Protection Of Foreign Investment

1. Domestic Legislation On Foreign Investments

International treaties, the FDI Law and the Regulation on the Implementation of the FDI Law are the main legal sources governing foreign direct investment in Turkey. The FDI Law, which entered into force on 17 July 2003, has brought extensive changes in favour of foreign investors and liberated the foreign investment climate by, in particular, abolishing the approval system and introducing a more liberal system based on the principles of equal treatment and the free expatriation of proceeds. Prior to the FDI Law, investors were required to obtain prior written consent of the Undersecreteriat of Treasury to establish a company, acquire shares in an existing company and/or open a branch or liaison office. Increase of share capital and change in the scope of activity or shareholding structures were also subject to prior written consent of the Undersecreteriat of Treasury.

Under the FDI Law, investors are only required to notify the Ministry of Treasury and Finance of their investment (e.g. greenield investment, share transfer or otherwise) and the amount of foreign capital brought to Turkey, except for opening a liaison oice which is subject to the prior written consent of the Ministry of Industry and Technology. On June 1, 2018, new requirements have been introduced regarding the notiication to the Ministry. Accordingly, companies with foreign shareholders are now required to register certain information (such as shareholding structure, share transfers and/ or increase or decrease of the share capital) on an online platform, namely the Electronic Incentive Application and Foreign Investment Information System (E-TUYS).

The FDI Law also introduced some other principles which are vital for fostering a successful foreign investment environment such as the freedom to invest, valuation of non-cash capital and the employment of foreign personnel. Foreign investors can freely establish an entity, open a branch and/or acquire shares of an existing company and conclude know-how/technical assistance agreements with domestic companies.

Under the FDI Law, companies with foreign shareholding which are established in line with the Turkish Commercial Code are treated equally to companies with local shareholding. In line with this principle, foreign investors may establish a company with 100% foreign shareholding or acquire all of the shares of an existing Turkish company. However, exceptions to this equal treatment principle exist, including for acquisitions by companies with foreign shareholding of real property in Turkey. There are also restrictions on investment in certain strategic sectors such as TV broadcasting, maritime and civil aviation by companies with foreign shareholding.

2. International Treaties Regarding Foreign Investments

Turkey attributes great importance to foreign investment and aims to improve its foreign investment climate while deining “foreign investment”, “investor” and related terms in line with international standards. To that end, Turkey has become a party to several bilateral and multilateral investment treaties. Importantly, Turkey has also concluded double-taxation treaties with over 80 countries.

2.1 Bilateral Investment Treaties

Bilateral treaties are considered highly important as they aim to promote and enrich the investment environment, leading to stronger economic cooperation between the contracting states. Turkey has been active in concluding bilateral treaties for the promotion and protection of investments since its irst bilateral investment treaty was signed with Germany in 1962. As of August 2016, Turkey has signed bilateral treaties with 98 countries. 81 out of those 98 bilateral investment treaties have been ratiied and entered into force so far.

2.2 Multilateral Investment Treaties

In addition to domestic legislation and bilateral investment treaties, Turkey is also interested in several multilateral investment treaties for the purpose of reinforcing economic collaboration with other countries. In this regard, Turkey is a party to the World Trade Organization’s Agreement on Trade Related Investment Measures, the United Nations Convention on Contracts for the International Sale of Goods and the Energy Charter Treaty.

3. International Dispute Resolution

Foreign investors may beneit from domestic arbitration or international arbitration, to the extent there is an arbitration clause in their investment agreement. Domestic arbitration is governed by the Code of Civil Procedure, whereas for international arbitration, the parties may freely choose any institutional rules of arbitration, including without limitation the rules under the Turkish International Arbitration Law or the rules of the Istanbul Arbitration Centre. If the seat of arbitration is in Turkey but the parties have not agreed on the applicability of any institutional rules of arbitration, the rules and principles set out in the Turkish International Arbitration Law shall apply, to the extent that there is a foreign element involved in the dispute. In addition, Turkey continues to integrate mediation as an alternative dispute resolution method. As per the law published on the Oicial Gazette dated 19 December 2018, a mandatory mediation process has been introduced for commercial cases to be heard as from 1 January 2019. Therefore, parties to a commercial dispute for monetary claims are now obliged to apply to a mediator before applying to the commercial courts.

Istanbul Arbitration Centre was established in 1 January 2015, as a part of the wider project to transform Istanbul into a global inancial hub. Its rules and tarifs were published on its website on February 2016, and the centre has become fully operational with its specialized arbitrators, to serve its clients in Turkish, English, French and German languages.

It is important to note that the arbitration rules of the Istanbul Arbitration Centre have introduced new concepts to Turkish law, such as fast-track arbitration, procedural timetable and emergency arbitrator. Accordingly, where the economic value of the claims and the counterclaims does not exceed TRY 300,000, the dispute shall, unless otherwise agreed by the parties, be subject to the fast-track procedure. In this case, the dispute shall be settled by a sole arbitrator within three (3) months. However, parties can also explicitly agree to the fast-track arbitration even in cases where the amount in dispute is above the threshold.

Further, in parallel with the rules of leading international arbitration institutions, the arbitration rules of the Istanbul Arbitration Centre provide a right to request the appointment of an emergency arbitrator. In this respect, unless the parties have agreed otherwise, they may, in cases of emergency, request to obtain an interim measure from the emergency arbitrator, before the transmission of the case to the sole arbitrator or arbitral tribunal.

Since Istanbul Arbitration Centre’s arbitral awards are inal, binding and enforceable just like court decisions, and Turkey is a party to the New York Convention, Istanbul Arbitration Centre’s arbitral awards are enforceable not only in Turkey, but also in other countries that are party to the New York Convention.

Recognition and enforcement of foreign arbitral awards are subject to the provisions of Turkish International Arbitration Law and the New York Convention. Turkey has ratiied the New York Convention with two reservations: (i) any award which is granted must be given in a state which is a member of the New York Convention; and (ii) the dispute must be commercial in nature as per Turkish

law. As arbitration is becoming more popular in Turkey, national courts are becoming increasingly familiar with the recognition and enforcement of arbitral awards in Turkey, however an award can only be recognised and enforced in Turkey if certain conditions which are allowed and typical under the New York Convention are met. In short, for the recognition and enforcement of a foreign arbitral award, there must be (i) reciprocity between Turkey and the country where the award was granted, (ii) no jurisdictional exclusivity under Turkish law due to the nature of the matter, and (iii) no violation of “public order”.

In addition, Turkey is also a contracting state to the ICSID Convention. Consequently, for disputes arising out of or relating to an investment, between the Turkish State and a national of another contracting state, the parties may also opt in for arbitration under ICSID. In such case, issues of recognition, enforcement and annulment of the ICSID award will be subject to the provisions of the ICSID Convention instead of the New York Convention.

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