Foreign investment issues

Investment restrictions

What restrictions, fees and taxes exist on foreign investment in or ownership of a project and related companies? Do the restrictions also apply to foreign investors or creditors in the event of foreclosure on the project and related companies? Are there any bilateral investment treaties with key nation states or other international treaties that may afford relief from such restrictions? Would such activities require registration with any government authority?

There is no general restriction preventing foreign entities from having ownership of the project (through a Turkish subsidiary) or the project company unless the sector specific legislation imposes such restriction. Turkey is to a great extent a liberalised market in terms of foreign participation as a result of the governmental policy followed over the last two decades. However, there are still a limited number of sectors where there are certain restrictions concerning direct or indirect foreign entity ownership such as the aviation sector, including ground services and broadcasting activities.

In terms of land rights, which is an essential part of any project finance transaction, the real estate legislation requires clearance from the governorship of where the land is located if a company with a foreign shareholding of 50 per cent or other controlling rights acquires rights in rem over a real estate property located in Turkey. However, mortgage rights granted in favour of financial institutions are not subject to this requirement.

Insurance restrictions

What restrictions, fees and taxes exist on insurance policies over project assets provided or guaranteed by foreign insurance companies? May such policies be payable to foreign secured creditors?

As per the Insurance Law No. 5684, insurable interests located in Turkey of Turkish residents must be insured in Turkey by insurance companies operating in Turkey. Certain exemptions exist, mainly concerning transportation insurance. In a typical project finance transaction, the risks are re-insured abroad at a percentage based on the particularities of the transaction. Both the original insurances and reinsurances are assignable and also payable to foreign secured creditors.

Payments received by insurance companies are subject to the banking and insurance transactions tax, which is currently applied at the rate of 5 per cent. The income of insurance companies is subject to corporate income tax at the rate of 22 per cent for the taxation periods 2018, 2019, and 2020. Foreign insurance and reinsurance companies can operate in Turkey by establishing a branch there.

Worker restrictions

What restrictions exist on bringing in foreign workers, technicians or executives to work on a project?

Unless otherwise set under a bilateral agreement that Turkey is party to, foreign workers are required to obtain work permits to be eligible to work in Turkey. The applicable process is governed by the Law on Work Permits for Foreigners No. 4817 and the Law on International Workforce No. 6735. The latter also lists certain circumstances, such as project-based work (eg, construction), where workers can benefit from a simpler permitting process.

Similarly, if there is an intra-governmental agreement concerning the project (eg, nuclear power plant projects, oil transmission pipeline projects), there may be certain undertakings in those agreements to facilitate the work permit process concerning foreign workers.

Equipment restrictions

What restrictions exist on the importation of project equipment?

There are no general restrictions on the importation of project equipment other than what may be required under the import legislation and policies. However, there may be certain sector or project-specific cases where the legislation or tender require local equipment to be used. A relatively recent example of such a requirement is the healthcare PPP projects where the legislation (for projects the tenders of which are launched after a certain date) require that at least 20 per cent of medical equipment used be of local origin.

Nationalisation laws

What laws exist regarding the nationalisation or expropriation of project companies and assets? Are any forms of investment specially protected (from nationalisation or expropriation)?

The Constitution of the Republic of Turkey, as well as Law No. 3082 on the Nationalisation of Private Entities Engaged in Public Services in Cases of Public Interest recognises that project companies engaged in public services may be nationalised if public benefit requires such action and only upon the issuance of a law. The legislation requires that consideration be paid to the project company as a result of nationalisation based on the actual value of the company. The project company has the right to challenge the amount of consideration before the relevant courts.

Expropriation is regulated under the Expropriation Law No. 2942 in addition to the Constitution and can only be executed upon consideration of the actual value of the expropriated asset if there is a sufficient level of public interest to take such action. The affected party has the right to challenge the expropriation value as well as the expropriation decision before the competent courts.

To mitigate the risks associated with these interventive actions, most project agreements executed with governmental bodies under the PPP scheme lists nationalisation and expropriation among the risk events, thus entitling the project company and, indirectly, the lenders to compensation rights in the case of such event.