Despite recent political turmoil, Turkey remains a regional power, but how easy is it to do business there?

Spanning Asia and Europe and bordered by eight countries, Turkey is located in a strategically important location and has a diverse cultural heritage. Its vast mineral deposits and role as a natural gas and oil producer – with recent discoveries of new oil and gas fields, in particular off the Black Sea coast – position it as a player in those markets. It has a dynamic economy, a mix of the traditional agriculture and modern industrial/commerce sectors, which has in recent years experienced rapid growth.

In order to reduce its reliance on imported energy, the government is focused on developing renewable and nuclear energy sources which will boost the country’s construction industry, and has announced plans to construct three nuclear power stations in the country by 2023.

The following sets out a high level summary of some considerations of doing business in Turkey.

Business Culture

The Turkish business culture has historically been hierarchical, with just one key decision-maker who is usually the most senior person in the company. Personal relationships are important, and while those in more subordinate positions can represent the business during meetings, they normally seek confirmation from senior management on key decisions. Turkish businesses will assume the same and will expect to see senior representatives of businesses at important meetings and involved in making important decisions.

Construction

Construction activities require a number of permits and licenses, both prior to commencement, during construction and on completion. There have, however, been recent examples where the government has shown its flexibility and a willingness to appease the construction sector, including by amending laws to ensure projects do not fail.

In addition to the licensing of projects, contractors must be issued an authorization certificate from the Provincial Directorate of Public Works and Settlement to carry out local construction work. Further, certain contractors may need to be registered with the relevant professional body. 

Employment

Turkey’s labor code has been in force since 2003. This, together with other legislation relating to social and health insurance, work permits, trade unions, collective bargaining, and health and safety, form the bulk of employment-related laws in Turkey. Under the Turkish Labor Code, employees have certain statutory rights that, save for some limited exceptions, cannot be contracted out of. These relate to overtime pay, the right to remuneration, annual leave, weekend and rest breaks, severance payments and reinstatement to work following termination. Further, collective bargaining agreements are permissible under Turkish law.

Environment

Regulations relating to the environment date back to 1986. It was not until the turn of the century, however, that the Turkish government became more active in enforcing compliance. Since then, non-governmental organizations and environmental groups have also become more active, including in relation to major projects. This has, in the past, caused difficulties and delays with regards to some projects in Turkey.

Tax and Administration

Corporate tax rates in Turkey are competitive by European standards. Value added tax is payable for the delivery of goods and services in Turkey at an 18% rate (subject to lower rates in certain exceptions) and stamp taxes may be payable on certain documents, including contracts that are signed in Turkey that refer to a specific monetary amount (subject to some exceptions).

In addition, banks, bankers and insurance companies may be subject to the banking and insurance transactions tax. There may be other taxes that apply to a project in Turkey and, as such, it is important to carefully consider the tax implications of doing business in Turkey and structure a transaction as efficiently as possible.

Corruption

In 2015 Turkey was ranked 66th of 168 countries on Transparency International’s Corruption Perceptions Index. Wide-ranging anti-corruption laws, including those relating to bribery, extortion, money laundering and abuse of office, do exist. Turkey has also ratified the United Nations Convention against Corruption (UNCAC), the OECD Anti-Bribery Convention, the Council of Europe Criminal Law Convention on Corruption, and the Council of Europe Civil Law Convention on Corruption. Despite the wideranging anti-corruption laws and the ratification of conventions, criticism is still levelled at the country’s enforcement process.

Dispute Resolution

The Turkish International Arbitration Law of 2001 saw a rise in the number of arbitration proceedings being brought in Turkey. This has since been followed by the Law on the Istanbul Arbitration Center in late 2014, establishing the framework for a Turkish arbitration institution and confirming Turkey’s disposition in this type of dispute resolution. Turkey is a signatory to the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards as well as the European Convention on International Commercial Arbitration 1961 (the Geneva Convention). As such, arbitration is available in Turkey and now plays a large role in adjudicating disputes in Turkey. The Law on Mediation for Civil Disputes, enacted in 2012, also saw an increase in the use of mediation as an alternative to the traditional forms of dispute resolution.

The Verdict

Following the recent political turmoil in Turkey, it is difficult to accurately predict whether the strong growth seen in the construction and project space in recent years will continue unabated. Investors may need to see a strong commitment to transparency and a level playing field, to boost confidence. Nevertheless, it will remain an attractive location for investment given its strong appetite for growth, and opportunities will continue to present themselves for those prepared to invest there.