terminate the establishment permit of a liaison office whenever any kind of breach of legislation is ascertained. Furthermore, Liaison Offices are required to submit an annual report to the Ministry regarding their previous years’ activities.

Support Measures General Investment Regional Investment

JSC (A.Ş) LLC (LTD)

Legal StatusIndependent legal

entityIndependent legal

entity

Legal Status Full tax liability

(resident)Full tax liability

(resident)

Number of share-holders

Min: 1/Max: No limit Min: 1/Max: 50

Capital Require-ments

Minimum Total Capital: TRY 50,000 (Try 100,000 for

registered capital companies)

Minimum Total Capital: TRY 10,000

(minimum capital per shareholder: TRY 25)

Responsibility ofShareholders for tax andpublic liabilities

The shareholders of a JSC are not

liable for the unpaid public debts

The shareholders of a limited company are liable for unpaid

public debts of company personally

in proportion with their shareholding

percentage.

Corporate Income Tax Rate

22% 22%

Dividend Withholding Tax

15% (if profit is distributed)

15% (if profit is distributed)

Legal Reserves Must be provided Must be provided

Characteristics of the main company forms


BranchForeign companies may operate through a branch in Turkey. The branch office of a foreign entity does not constitute a separate legal entity. Accordingly, it can neither acquire any rights nor any liabilities.

Under Turkish law, a branch office acts and operates in the name and on behalf of the head office (headquarters) of the company which they are associated with. every branch shall use the trade name of its head office by indicating that it is a branch. Additions concerning the branch can be made to this trade name. Trade name of a branch of a foreign company shall indicate where its head office and branch are situated and the fact that it is a branch.

Setting up a Business

There is no restriction on setting up business for foreign investors. Authorization or permission is not required.

Capital injection is subject to registration otherwise it will be blocked by bank. If registration letter is not submitted to bank, blocked money is sent back to transferor party.

Money transfers from abroad are made through banks. In accordance with Article 3 of Law No. 5549 before the transactions are conducted, persons carrying out the transaction must be identified. Within the scope of Decree No. 32. regarding protection on the value of the Turkish Currency and Central Bank’s instructions, money transfers exceeding uSD $50,000 are reported to Central Bank. In case of a reasonable ground to suspect, suspicious transactions must be reported to Financial Crimes Investigation Board by banks or other obliged institutions.

Turkey is member of Financial Action Task Force (FATF) and recognises its recommendations.

There is no restriction on setting up business for foreign investors. Authorization or permission is not required.


Corporate Compliance

Legal requirementsFor incorporation of a company, there is no need to take public authorities approval unless these companies are engaged in finance, energy, capital market sector.

After incorporation, the companies are required to hold their general assembly annually in order to approve the financials and discharge the directors. For joint stock companies and holding companies, the Ministry of Finance representative attends certain general assemblies in order to observe and supervise whether the general assembly is held duly and the shareholders’ rights are preserved.

Accounting requirementsAs per the Turkish Tax Procedural Code, all resident companies and Turkish branches of foreign entities are required to keep statutory books (either by internal accountants or outsourcing) based on the uniform Chart of Accounts and in accordance with the accounting principles explained in Accounting System Application Communiqués (Turkish GAAP). Following books must be kept:

• Journal Ledger

• General Ledger

• Inventory Ledger

Legal books are subject to public notary certification and must be printed as hardcopies. The ledgers must be kept for five years as per Tax Procedural Law, for 10 years as per Turkish Commercial Code.

Taxpayers having gross sales revenue of Try 10 million and higher in 2014 and onwards are

obliged to implement e-invoice and e-ledger application.

Audit requirement under the TCC, companies are not obliged to have an internal auditor as a statutory organ.

Companies to be subject to independent audit are determined by the Council of Ministers.

The auditor shall be appointed by the general assembly whereas the group auditor shall be appointed by the general assembly of the parent company.

CriteriaCompanies must fulfil two of the following three criteria in two consecutive financial year, in order to be subject to independent audit:

• Net assets of the company is over Try 40 million

• Annual net selling revenue of the company is over Try 80 million

• The number of employees of the company is

over 200

ResultsIf a company subject to the independent audit ignore this liability; there will be some consequences. They are listed as follows:

If a company subject to the independent audit ignore this liability; there will be some consequences.


• Activity report of board of directors are regarded as unedited.

• Financial statements are declared null and void. In according to that, the taxes can be controversial and the risk of direct assessments can be occurred.

• General meetings can be regarded as unexecuted.

• The board of directors are held responsible

M&A

According to Turkish Commercial Code, M&A may be carried out in three ways;

MergerA company takes-over other company with all its debts and receivables and the other company is liquidated. Its legal existence is terminated.

Acquisitions A company buys all or part of assets of the other company. Legal existence of the company whose assets purchased continues. Share transfers are generally not subject to any consent of a public authority (other than those engaged in energy, finance sector). Foreign investors can acquire shares of companies without any restriction and also exit freely with respect to the provisions within the SPA and SHA documents.

ConsolidationLegal existence of two or more companies is terminated and a new company is formed.

The M&A process is very similar with common practice. Thus, preliminary agreements like Letter of Intention, Memorandum of understanding and Non-Disclosure Agreements are concluded in advance.

Then legal and tax due diligence phase takes place. The M&A Agreements of JSCs can either be signed before Notary or not. However, for LLCs share transfer process, the Notary approval is a must. To highlight, not all the details in the SPA and SHAs can be written in the AoA of the company; there are certain restrictions that are not allowed to be written therein (i.e. restrictions in transfer, call&put options, tag-drag along rights etc)

Dissolution And Liquidation

DissolutionCompanies shall be dissolved at the end of the term stipulated under the articles of association unless the company has implicitly become a company for undetermined term by continuing its activities despite the fact that the term of the company expired. This disposition aimed to fill a legal gap under the TCC since the status of the companies which continued their activities even their term expired had not been regulated under the TCC. The Turkish Court of Cassation opined that the company which continued its activities despite the fact that its term expired would become a company for undetermined term and the articles of association of the company should be amended accordingly.

realization of the purpose of the company or the fact that its realization becomes impossible is also accepted as ground for dissolution.

The M&A Agreements of JSCs can either be signed before Notary or not.


Shareholders representing one-tenth of the capital or one-twentieth of the capital in publicly held joint stock companies may request the dissolution of the company before the commercial court of first instance located at the registered office of the company.

The dissolutions will be registered and announced by the Board of Directors to the trade registry in case the termination resulted from reasons other than bankruptcy or court decision. The company which is terminated shall be subject to liquidation proceedings; however, the legal exceptions are reserved.

Liquidation The liquidation shall be initiated by the shareholders (general assembly) and conducted by the Board of Directors as liquidation agent (liquidator) unless other individuals are nominated within articles of association or

by a General Assembly resolution.

The liquidators shall be registered to trade registry and announced. The liquidator shall be nominated by the court in case the liquidation takes place upon a court decision. One of the liquidators having the authority to represent the company must be a Turkish citizen and reside in Turkey.

The authorities of the liquidators cannot be transferred; however, a representative authority may be granted to another liquidator or a third person.

First inventory and balance sheet within the scope of the liquidation proceedings shall be immediately prepared by the liquidators once they take office.

The creditors whose addresses are known shall be invited by registered letter. Other creditors shall be invited by an announcement to be made three times in three weeks in the Trade registry Gazette and the web site of the company as stipulated under the articles of association, within these invitations, the creditors will be informed about dissolution of the company and they will be asked to notify their receivables.

The authorities of the liquidators cannot be transferred; however, a representative authority may be granted to another liquidator or a third person.


The remainder profit of the company in liquidation following payment of the debts and return of the share value to the shareholders, shall be distributed to the shareholders in proportion with the paid-up capital share and their privileges, unless otherwise stipulated under the articles of association. In case a privilege for liquidation share is stipulated, the dispositions of articles of association shall apply.

Following the end of the liquidation, the books and the documents including those related to liquidation shall be kept pursuant to principles of keeping the documents and the term that the documents shall be kept (5-10 years). Following the end of the liquidation, the trade name is deleted by trade registry upon the request of the liquidator.

The disputes between shareholders and liquidators shall be resolved under simple procedure for judgment. The court shall grant its decision within 30 days. Thus, the disputes shall be resolved quickly and the decision will be available within a determined term.

Directors’ duties and liabilitiesThe company is managed and represented by the BoD. The BoD members are expected to fulfill certain duties and responsibilities against shareholders, creditors and the company. As per Article 336/5 of the TCC, Board Members are obliged to perform their duties and obligations with almost diligence in accordance with the laws and AoA to protect the interest of the company as part of principal of good faith. (Simply, they should behave as a prudent merchant while representing the company). They are also responsible from the financial condition of the company, therefore they are required to follow-up and track the financials and make future projections about the financial condition of the company continuously. If the BoD members violate their duty by their fault, they can be held liable against the shareholders and especially creditors.


Tax

Overview

From a foreign investor point of view, the most important taxes (with their Turkish names) are stated below:

• Corporate Tax (Kurumlar Vergisi)

• Individual Income Tax (Gelir Vergisi)

• Value Added Tax (Katma Değer Vergisi)

• Withholding Tax (Stopaj)

• Stamp Tax (Damga Vergisi)

• Special Consumption Tax (Özel Tüketim Vergisi)

• Specal Communication Tax (Özel İletişim Vergisi)

• Customs Tax (Gümrük Vergisi)

• Bank and Insurance Transactions Tax (Banka ve Sigorta Muameleleri Vergisi)

Corporate income tax

Companies, entitites, foreign permanent establishments (i.e. ranches) and associations are subject to pay advance corporate income tax based on their quarterly profits at a rate of 22%.

Corporate taxpayers are classified as fully responsible or limited taxpayers. Fully responsible taxpayers are liable for tax on their worldwide income. Limited taxpayers are subject to tax only on profit derived in Turkey

The rate of 22% for fully responsible taxpayers is applied on the tax base declared by annual tax returns and taxable corporate income is determined by taking into consideration all business-related expenses, income, tax losses and deductions in accordance with the CITC.

5.

Corporate taxpayers are classified as fully responsible or limited taxpayers.


Tax returns consist of two types; annual corporate income tax returns and quarterly advance corporate income tax returns (on a calendar year basis unless permission to the contrary is specifically obtained from the Ministry of Finance).

The last date of submission of the corporate income tax return is the 25th of the fourth month, following the end of the fiscal year end. The advance tax return should be submitted at the latest by the 14th of the second month, following the quarter period. The payment of corporate income tax must be paid by 30 April of the year of filing. Paid advance corporate tax is offset against the final corporate tax calculated in the annual tax return.

The following earnings of fully responsible taxpayers are exempted from corporate tax:

• Dividend received from other Turkish companies

• Dividend received from foreign subsidiaries or branches (subject to certain conditions)

• Capital gains derived by holding companies from sale of shares in foreign subsidiaries (subject to certain conditions)

• earnings of the following funds and

companies established in Turkey:

- Portfolio management earnings of investment funds/companies

- real estate investment funds/companies

- Venture capital funds/companies

- Pension funds

- Housing financing funds and asset financing funds

- 75% of capital gains from the alienation of shares (subject to certain conditions),

- 50% of capital gains from the immovable properties (subject to certain conditions),

- Allowances for banks and institutions indebted to banks or the Saving Deposit Insurance Fund (SDIF),

- earnings derived from foreign subsidiary offices,

- earnings derived from construction, maintenance, installation and technical services performed abroad,

- Patronage dividends provided for cooperatives,

- earnings derived from the management of training facilities and

rehabilitation centers

The Ministry of Finance is authorized to determine details for the above exemptions.

Besides that; the tax-loss is carried forward and offset against the income of subsequent years for five years. The loss corresponding to each year must be specified in the corporate tax return in order to carry the tax-loss. There is no carryback loss in Turkey.


Personal income tax

The term individuals means natural person. In the application of income tax, partnerships are not deemed to be separate entities and each partner is taxed individually on his/her share of profit.

Tax is charged on the net income derived from the following seven sources;

• Income from commercial and businessactivities

• Income from agriculture

• Income from independent professionalservices

• Wages and salaries

• Income from immovable assets and rights(including rents)

• Income from capital investments (includingdividends and interest)

• Other income (including capital gains and

occasional earnings)

According to the Turkish tax legislation, there are two main types of tax statutes regulated on the basis of residence: resident taxpayers and non-resident taxpayers. resident taxpayers (those who reside in Turkey, and those who spend more than a continuous period of six months in Turkey within a calendar year) are taxed on their earnings and incomes derived in and outside Turkey, whereas non-residents (those who do not reside in Turkey and those who do not spend more than a continuous period of six months in Turkey within a calendar year) are taxed only on their earnings and incomes derived in Turkey.

Individual income tax rate varies from 15% to 35%. Individual income tax rates applicable for 2018 are as follows:

Also, unlimited liable taxpayers (i.e. commer-cial, agricultural and independent, profession-al service income earners) have to prepare balance sheets and income statements for 3-month periods and pay an advance tax atthe rate of the first tax bracket (15%). Indi-vidual income taxpayers that generate theirincome from commercial, agricultural or in-dependent professional activities may deducttheir operational expenses.

The below listed expenditures can be deducted under certain conditions:

• Personal insurance premiums

• Contributions to labor unions

• education and health expenditures

• Donations

In the several laws, there are a lot of income tax exemptions depending on the source of income and the status of the individual. They are listed below:

• Half of dividends received by individualTurkish residents from Turkish residentcompanies is exempted from personalincome tax.

• Wages of employees working for a non-resident employer are exempted frompersonal income tax under the followingconditions:

Income Scales (TRY) (Employment Income)

Rate (%)

Income Scales (TRY)

(Non-Employment Income)

Rate (%)

Legal up to 14,800 15 up to 14,800 15

14,801 - 34,000 20 14,801-34,000 20

34,001-120,000 27 34,001 - 80,000 27

120,001 and over 35 80,001 and over 35


i. The wage must be paid by a non-resident

employer (individual or entity),

ii. The wage must be paid from the employer’s

earnings earned out of Turkey and paid in

foreign currencies,

iii. The wage must not be booked as an ex-

pense in Turkey.

• Of the rental income obtained from the real estate rented out as a residence, Try 4,400 is exempted from personal income tax in 2018.

Non-resident

Non-residents are only liable to pay tax on their income derived from the incomes in Turkey (limited liability).

For tax purposes, it is especially important to determine in what circumstances income is deemed to be derived in Turkey. The provisions of Article 7 of the PIT Law regulate this issue. In the following circumstances, the income is assumed to be derived in Turkey:

Business Profit: A person must have a permanent establishment or permanent representative in Turkey and income must result from business carried out in this permanent establishment or through such representatives.

Agricultural Income: Agricultural activities yielding income must take place in Turkey.

Wages and Salaries:

• Services must be rendered or accounted forin Turkey

• Fees, allocations, dividends and as suchpaid to the chairmen, directors, auditors andliquidators of the establishment situated in

Turkey must be accounted for in Turkey

Income from Independent Personal Services: Independent personal services must be performed or accounted for in Turkey.

Income from Immovable Property:

• Immovable must be in Turkey

• rights considered as immovable must be

used or accounted for in Turkey

Income from Capital Investment (interest, dividends, etc.): Investment of the capital must be made in Turkey.

Other Income and Earnings: The activities or transactions generating for other income, specified in the PIT Law, must be performed or accounted for in Turkey.

The term accounted for used above to clarify tax liability of the non-residents means that a payment is to be made in Turkey, or if the payment is made abroad, it is to be recorded in the books in Turkey.

Non-resident foreign corporations use special tax return for reporting certain profit and earnings. Special tax return must be given within 15 days from the obtainment of earnings and profit. (This procedure is called Special Tax return.)


Indirect taxes

VATAll goods and services within the scope of commercial, industrial, agricultural and independent professional activities, also in addition to these importation of goods and services are subject to VAT in Turkey. Furthermore, if a service which is provided by non-resident service providers is benefited in Turkey, it is also subject to VAT.

The following actions performed in Turkey shall be subject to value-added tax:

1. Deliveries and services provided within

the framework of commercial, indus-

trial, agricultural activities and self-em-

ployment activities.

2. Importation of goods and services of

all kinds.

3. Deliveries and services arising from

other activities:

General Value Added Tax Rate is 18% in Turkey but there are also different VAT implementations such as 1% and 8%. Basic foods, books, education services, textile deliveries, medical products are subject to reduced VAT rate of 8%.

According to the VAT Law, there is a so-called reverse charge VAT mechanism, which requires the calculation of VAT by resident companies over payments to abroad. Under this mechanism, VAT is calculated and paid to the related tax office by the Turkish company or customers on behalf of the non-resident company (foreign company). On the other hand, the local company treats this VAT as input VAT and offsets it in the same month.

In principle, the VAT that is not recovered by regular offset mechanism is not refunded. However, in some transactions


which are exempt from VAT, the legislation authorizes the tax authority to refund incurred VAT to relevant taxpayers. Notable cases requiring VAT refund are as follows:

• export exemption

• Sea, air and railway vehicles exemption

• Petroleum exploration exemption

• Investment incentive certificate exemption

• Deliveries of the goods subject to reducedVAT rates

There is no permission to group VAT under Turkish VAT law. Legal entities must register for VAT individually.

Full Exemptions

Transactions are exempt from VAT but the taxpayer has the right to offset or request a refund of previously incurred VAT. Following exemptions are within this scope:

• exportation exemption

• exemption for sea, air and railway vehicles

• exemption for services provided to sea andair transportation vehicles

• exemption for petroleum explorations

• exploring, processing, enrichment and

refining activities for precious metals

• exemption for delivery of machine andequipment referred in Investment IncentiveCertificates

• exemption for construction, modernizationand extensions of seaports and airports

• exemption for national security expenses

• exemption for transit and internationaltransportation

• exemption for delivery of diesel totruck, towing vehicles, semitrailers withrefrigeration system

• Diplomatic exemptions

Partial Exemptions

In such transactions, input VAT cannot be deducted or reclaimed but can only be recorded as a cost or an expense.

• exemption for transitions, transferring,transformation, division transactions ofenterprises

• exemption for participation shares and salesof immovables of corporations

• exemption for delivery of scraps and waste

• services rendered in Free Trade Zones

• banking and insurance transactions

In the following cases, VAT may not be credited from the VAT computed on taxable transactions:

• VAT on purchases of cars (which should berecorded as an expense cost)

• Missing and stolen stocks (excluding thoselost due to compelling reason declared byMinistry of Finance)

• VAT on non-deductible expenses

• Input VAT on exempt deliveries listed in

Article 17 of the VAT Law

Transactions are exempt from VAT but the taxpayer has the right to offset or request a refund of previously incurred VAT.


VAT 1

Deliveries of goods and services which are performed or benefitted in Turkey are subject to VAT at a rate of 1%, 8%, 18%.

The input VAT and output VAT is declared with VAT 1 returns.

VAT 2/ Reverse charge VAT mechanism

In cases where taxpayers have no residence, workplace, registered head office and business center in Turkey and in other cases where it is deemed necessary, the Ministry of Finance may hold those parties to the transactions responsible for the payment of the VAT in order to secure the due tax.

Reverse charge VAT is declared with VAT 2 returns.

Ba – Bs forms

These forms are for information purposes related to the sales invoices (BS forms) and purchase invoices (BA forms). The invoices which exceed Try 5,000 in value are declared via these forms.

Timing

VAT 1 and VAT 2 is declared to the tax authority on monthly basis until the 24th day of the following month; the payment date is 26th of the following month.

BA and BS forms are declared to the tax authority on monthly basis until the last day of the following month

Customs TaxThe main tax collected at customs is the import duty. Custom Duty Rates are defined by republic of Turkey under secretariat of Customs. There is more than one list for each category of products. The import duty differs according to the classification of the goods and the country of origin.

There is a customs union agreement between Turkey and eu. Accordingly, goods which are previously in free circulation in eu can be imported to Turkey with no Customs Duty (except for certain agricultural products and certain -steel/coal product). Turkey is applying general system of preferences (GST) and applies World Trade Organization, World Customs Organization and OeCD principles in many aspects. Customs duties are determined based on HS Codes.

Custom Duty rates are defined by Republic of Turkey under secretariat of Customs.


Real Estate Taxes

Buildings and land owned in Turkey may also be subject to real estate tax at different rates. The rates are indicated below;

• For the residences used as domicile :0.1%

• For the other buildings: 0.2%

• Lands allocated for construction: 0.3%

• Other lands: 0.1%

Property tax is payable annually, in two installments, in May and November.

In addition to that, a supplementary surcharge for the protection of cultural assets is levied at an amount of 10% over the accrued property tax amount of the real estate. The surcharge can be paid at the same time as the property tax.

Inheritance and gift taxes

It is regulated under Inheritance and Gift Tax Law No. 7338. Turkish citizens are subject to inheritance and gift tax on worldwide assets received. resident foreigners are subject to inheritance and gift tax on worldwide assets received from Turkish citizens and on assets located in Turkey received from resident foreigners or nonresidents. Nonresident foreigners are subject to inheritance and gift tax on assets located only in Turkey. Items acquired as gift or through inheritance are subject to a progressive tax rate ranging from 10% to 30% and 1% to 10%, respectively, of the item’s appraised value. Tax paid in a foreign country on inherited property is deducted from the taxable value of the asset.

Inheritance and Gift Tax is payable in biannual installments over a period of three years.

M&A

For M&A transactions, the capital gains taxation provisions in Personal Income Tax and Corporate Income Tax Law apply. Besides, Double Taxation Treaties also play important role in share transfers made by foreign investors.

under Article 5/1-e of CTL ,75% of the net income derived from the sale of participation shares and the pre-emptive rights which are being held by full liable corporations in their assets for at least two full years are exempt from corporate tax. This exemption is applied in the period the sale is made, and the part (75%) of income derived from such sale shall be held in a special fund account of liabilities until the end of the fifth year following the sale. Furthermore, the sale price shall be paid until the end of the second calendar year following the year that the sale is made.

under Article 80 of the Income Tax Law, the gain generated from disposal of shares/stocks, securities, capital market instruments, certain rights and real estate are regarded as capital gains and will be taxed based on the increase in the amount/value of the share between acquisition and disposition. In calculating capital gains taxes, the purchase price (cost) of the Shares, [exchange difference gains] and any consultancy fees may be deductible from the ultimate sale price of the Shares. In the event that the sale price (after taking into consideration applicable deductions) is less than the purchase price (cost) of the share, then no tax will arise. On the other hand, as per same article, the gains


For M&A transactions, the capital gains taxation provisions in Personal Income Tax and Corporate Income Tax Law apply.

derived from the disposal of share certificates (the shares bound to certificates) of full liable tax payer entities held for more than two years are subject to exemption. Accordingly, if a real person holds his/her share certificate more than two years, the real person can benefit from the referred exemption under Article 80. In that respect, there will be no taxation due to the sale of share certificate.

Transfer Pricing

As per Article 13 of Corporate Income Tax Law, TP rules require the prices applied in transactions with related parties to be determined in line with the arm’s length principle. In case the parties determine the prices contrary to the arm’s length principle, then the profits arising from these

transactions shall be considered to have been wholly or partially distributed in a disguised manner.

According to General Communiqué regarding Transfer Pricing Serial No.1, all the transactions shall be documented to indicate that arm’s length principle is taken into consideration in every stage of transfer pricing.

In light of above explanations, according to TP rules, and accordingly arm’s length principle, the related party transactions should be provided under conditions same as they are provided from non-related parties. Otherwise, the exceeding portion will be regarded as profit distribution and subject to dividend withholding tax.


Other taxes

Withholding TaxThe entities are responsible for withholding income tax or corporate tax over the payments made to real persons or non-resident persons.

• Salary payments made to the employees

• Payments made to self-employed persons(such as lawyers)

• Lease/rent payments made to real persons

• Payments made to non-resident persons/entities (* the provisions of double taxation

treaties will apply)

Timing

Withholding tax is declared to the tax authority on monthly basis until the 24th day of the following month; the payment date is 26th of the following month.

Stamp Tax(ST)The documents signed in Turkey or signed abroad and brought to Turkey or signed and kept abroad but the terms of which are applicable in Turkey are subject to stamp tax under the STL. Stamp tax shall be calculated over the highest monetary value indicated in the relevant documents.

The general stamp tax rate of 0.948% applies to the execution of documents (Table 1, STL). However, different stamp tax rates may be applicable depending on the type of the agreement. The amount of tax calculated for an agreement may not exceed TRY 2,642,810 for the fiscal year of 2019; without prejudice to the limits set out in Schedule No. (1) of STL.

Timing

Stamp tax is declared to the tax authority on monthly basis until the 23rd day of the following month; the payment date is 26th of the following month.

Special Consumption Tax (SCT)The special consumption tax is a tax applied to manufacturing, importation and first acquisition of a range of goods. SCT is applied one time only, unlike VAT.

The goods are determined by tariff codes generating from Turkish Customs Tariff Nomenclature (TCTN)

The following four product groups are subject to SCT at different tax amounts or rates.

• petroleum products, natural gas, lubricatingoil

• automobiles, motorcycles, planes, othervehicles

• tobacco and tobacco products, alcoholicbeverages

• luxury products such as cellular phones,cosmetics, white goods like refrigerators,washing machines, electronic appliances likerecorders, television

Special Communication TaxAll types of mobile communication services are subject to Special Communication Tax. The rate of taxation differs between 5% and 25% according to the nature of service. The taxpayer is the person supplying the communication services.

The Company will pay Special Communication Tax stated in the telephone, internet and other communication service invoices in Turkey.


Banking and Insurance Transaction Tax (BITT)The income (either in cash or accrual basis) generated by banks (including private financial corporations) and insurance companies operating in Turkey from any type of transactions are subject to BITT.

Interests and commissions gained by the banks operating in Turkey are subject to BITT at a rate of 5%.

Foreign exchange sale transactions by banks operating in Turkey are also subject to BITT at a rate of 0.1% whilst foreign exchange purchases by banks operating in Turkey are not.

Interests and commissions gained by the banks operating in Turkey are subject to BITT at a rate of 5%.


Employment matters

Overview

Labor Law No. 4857 regulates the working conditions and work-related rights and obligations of employers and employees working under an employment contract. Labor law is a branch of law, which regulates the relationship between employee and employer in all aspects within the scope of the relevant legislation (laws, regulations, etc.).

Employment contracts

The Labour Law regulates relations between employees and employers. An employment contract may be for an indefinite period or for a limited period. However, employment contracts which are signed for a limited time, are considered exceptions as in labour law legislation some special conditions are required for this type of contract (such as a definite duration, a definite Project, the nature of the work, etc.)

Salaries

The wage is the amount of money to be paid in cash by an employer or by a third party to employee in return for work performed by him. employee can work at a time or piece or job rate or on a percentage basis. The most common type of wage is the time wage system that is a certain amount of money is determined for a given time. The wage rates are fixed for an hour, a day, week or a month.

On the other hand, wage may be paid on a monthly basis at the latest by the provisions of the Labor Law. The time of remuneration may be reduced down to one week by employment contract or by collective agreement. Burden of proof that the wage has been paid is on the employer. Also, as a rule the wage shall be paid in Turkish money (legal tender) at the workplace or shall be deposited into a specially opened bank account.

6.

The Labour Law regulates relations between employees and employers.


The employer may pay the premium to reward the work that the employee has done successfully, either individually or in a group. Moreover, in addition to the actual wage of the employee, a special wage can be given as bonuses. When the premium or bonus application made to the employer becomes a workplace practices, it provides the employee the right to demand. The statutory limitation period for all wages is estimated to be five years.

Working hours

The maximum working hour for an employee is 45 hours in a week and a total of 11 hours in one day. even though overtime work is possible, there must be a consent of the employee. Overtime work cannot exceed 270 hours in a year. An employee who overworks gets his salary 50% more than of his ordinary working salary.

Functional and Geographical Mobility

Functional mobility refers to a job change within the same professional group, between different professional groups or professional categories, or a change of duties not agreed or included in the previous points.

Geographical mobility is the transfer or posting of the employee to another workplace, in a different city, which involves a change of residence by the employee. Transfers must be economic, technical, organizational, or production-related reasons.

Any change by the employer due to functional or geographical mobility in working conditions based on the employment contract, on the rules of work, which are annexed to the contract, and on similar sources, or workplace practices, may be made only after a written notice is served by him to the employee. Changes that are not in conformity with this procedure and not accepted by the employee in written form within six working days shall not bind the employee. If the employee does not accept the offer for change within this period, the employer may terminate the employment contract by respecting the term of notice, provided that he indicates in written form that the proposed change is based on a valid reason or there is another valid reason for termination.

Termination of employment (individual and collectives)

Contracts with a limited time terminate automatically at the end of the decided term. For terminating an employment contract of indefinite term, two forms have been arranged in Labour Law: rightful termination and termination for valid reason. Both types have their own procedure and own conclusions.

On the other hand, for the employment contract of indefinite term, a notice period must be given to the other party while terminating the contract for valid reason. The employer may immediately terminate the employment contract by paying the salary corresponding to the notice period in state of giving notice period.


Notice periods are given according to the length of the employment contract and varies from two weeks to eight weeks as follows;

• Two weeks from the date of notification for employment of 0-6 months,

• Four weeks from the date of notification for employment of 6 months-1.5 years,

• Six weeks from the date of notification for employment of 1.5 - 3 years,

• Eight weeks from the date of notification for

employment of exceeding 3 years.

International Mobility

The new Law on the International Labour Force No. 6735 regulates issues involving the employment of foreigners. Foreigners must obtain work permits before performing dependent or independent work in Turkey, unless otherwise specified in treaties. Work permit applicants must have an employment agreement with the Turkish employer. Before working in Turkey, foreigners must obtain a work permit from the Ministry of Labor and Social Security.

There are three types:

• Definite-term work permits

• Indefinite-term work permits

• Independent work permits

Social Security

Individuals deemed to be insurance holders and individuals not deemed to be insurance holders are listed in the Social Insurance and universal Health Law No. 5510. In accordance with this law, workplace is the place where the insurance holders carry out their works together with the material and immaterial elements. Also, real and legal persons or institutions and organizations not having a

legal personality, which employ individuals deemed to be insurance holders are defined as employers.

Social security law covers a wide range of areas, including work accident and occupational disease and maternity insurances, invalidity, old age and survivors insurance, unemployment insurance, etc.

Workers representatives and trade unions

The employee representative is the employee who is authorized to represent the employees in participation in work related to occupational health and safety, monitoring the work, asking for action, making proposals and so on. under the Occupational Health and Safety Law No. 6331, all workplaces, including public institutions, are obliged to appoint employee representatives. In this respect, at least one and up to six employee representatives are selected according to the number of employees in a workplace.

Trade union refers to the organizations having legal personality to carry out activities in a branch of activity established by the association of at least seven employees or employers in order to protect and promote their common economic and social rights and interests in labour relations.

Trade unions are entitled to enter into collective bargaining and negotiate the terms and conditions of collective employment contracts. Trade unions are entitled to act on behalf of the employees and represent them. They can take collective actions in order to enforce the terms and conditions of collective bargaining agreements, file actions and represent the employees or their successors during the proceedings for protecting their rights arisen from the employment relationship, legislation and/or custom.


Anti-Trust

Overview (including EU Law)

The legal framework and case law developed within competition law practice in Turkey, predominantly follows eu antitrust regime that is enforced by the eu Commission. The eu antitrust rules are set out at Article 101 and 102 of the Treaty on the Functioning of the european union (TFeu). Article 101 prohibits any agreement or concerted practice – formal or informal, written or unwritten – that is made between two or more companies that may affect trade between Member States and that of the object or effect of distorting competition. Article 102 on the other hand, makes it illegal for dominant companies to abuse their market power. A company that infringed antitrust rules may receive a fine. The fines are imposed as per the gravity and duration of the infringement. The fining rules and policy of the Commission that are set out in a guideline basically aims punishment and deterrence.

As a quick way of restoring competition in the market, Commission has developed two procedures: Commitment and Settlement. under the procedure of commitment, the Commission impose a set of legally binding commitments on the company and close the case without an infringement decision. Settlement procedure on the other hand, is designed for cartel cases where the settlement can be proposed by Comission or the parties. Settlement requires the parties to acknowledge their participation in the cartel and in return receive an up to 10% reduction in the fines and a faster procedure. The Commission has also a leniency procedure, where lenients in cartel cases can be eligible up the full immunity from fines.

The decisions of eu Commission can be appealed to the eu General Court for an amendment or annulment. Judgments of the eu General Court can also be appealed before the european Court of Justice (eCJ) as the last resort.

7.

As a quick way of restoring competition in the market, Commission has developed two procedures: Commitment and Settlement.


The primary legislation governing competition law in Turkey is the Law No. 4054 on the Protection of Competition which entered into force in 1994. Turkish Competition Authority (TCA) and the Competition Board, the decision-making body, was constituted three years after the enactment of the law, in early 1997.

Two basic antitrust rules are set out in the Article 4 and Article 6 of the Law No. 4054. Article 4 (similar to Article 101 of TFeu) prohibits agreements and concerted practices between companies that distort or restrict competition in the market for goods or services, by object or effect. Article 4 also designs the concerted practice regime. Accourdingly, for the cases where the existence of an agreement cannot be proved, a similarity of price changes in the market can constitute a presumption of concerted practice and result in a fine. Article 6 (similar to Article 101 of TFeu) on the other hand prohibits the abuse of dominant position in the market for good and services. Both articles includes several exemplary cases for infringements.

Article 5 of the Law No. 4054, provides the possibility of exemption from the enforcement of Article 4, where the infringement brings economic/technical improvement and consumer benefit and also has little anti-competitive effect in the related market. Notification for exemption is not mandatory and parties may reach a conclusion by self-assessment. But self-assessment do not resolve the power of TCA to initiate a case.

The procedural rules for conducting antitrust cases are set forth in the Articles 44-55 of the Law No. 4054. The procedure is quasi judiciary where the parties are granted broad defense rights. Leniency regulation as a secondary legislation is in force and eligible lenients in cartel cases can receive up to full immunity in cartel cases. The parties that could not manage to receive full immunity can receive significant reductions in the fine by percentage that are set in the leniency regulation. Settlement in cartel cases are not possible as the Law does not still contain a provision for that. As for commitment on the other hand, the provision in the Article 9 of the Law No. 4054 provide a limited basis that is developed by case law.

The decisions of eu Commission can be appealed to the eu General Court for an amendment or annulment.


Fining policy of the TCA are set in the Regulation on Fines to Apply in Cases of Agreements, Concerted Practices and Decisions Limiting Competition, and Abuse of Dominant Position where fining pattern of eu Commission is internalized. Likewise the gravity and duration of infringements provides basis for the fining.

TCA decisions are subject to judicial review of the Administrative Courts (AC), as the court of first instance. AC decisions can be appealed before Council of State.

Merger control

eu Merger control regime is set out in the eu Merger regulation (Council regulation (eC) No 139/2004). The regulation provides legal basis for Commission to prohibit mergers (and acquisitons) that significantly reduce competition in the related market. All the mergers that reach turnover thresholds are to be notified to Commission for approval.

The legal basis for the merger control in Turkey is Article 7 of the Law No. 4054 as the primary legislation and Communique Concerning the Mergers and Acquisitions Calling for the Authorization of the Competition Board, No:2010/4 as the secondary legislation. Accordingly, mergers which may result in significant lessening of competition in a market for goods or services, are prohibited by TCA.

Notification of all mergers that reach the thresholds of the Communique, is mandatory. Current threshold rules for mandatory notification are as follows:

“(a) Total turnovers of the transaction parties in Turkey exceed one hundred million TL, and turnovers of at least two of the transaction

parties in Turkey each exceed thirty million TL, or

(b) The asset or activity subject to acquisition in acquisition transactions, and at least one of the parties of the transaction in merger transactions have a turnover in Turkey exceeding thirty million TL and the other party of the transactions has a global turnover exceeding five hundred million TL.”

TCA may impose a conditional approval instead of prohibition, under the circumstances where either the parties or the Board propose a set of commitments that are capable of eliminating competitive concerns of the Board.

Merger decisions are also subject to judicial review of the Administrative Courts as the first instance and Council of State as the last resort.


Real Estate

Overview

In legal sense, there are two basic classes of property which are (i)real estate (real property or immoveable property) (ii) moveableproperty (chattel). In general terms, the variation between thetwo is that former has to do with a benefit in the land itselfor something firmly affixed thereto whereas latter is readilymoveable from one place to another. In more specific terms, realestate may be defined as the land itself, including everythingattached to it or growing from earth whether through the courseof nature or anything resulting from human construction with allthat lies beneath the surface and all the air space above it.

under Turkish Civil Code (TCC) Article 704, the scope of ownersip of a real estate is clearly defined. It reads:

“Ownership of a real estate includes land, substantive and imprescriptable rights that are registered in The Book of Real Estate Registers on seperate page(s), and detached sections registered in Flat Ownership Registers”

Legal branch dealing with procedures and claims regarding real estate is defined as Real Estate Law. Real Estate Law consists of several subjects such as different interests on real estate ownership, acquiring, conveyancing, mortgaging, registration, tenancy, easements and other encumbrances and eminent domain, survey law and planning. A more broad definition would also include subjects such as environmental law and tax law.

Procedure to acquire a real estate property

i. Acquisition of the ownership of a real estate

Differentiations regarding acquisition of the ownership of a real estate (acquisition) may be observeable in some ways2. In the event that a real or legal person transfers the ownership (title) of a real estate to an other real or legal person, the transaction may be qualified as transfer of title (ownership).

8.

Legal branch dealing with procedures and claims regarding real estate is defined as Real estate Law.


To bring the transfer to a succesful conclusion, registration to The Book of real estate registers (registry) is mandatory. However, only registration to the registry may not be sufficient. Registration, which is an administrative transaction, may only ensure the transfer if the other legal constitutent elements are present. Qreason for the acquirement shall be valid and binding for a succesful transfer. Within TCC, valid reasons for the acquirement of a real estate are not counted as numerus clausus (in a limited way). Nevertheless it is obvious that a valid reason for the acquirement of a real estate may be classified as a legal transaction that is valid and binding or a legal situation stipulated by any code. Mostly, it is seen that sales or preliminary sales agreements are used as a valid reason for the acquirement.

The Turkish government has made significant amendments in the field of Turkish Real Estate Law regarding the conditions that must be met by foreign individuals wishing to acquisite a real estate in Turkey by approving the law No. 6302 on 5 May, 2012 which lifts some restrictions on the ownership of foreigners. Also the law provided some facilities in the conditions to be met by foreign individuals wishing to acquisite real estate in Turkey, with restrictions imposed on citizens of some neighboring countries of Turkey. With this law, Turkish government has given the right of property ownership to citizens of 183 countries without being subject to reciprocity3. Nevetheless the law itself may not be understood as it gives an unlimited right to foreigners who are willing to acquire a real estate in Turkey. The law imposes some specific restrictions on acquisitons of foreigners’ real estate acquisitions.Also,

according to Land registry Code, companies established in foreign countries, may acquire real estate in Turkey only pursuant to particular legal provisions.

ii. Legal Procedures

As it is noted above, a valid reason for the acquirement of a real estate is mostly seen as sales or preliminary sales agreements. According to the Turkish Code of Obligations (TCO) for the real estate sale or prelimiary sale agreement to be valid, the sales contract shall be done in form of public deed. Preliminary sale agreements and agreements conferring a right of pre-emption purchase or repurchase in relation to a real estate are valid only if done in form of public deed. Mentioned agreements shall be in writing.

Herein after the signing of the sales agreement, registration to the registry shall be completed in due form. For a succeeded acquisition, procedures regarding transfer shall be completed in a proper way. In this regard, title deed of the real estate, passports and photographs of vendor and buyer (and circular of signature provided that one of mentioned is a legal person), power of attorney (if needed), real estate value statement issued by municipality and Turkish catastrophe insurance policy (for detached sections) shall be provided to the Land Registry Office.

Lastly it should be stated that a due diligence subjecting the real estate which will be acquired shall be done. This preliminary process should not be skipped or given abbreviated attention because it can be invaluable to establishing the informal connections necessary to obtain the


information that will ultimately be sought. It can also point to some questions or investigative paths which might otherwise seem unfruitful, but which uniquely shed light on this transaction.4

Types of Property Investments

Real estate ownership is a large and profitable part of economy. The real estate management industry is becoming increasingly competitive as developers and others enter the property management business. This industry consolidation is still accelerating and real estate investments are profitable vehicles for investors.

real estate investing involves the purchase, ownership, management, rental and/or sale of real estate for profit. Basically, the most common and traditional way to make profit on real estate is rental or sale of a property. Besides, there are other ways to properly invest on real estates as real estate Investment Fund (reIF) and real estate Investment Trust (reIT).

reIF is an asset which does not have a legal entity, established within the fund rules by portfolio management companies and real estate portfolio management companies

which hold an operating license received from the Capital Markets Board (CMB or Board) in order to manage the portfolios comprised of assets and transactions specified in the Communique on reIF’s issued by CMB, with the money collected from qualified investors in return for fund units, in accordance with fiduciary ownership principles and pursuant to the provisions of the Code of Capital Markets (CCM).

reIF’s are allowed to engage only in management of portfolios comprised of the following assets and transactions; real estates and property rights, private and public debt instruments, and shares of joint-stock companies established in Turkey, including those in the privatization process, foreign private and public debt instruments and joint-stock company shares tradable within the framework of provisions of Decree No. 32 on Protection of the Value of Turkish Currency put into force by the Decree of the Council of Ministers, dated 7 August, 1989 and numbered 89/14391, time deposit and participation account, investment fund units, repo and reverse repo transactions, warrants and certificates, lease certificates and real estate certificates, settlement and Custody Bank Money transactions, cash collaterals


and premiums of derivative transactions, specially designed foreign investment insturuments and loan participation notes deemed appropriate by the Board, other investment instruments deemed appropriate by the Board.

On the other hand, reIT is a type of capital market institution which is founded in order to issue its shares for the purpose of operating and managing a portfolio composed of real estates, real estate projects, real estate-based rights, infrastructural investments and services, capital market instruments, Clearing Bank money market and reverse repurchase transactions, time deposits or participation accounts in Turkish Lira, demand and time deposits or special current and participation accounts in foreign currency, subsidiaries and affiliates, and other assets, rights and instruments to be determined by the Board, in accordance with the procedures and principles set forth in Communique on reIT’s, and which may engage in other activities permitted in mentioned Communiqué, within the limits of activities delineated under CCM. Investors may buy shares of a reIT in the stock exchange. In return they are paid dividends at the end of the years. They may also sell their shares in the exchange and receive capital gains anytime they want.

Tax Related Matters

The buildings and lands in Turkey are subject to property tax. The tax base for the property tax is the tax value of the building/land according to the Property Tax Code No. 1319. Property tax is paid by the owner of the real estate, the owner of the usufruct right if any, or the person who acts as the owner of the building. Those who are in common

possession of a real estate shall be entitled to pay property tax in proportion of their shares. The owners are jointly and severally liable for the payment.

Property taxes are calculated annually by related municipality based on the tax values of land and buildings at rates varying from 0.2% to 0.4%. These rates are increased by 100% within the frontiers of metropolitan municipality. Property tax liability begins following budget year in the case of acquiring property/change in situation of property or end of exemption. It is compulsory that a property tax declaration is submitted to the related municipality where the building and land is located in case there is a reason for modification of tax value. Property tax is paid annually to local municipalities in two equal installments; the first is paid at any time during the period from March through May, and the second in November. Payment can be made at banks, by check, online and in cash.


Footnotes1. It shall be noted that nothing may be deemed as a real estate in the

meaning of TCC even though it is defined as an immoveable (or real

estate) in other codes. For instance, ships are deemed as real estate in

the meaning of Bankruptcy and enforcement Law however they are not

accepted as a real estate in meanings of TCC.

2. Doctrinally, there are four ways to acquire real estate: original

acquisition; transfer of title; by registration; and without registration. For

more information please see; OĞUZMAN / SELİÇİ-OKTAY / ÖZDEMİR,

Eşya Hukuku (Law of Property), Filiz Kitabevi (Filiz Bookshop), Istanbul.

3. Which means individuals from foreign countries are able to buy a

property in Turkey, although Turkish citizens are not allowed to own the

property in those countries.

4. With a successful due diligence many substantial disputes may be

solved before the acquisition such as discharge of a mortgage.


Data protection and IP

Overview

Intellectual Property, Industrial Property, Contracting and Licensing

Turkish Intellectual Property Law is mainly regulated by the Industrial Property Law No. 6769 and Law on Intellectual and Artistic Works No. 5846 together with the international agreements to which Turkey is a party. IP regulations and rights in Turkey are generally harmonized and outlines a relatively similar framework with european implementations.

Intellectual property (IP) rights which are recognized in Turkey are; industrial property rights relating to inventions (patents and utility models), trademarks, industrial designs, geographical indications, traditional specialty guaranteed, copyright and trade secrets. In Turkey IP rights are divided into two categories as unregistered and registered IP rights. unregistered IP rights arise automatically with the creation. In this direction unregistered IP rights do not require to fulfill any procedures while registered IP rights should be applied before the relevant authority to be protected. registered intellectual property rights can be protected by lex specialis. Besides, protection of intellectual property is also possible by general provisions of Turkish Law such as unfair competition.

Registered IP Rights: Patents/utility models, trademarks, industrial designs, geographical indications

Unregistered IP Rights: Copyright, unregistered design right

registration and renewal operations of patents, utility models, trademarks, industrial designs and geographical indications are under the authorization of Turkish Patent and Trademark Office (TurkPATeNT).

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IP regulations and rights in Turkey are generally harmonized and outlines a relatively similar framework with european implementations.


Data Protection and PrivacyAlong with the Personal Data Protection Law (PDP Law) entered into force on 7th of April 2016, the topic of personal data protection was regulated by law and systematized under Turkish domestic law. After the PDP Law entered into force, towards the by-laws issued and decisions, guides published by Personal Data Protection Board; the applicability of the PDP Law has been embodied to a great extent.

Intellectual Property

Intellectual property refers to the primary and secondary incorporeal and tangible rights that can be possessed on economically valuable works.

Intellectual property is an idea product belonging to a person or organization. The intellectual property owner may choose to share it freely or to control its use in certain ways.

CopyrightCopyright is a category of intellectual property protection that protects artistic works such as written, dramatic and musical works. Copyright is an abstract intellectual property right. What is protected by copyright is the non-material goods created by human thought. Copyright has a separate and independent asset and legal value from the substance it is embodied and it provides intellectual property protection limited with the territory with the birth of the work without the need for any application. Nevertheless, it can be registered or time stamped in Turkey by Ministry of Culture, Notary Public or Companies that offers electronic sealing or stamping services.

TrademarksTrade mark is a sign that distinguishes registered goods and services from third parties. Trademark can include personal names, designs, and letters or numerals. Trademarks may also include the shape of the goods or their packaging. In Turkey, TurkPATeNT also accepts sounds, motion graphics and color trademark applications. The most important factor in trademark registration is the distinctiveness of the mark that is the subject of the brand. The name, sign or form that is subject to discriminatory trademark registration is the criterion of being clearly different from other goods and services. Anyone carrying on business as residing in Turkey, can apply for trademark registration. In addition, natural or legal persons from countries which are party to the Paris Convention and resident in Turkey, also has the right to the trademark application.

Industrial DesignsThe appearance of a product can be protected entirely or partially as an industrial design with design registration. related legislation states that the appearance is generated by various features that the human senses perceived by the various elements or properties such as line, colors, texture, shape, form and materials.

Trade SecretsTrade secrets are defined as any non-disclosed information, which creates a competitive advantage to real or legal persons who owns the commercial information. Any information which has a commercial value can be protected as a trade secret. In order to an information can be protected as a trade secret, this information should not be disclosed and necessary measures should be taken in order to keep it as a secret. Trade


secrets can be protected under the general provisions of Turkish Law such as unfair competition.

Geographical Indications and Traditional Specialty GuaranteedIt is possible under the Turkish law to register signs indicating the origin of a product. These signs may be sought for products which have a specific quality, reputation or characteristic attributable to that place, area, region or country. Food, agriculture, mining, handicraft products and industrial products resulting from the combination of natural and human elements which comply with the requirements of the relevant legislation, can benefit from geographical indication or traditional product name protection by registry.

Industrial Property

PatentsA patent gives the intellectual property right owner the right to take legal action against anyone who makes, uses, sells or imports the invention without permission for 20 years. For an invention can be protected with patent, it must be novel. Which means not anticipated by the prior art, it must involve an inventive step and it must be capable of industrial application.

Utility ModelsIf an invention is considered to be novel and capable of industrial application, it may be protected by a utility model by filing a national application directly with TURKPATENT or filing a PCT or european Patent application and designate Turkey. The term of protection for a utility model is 10 years from the filing date.

Both patents and utility models require the invention to be new and capable of industrial application. An invention is considered new,

if it is not anticipated by the prior art. The requirements for acquiring a utility model are less stringent than for patents. To be eligible for a patent the invention must involve an inventive step, which means it should not be obvious to a person skilled in the art. Inventive step criterion is not necessary for utility models.

Contracting and Licensing

According to the Law on Intellectual and Artistic Works, the rights of the author are divided into two main headings as incorporeal and tangible rights. The tangible rights are the economic rights and powers of the author. These are; the right to reproduce, the right to reproduce, the right to propagate, the right to represent and the transmission rights to the public. The authority to use these rights is directly and exclusively owned by the author.

The issue of transfer of tangible rights is regulated in Article 48 of the Law on Intellectual and Artistic Works. Accordingly, the person transferring the tangible rights may limit the use of these rights in terms of time, place and content. The transfer can be made reciprocally or gratuitously. Tangible rights may be fully transferred, or partially transferred, and even each of these rights may be transferred to different persons. If the product has not yet occurred, a commitment can be made for the tangible rights on the work that will occur later. However, the work cannot be subject to saving process before it is completed.

The M&A Agreements of JSCs can either be signed before Notary or not.


for a patent the invention must involve an inventive step, which means it should not be obvious to a person skilled in the art. Inventive step criterion is not necessary for utility models.

Software AgreementThe software manufacturing contract, also known in the literature as a computer program manufacturing contract, is a contract to produce the software identified between the parties. However, the testing, installation, delivery of training and documentation of the software are also covered by this agreement. unless otherwise agreed by the parties, all work done to produce a software and make it ready for use constitutes the subject of the software production contract.

Patent AgreementPatent license agreement is a two-way contract. The licensor grants the license to the licensee and the licensee is obliged to pay a certain amount in return. Patent license agreements may be established in various types, such as exclusive license agreement, non-exclusive license agreement, compulsory license agreement, simple license agreement. However, the rules of competition law must also be complied with when issuing license

agreements. Otherwise, anti-competitive license agreements will be subject to anti-competitive sanctions.

Data Protection and Privacy

After Personal Data Protection Law no. 6698 (PDP Law) came in force at 7 April, 2016; obligations established in regard to real persons and legal entities which will be considered as data controller or data processor, principals and regulations set up in regard to personal data processing required a rapid compliance period in the system.

Following Secondary Legislation have been entered into force after the date of PDP Law: regulation on Processing and Protecting of the Privacy of Personal Health Data; regulation on Data Controller registry;

regulation on Anonymization, Deletion and Destruction of the Personal Data; regulation on Working Principles of the Turkish Data Protection Board; Communique on Information Notice on Personal Data Processing; Communique on Application Procedures and Principles to the Data Controller; resolutions of the Turkish Data Protection Board (Board’s presidents).


Certain Definitions Play Key Roles in Understanding and Applying the PDP LawPersonal Data: Any information relating to an identified or identifiable living individual. Therefore, any information that can be used to identify an individual constitutes personal data, including phone numbers, CV, social security numbers, voice records, (active) IP addresses, customer names and addresses, or a database of customer email addresses.

Special Categories of Personal Data: Includes data which reveals racial or ethnic origins, political opinions, religious or philosophical beliefs, appearance, union, association or foundation memberships, health, sexual life, criminal records, safety precautions, genetic or biometric data.

Data Controller: A real person or entity who determines the intended purposes and manner in which any personal data is (or will be) processed. Liable for establishing and managing the data processing system.

Data Processor: An employee real person or entity which processes data on the Data Controller’s behalf, based on authority granted by the data controller.

Certain Responsibilities Introduced by the PDP Law for Data Controllers/Processors

• Obligation to inform the data subjects and receive explicit consent before processing personal data or special categories of personal data and data transfer (exemptions under the PDP Law are reserved).

• Obligation to ensure data security and comply with technical and administrative security measures and ensure the security of personal data.

• Obligation to register with the data controller registry.

• Obligation to fulfill the rights of data subjects stipulated under the Article 11 of the PDP Law.

• For foreign companies, appointment of a data protection representative having similar

duties with the data protection officer.

Serious Consequences for Non-Compli-ance with the PDP Lawunlawful processing personal or special categories of personal data is subject to administrative fine, legal responsibility and punishment under the Turkish Penal Code. Punishment for certain breaches of the Data Protection Law includes personal criminal liability ranging from six months to four years imprisonment and/or administrative fine between fifteen thousand and one million Turkish Liras.

As a consequence; • Data Protection Law shall be considered as

the branch itself which has a dynamic nature that needs to be constantly updated and assessed on individual circumstances.

• Institutional culture shall be established within the Company and practice of culture shall be developed.

• It shall be realized that explicit consent is not necessary in every condition therefore, a realistic analysis shall be carried out under the framework of business process.

• Only required personal data shall be processed in accordance with data minimization principle.

• Data subject’s explicit consent should not be seen as a prior condition for the performance

of contract.

• Obligation to inform and explicit consent forms shall be drafted pursuant to

aforementioned matters.


Dispute resolution

Overview

Access to justice, in its widest sense of the effective resolution of disputes whether through court-based litigation or alternative dispute resolution processes, is an essential aspect of ensuring the realisation of the fundamental rights recognised and given protection by Constitution and international treaties.

Sometimes, a decision from a High Court judge who has heard and considered evidence and legal arguments from both sides after an adversarial hearing is required in order to secure the justice. This is why the courts will always remain central and indispensible to our civil justice system. In other cases, of course, justice might mean an apology and change of administrative process in response to a particular problem. It is clear that in that sense there are circumstances in which Alternative Dispute resolution (ADr) may provide resolutions and individualised justice for parties which a court cannot. Indeed, the court-based process cannot be expected to provide an optimal solution to all conflicts in society.

The ability to defend and vindicate private rights is a cornerstone of a civilised society. It is central both to the promotion of the welfare of citizens as well as to the economic development of the State. While the courts will always retain a central place in the civil justice system, it is increasingly recognised throughout the world that, in many instances, there may be alternative and perhaps more appropriate methods of resolving civil disputes in a manner which may be more cost and time efficient for parties. Merely because a dispute is defined as justiciable does not necessarily mean that the courts are the only option to seek redress.

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The ability to defend and vindicate private rights is a cornerstone of a civilised society.


Civil Litigation

Turkish legal system is established on a civil law basis that is governed by Code of Civil Procedure (CCP). Also, there are numerous procedural rules governing the civil litigation procedure stated under specific codes such as Turkish Commercial Code, employment Code, etc.

Pursuant to Turkish civil litigation system, there are three different degrees where a case may be heard and/or reviewed. First-degree courts are categorised into two categories as generally competent court (Civil Court of First Instance) and specially competent courts (Civil Court of Peace, Commercial Court of First Instance, Cadastral Court, Labour Court, etc.) and this differantiation derives from subject matter of cases.

As a general rule, litigation costs and expenses shall be paid by claimant before filing a law suit. At the end of the proceedings, litigation costs and attorney fee determined by Court shall be borne by the defective party. A party who may not afford litigation expenses is able to demand legal aid from the Court. Pursuant to Turkish system, attorneys and clients may freely settle fee arrangements only with the exception that settled fee may not be lower than the minimum amount ruled by official tariff. Should there be no contractual, legal or de facto reciprocity with the country of the plaintiff and Turkey, foreign plaintiffs shall provide a security for the litigation costs and possible damages of the defendants pursuant to CCP and relevant codes.

It shall be noted that Turkish civil litigation procedure consists of two main types of

procedures in general such as written and simple procedure. under both procedures, whereafter filing a law suit before Turkish civil courts, we see four main stages in order to complete the case. First, is exchange of submissions where parties to the case provide their claims and defences. Subsequently preliminary proceedings, examination phase and oral hearings are followed.

There are three main types of court decisions available under the Civil Procedure Law in order to provide substantive remedies to the parties. Decisions for performance includes all kinds of monetary claims and claims for specific performance, declaratory decisions defines whether a legal transaction or status is validly binding or not and constitutive decisions that establishes or changes a right or a legal status. Further, if so requested and upon the ruling of the court, a default interest (to be calculated at a statutory rate) may be payable on monetary claims.

Also, claimants are allowed to apply for an interim remedy from the Court under CCP. In general, in order to request an interim injunction, the claimant shall prove that the acquirement of a right shall be considerably difficult or impossible because of delay.

According to the CCP, judgment of a civil court is enforced by the competent execution offices after the execution proceedings are initiated in accordance with the provisions of the execution and Bankruptcy Code.

5. There are two different types of attorney fees in Turkey, one is determined by Court and the other is settled between attorney and client.


Arbitration

As a general principle, the authority to adjudicate is matter entrusted to state courts by constitutions. However, in private law, parties to a dispute may elect to resolve their dispute by arbitration, provided that the subject matter of the dispute is considered an arbitrable dispute by the related applicable law. Therefore arbitration is deemed to be an exception to state courts’ constitutional power to adjudicate disputes. Since private law is based on the supremacy of the will of parties the dispute between parties may ve resolved by arbitrators appointed by them if and when parites execute an arbitration agreement. A person who is appointed by parties to resolve a dispute is called an arbitrator.

Arbitration is a dispute resolution mechanism through which, a legal dispute which is based on a contractual or non-contractual relationship, is resolved by arbitrators according to the parties’ agreement. In other words, through arbitration, a dispute which is normally resolved in a court of law, is resolved by an arbitrator instead.

unlike litigation, arbitration is preferred by international companies because it is a fast procedure and the arbitrators are specialized in the field activity of the companies involved. The parties can also choose the language they will use for the arbitration.

Turkey has the necessary legislative regulations since it has drafted its International Arbitration Code dated 2001 in accordance with uNCITrAL Model Law, and

it is a party to both New york Convention and Geneva-european Convention.

under CCP, an arbitration agreement may be executed in order to solve disputes deriving from a contractual or extracontractual obligations. However an arbitration contract may only be formed for solving disputes regarding dispositions that parties may decide freely. An arbitration agreement may only be valid and binding provided that it is formed in writing. Also parties may include an arbitration clause to their agreements to constitute a valid and binding arbitration agreement.

Also Code of International Arbitration (CIA), which came into force on 5 July, 2001, is largely based on the uNCITrAL Model Law on International Commercial Arbitration dated 1985 and making a major impact on international arbitration in Turkey. When it comes to the matter of arbitrable subjects, article 1 of the CIA provides a same provision to the CCP that reads “disputes regarding issues independent of the parties’ wills may not be arbitrated”. Therefore, commercial matters may be referred to arbitration, yet disputes that concern criminal issues, family law or issues related to employees’ payments arising from labour contracts are not eligible too under CIA.

Observing the principle of competence-competence as codified in the IAL and CCP governs the procedure for jurisdictional challenges to be brought before the arbitral tribunal. Since a jurisdictional objection is decided by the tribunal as a preliminary matter, any objection should be made with the first reply brief at the latest. A party is


required to submit an objection as soon as they believe that the arbitral tribunal has exceeded its powers, or else the objection will not be entertained. However, if the arbitral tribunal concludes that the delay in filing an objection is justified, it may admit jurisdictional objections at a later stage. Finally, in case the arbitral tribunal decides that it has jurisdiction, it will continue the arbitral proceedings and render an award.

In accordance with the CIA, challenges to an arbitral award may only take the form of an annulment action, although the court’s decision regarding annulment may be appealed. CIA stipulates that an arbitral award may be annulled if one of the following grounds is proven by the party filing an annulment action:

• invalidity of the arbitration agreement stemming from incapacity of one or both of the parties subject to the arbitration agreement, invalidity of the agreement to arbitrate under the law the parties chose or, if the parties did not make a choice of law, under Turkish law;

• non-compliance in arbitrator appointment procedure under either the CIA or, if the

parties had agreed otherwise, as defined in the parties’ agreement;

• failure to make a timely award during the arbitration period;

• unlawful decision of the arbitrator or the tribunal regarding the competence of the arbitrator or the tribunal;

• the decision by the arbitrator or the arbitral tribunal on a matter that falls beyond the scope of the arbitration agreement, that does not decide the entirety of the claim or that exceeds the arbitrator or the arbitral tribunal’s authority;

• non-compliance with the procedures set out in the parties’ agreement, or with the procedures set out in the CIA in the absence of such an agreement, which affected the final award; or

• unequal treatment of the parties.

Or if the Court ex officio determines that:

• the subject of the arbitration is non-arbitrable under Turkish law

• the award violates and is contrary to public

order.


Restructuring

Overview

Debt restructuring is a process that allows a private or public company, or a sovereign entity facing cash flow problems and financial distress to reduce and renegotiate its delinquent debts to improve or restore liquidity so that it can continue its operations. In Turkey, The Banking regulation and Supervision Agency (BrSA) published recent amendments in relation to the regulation on restructuring of Debts Owed to Financial Sectors. The purpose of the regulation was to provide a chance to the debtors to honor their repayment obligations and continue to provide employment in Turkey upon the precautionary measures to be adopted under the financial restructuring framework agreements and contracts to be executed among such debtors and the Creditor Institutions.

Besides, concordatum, the principal Turkish restructuring regime is a court-led process governed by the enforcement and Bankruptcy Code (eBC) which may be ran in case a business faces gradual financial obstacles. The aim of concordatum is to restructure a company’s indebtedness through a restructuring plan that proposes amendments, extensions and/or haircuts to creditors, so that the company may avoid bankruptcy. either the debtor company or a creditor can apply to the Court to put a company into concordatum process.

In very brief terms, a concordat is a restructuring agreement between a debtor in financial difficulty and its creditors, which is made binding upon court’s approval and aims at avoiding the bankruptcy of the debtor. With the new amendments on eBC, real persons who are not merchant may also apply for concordatum process. Also another gradual innovation to the concordatum process is that with the new legislation, whole process will be governed by Commercial Court of First Instance’s.

Debt restructuring is a process that allows a private or public company, or a sovereign entity facing cash flow problems and financial distress

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Finally, financial restructuring is the reorganisation of a business’s assets and liabilities. The process is often associated with corporate restructuring, where an organisation’s overall structure and its processes are revamped.

Restructuring – Out of the Court and Formal Proceedings (Concordatum)

The favoured restructuring method in Turkey has usually been informal – out of the Court restructuring, mostly in the form of reciprocal negotiations between the creditors and the debtors, usually by way of refinancing of the bank credits. The main reason of this trend is the fact that formal restructurings generally provide wide discretion and authority to the Courts over the creditors and that the banks are proactive in refinancing loans before a potential payment default for internal reasons. Also, creditors and debtors are more likely to keep their commercial information in secret by the use of informal restructuring methods since all structured and formal restructuring options require, at one stage, filing with the court, the financial status of the debtor becomes public knowledge.

under Turkish system there are two formal restructuring mechanisms provided by Turkish legislation which are concordatum and restructuring upon settlement. restructuring upon settlement may be useful for companies which are insolvent, nearly insolvent or are not able to pay their debts on time. This alternative is a negotiation scheme between the debtor and the creditors.

Concordatum is a special kind of agreement which becomes binding with court approval. It allows debtors to pay their debts by giving them extra maturity or preventing possible bankruptcy of the debtor or the debts are paid to the creditors. Concordatum process consists of five fundamental stages: application, temporary relief, definitive relief, creditors’ meeting and the court’s examination and approval of concordatum. A concordatum refers to a restructuring agreement sought by debtor (or creditor) before competent courts, which would provide such debtor, the debt of whom is overdue or likely to be overdue, with additional term or reduction on the debt amount so that the payment of such debt becomes feasible and bankruptcy can be avoided. Debtors who are unable to pay their debts at the due date or who are in danger of failing to pay in due time may apply for concordatum. Debtors may apply for concordatum in cases where the level of payment of the assets can meet the debts or the payment scheme is severely impaired.

Trading in Distressed Situations

Remedies under Financial DistressTurkish Commercial Code provides particular importance to the protection of capital in joint stock companies and identifies compulsory measures to be taken by the organs of a joint stock company in the event of capital loss. Capital inadequacy is distiungished under three different levels pursuant to TCC and specific remedies are provided in case of each different scenario. The first level involves a 50% loss of the sum of capital and legal

6. 7101 numbered Code effectuated on 15.03.2018


reserves, second level is defined as the loss of the sum of capital and legal reserves by two-thirds (technical bankruptcy) and the final level is financial distress.

Pursuant to TCC, the board of directors shall regularly check whether any of the following financial situations is evident in the most recent annual balance sheet of the Company: (i) half of the sum of its capital and legal reserves has remained uncovered due to deficit or (ii) two thirds of the sum of its capital and legal reserves have remained uncovered due to deficit. Both of these situations indicate that the financial stability of the Company is deteriorating or under risk and therefore requires the Board to take counter measures.

Concordatum Process under Financial DistressAlthough, it shall not be thought that any Company will apply for a bankruptcy provided that it is in financial distress. By making use of a restructuring method, companies are able to keep their businesses on going. For us, most feasible way to keep a company operative in a distressed position is applying for a concordatum process.

In case a company manages to get a temporary and/or definitive relief, it will be able to continue its business operations without facing obstacles which may frustrate its commercial transactions or dispossess its assets. After appointment of concordatum trustee, he will:

• Contribute to completing the concordat project

• Oversee debtor’s activities

• Hold a ledger of the debtor’s presence

• Make a valuation of the debtor’s existing

assets

In the meantime, the debtor will be able to keep conducting transactions regarding its business. It shall be noted that concordatum trustee will inspect all transactions regarding business and the debtor may only involve with a transaction provided that trustee finds it appropriate.

Creditor’s Rights

Creditors may request the reversal of the temporary or definitive relief decision render by the first instance court. After the publication of aforementioned decisions creditors have seven days to bring forward this request.

Creditors will be unable to commence execution proceedings or file lawsuits against debtor with the issuance of the temporary or definitive relief. On the other hand, creditors receivables of whom are secured with pledge may initiate or continue debt enforcement proceedings but cannot obtain any protection measure against the debtor or realize the sale of the pledged assets.

Also, debtor’s existing contracts will be deemed as valid and binding. Parties to these contracts will not be able to terminate contracts on the ground that the debtor has applied for concordatum. However, the debtor may terminate continuous contracts which prevents concordatum process to reach its purpose by permission of concordatum trustee7. Creditors shall notify and register their claims within 15 days as of the publication of the provisionary period in order to be involved in concordat negotiations. The concordatum is deemed to be approved by creditors if signed by a majority that surpasses at least (i) half of registered creditors and half of receivables or (ii) one-quarter of registered creditors and two-thirds of receivables.


Director’s and Officer’s (Trustee) Obligations and LiabilitiesIn order to efficiently implement the regulations governing the concordatum, it is important to understand the regulations regarding the qualifications and duties of the concordatum trustee, as the he is one of the most effective agencies in attaining success at the end of the concordatum. The principle duties of the trustee during the temporary relief are to investigate whether the preliminary project is reasonable and realizable, and to prevent the diminution of the debtor’s assets through inspection of the transactions of the debtor. The court may assign more detailed duties to the trustee according to the conditions of the case. Moreover, the trustee is obliged to report on the progress during the temporary relief to the court. In the event it becomes clear during the temporary relief that the preliminary project will not be successful, the trustee should not wait until the end of

the relief period to inform the court of this situation.

even though there is no provision stating that with the assignment of the concordatum trustee, the board of directors shall withdraw from the governance of the company however it is doctrinally accepted that board of directors may not act on their own without asking for trustee’s permission on any action. In order for the director to be held liable, obligations arising from the law and the articles of association of the company should have been violated by the director through negligence. Therefore, directors shall only be held liable if they violate their obligations by intent or recklessness. Also, the board members are obliged to supervise and instruct, if necessary, those to whom the authorities of the board of directors are delegated.

7. The debtor will still be obliged to compensate the other party’s damages suffered in consequence of the termination but the payment

will be conducted pursuant to the concordatum process.


Public and Regulatory

Overview

Independent Autonomous Authorities, established by the law, have legal personality, administrative and financial autonomy. Their duties and authorities are:

• Licensing

• Making rules

• Monitoring and auditing

• Applying sanction

• Informing public

• Presenting an opinion

• Dispute resolution

• research, development and education

• requesting information from relevant organizations

Public Administrations involved

Independent autonomous authorities in Turkey are stated below:

• Capital Markets Board (CMB)

• Competition Authority

• Banking regulation and supervision agency

• Information technology and communication institution

• Public Procurement Authority

• Public Oversight Accounting and Auditing Standards Authority

• energy Market regulatory Authority

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Independent Autonomous Authorities, established by the law, have legal personality, administrative and financial autonomy.


Permits and Authorizations

1. Capital Markets Board (CMB)Capital Markets Board of Turkey (CMB) is the regulatory and supervisory authority in charge of the securities markets in Turkey. empowered by the Capital Markets Law (CML), which was enacted in 1981, the CMB has been making detailed regulations for organizing the markets and developing capital market instruments and institutions. The objective of CML is to regulate and control the secure, fair and orderly functioning of the capital markets and to protect the rights and benefits of the investors. Board, empowered by the Law, make regulations regarding capital market institutions, issuance, public offerings and trading on the stock exchange of capital market instruments, to ensure functioning and development of the capital market in a reliable, transparent, effective, stable, fair and competitive environment, to protect the rights and benefits of the investors. The law states that the Board will use its powers by adopting regulatory acts and decrees. Directives and Communiqués, qualified as regulatory acts, enter into force through publishing in Official Gazette. Decrees concerning the public is announced in Board Bulletin.

Board regulates and supervises:

• Corporations which have more than 250 shareholders or which offer their shares to the public and whose shares are traded at the stock exchange. The CMB registers the securities which are issued or offered to the public and is responsible for the regulation and supervision of the entire process.

• Capital market institutions which are defined in the CML as (i) intermediary institutions (banks and brokerage firms); (ii) investment companies (including real estate investment trusts and venture capital companies);

(iii) mutual funds; (iv) other institutions (settlement, custody, rating institutions, independent auditors, portfolio and asset management, investment advisory, real estate appraisal companies).

• organizations and operations of stock and derivatives exchanges and other organized

markets including precious metal exchanges

2. Competition Authority The underlying principle of market economy is the assumption that economic relationships are based on free competition. In this direction, the main goal of the Act No. 4054 on the Protection of Competition is the prohibition of cartels and other restrictions on competition, prevention of abuse of dominant position by a firm which has dominance in a certain market and prevention of the creation of new monopolies by monitoring some merger and acquisition transactions.

The goal of the Competition Authority, which is charged with enforcing the aforementioned Act, is to facilitate and protect competition in markets. In order to achieve this goal, the Competition Authority:

• penalizes undertakings which distort or prevent competition in the market, through examination and investigation processes subject to detailed regulation,

• grants exemption to and prepares secondary regulations for agreements which are in conflict with competition rules but are beneficial for the economy and the consumers,

• prevents monopolization within the market by examining mergers, acquisitions and joint-ventures over a certain threshold,

• in the privatization stage, examines the transfer of public undertakings to the private sector, and through privatization, reduces the effects of the state on the economy while


preventing monopolization in the areas the public sector exits,

• ensures the dominance of competitive conditions within the markets by sending opinions on various acts and regulations which would negatively affect or restrict competition in the markets to government

institutions and organizations concerned.

In summary, The Competition Authority was established as per Article 20 of the Act No. 4054, in order to ensure the formation and development of markets for goods and services in a free and sound competitive environment, to observe the implementation of this Act, and to fulfill the duties assigned to it by the Act. Within that framework, the main duty of the Competition Authority is to prevent any threats to the competitive process in the markets for goods and services through the use of the powers granted by law. ensuring the fair allocation of resources and increasing social welfare by the protection of the competitive process constitutes the basic foundation of the mission of the Competition Authority.

3. Banking Regulation and Supervision Agencyestablished by Banking Law dated 18 June, 1999 and numbered 4389, The Agency’s mission is to ensure that the institutions

subject to its supervision perform their operations in a safe and sound manner in line with the Banking Law and other applicable regulations, that the credit system functions efficiently, that the rights and interests of savers are safeguarded, and thus contribute to the development of financial markets as well as financial stability.

In order to achieve this goal the Agency is responsible for;

a) To regulate, enforce and ensure the imple-

mentation of the establishment, activities,

management and organizational structure,

merger, disintegration, change of shares

and liquidation of banks and financial hold-

ing companies and with the reservation of

the provisions of other laws and the related

regulation, financial leasing, factoring and

consumer financing companies, and moni-

tor and supervise enforcement of such,

b) To become members of internation-

al financial, economic and professional

organizations, in which domestic and

foreign equiv- alent agencies participate,

sign memorandum of understanding with

the authorized bodies of foreign countries

regarding the matters that fall under the

Agency’s field of duty,

c) To fulfill other duties assigned by the Law,


The Agency shall be authorized and obligated to prevent any transaction and practice that could endanger the rights of the depositors and the sound and safe operation of banks and severely damage the economy and to take and implement the decisions and measures in order to ensure the efficient operation of the credit system.

In all its activities, the Agency shall comply with the principles, strategies and policies set out in the development plan, programs and the government program, with the reservation of powers assigned thereto in this Law.

The Agency shall use the powers assigned thereto in this Law and the applicable legislation through regulatory transactions to be made and specific decisions to be taken by the Board. The Agency shall be authorized to issue regulations and communi- qués regarding the enforcement of this Law, through Board decisions 34.

Before putting into force the regulatory procedures other than the internal regulations, the Agency shall consult the related Ministry in order to check the harmony with the sector strategy and policies, and the undersecretariat of the State Planning Organization and other related institutions and organizations in order to check conformity with the development plan and annual plan. If the related Ministry and the undersecretariat of the State Plan- ning Organization do not convey their views within seven days, then their views shall be deemed to have been received.

The drafts of the secondary legislation to be prepared by the Agency shall be made public for minimum seven days to inform the public opinion thereof through appropriate means primarily including the Agency’s website.

Those specific decisions that are deemed necessary shall be notified directly to the

related persons and institutions, and shall be made public through the Agency’s weekly bulletin if deemed appropriate.

4. Energy Market Regulatory AuthorityThe authority is in charge of grant of licences certified by the authority defining legal persons’ authorized activities and rights and obligations arising from this activities; the arrangement of existing contracts within the scope of the transfer of operating rights according to the legislation; monitoring market performance; formation, amendment and enforcement, control of performance standarts and regulation of distribution and client services; determining pricing principles stated by Law; determination of pricing principles to be applied in sales to non-free costumers considering market needs and applying inflation adjustments to these prices and control of them; ensuring conformity to Law in market.


Istanbul

Office Managing Director ersin Nazali

19 Mayis Cad. Dr.İsmet Öztürk Sok. elit residence

3/28 Kat: 4 Şişli 34360 Istanbul, Turkey

Tel: +90 212 217 18 90

Ankara


Kızılırmak Mahallesi 1450 Sokak Ankara

Ticaret Merkezi (ATM) B Blok Kat:5 No 1/29 Çukurambar Çankaya

Ankara, Turkey

Tel: +90 312 286 10 06

Izmir


Adalet Mahallesi Manas Bulvarı Folkart Towers

B Kule No: 47/2209 Bayraklı Izmir, Turkey

Tel: +90 232 290 09 98

Bursa


Odunluk Mahallesi Akademi Caddesi Zeno Center

C Blok No:14 Kat:3 Nilüfer Bursa, Turkey

Tel: +90 224 44119 50

Denizli


Sumer Mah. Cal Cad. Skycity İş Merkezi Kat 5 No: 1/41

Merkezefendi Sumer Mah. Cal Cad.

Denizli, Turkey

Phone: +90 258 252 12 24 Fax : +90 258 252 12 26

AndersenTax.tr

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