Business in Turkey

Establishing a Business in Turkey

The New Turkish Commercial Code No. 6102 (“New TCC”) was published in the Official Gazette on February 14, 2011. As stipulated in the New TCC and the Law
on Effectiveness and Implementation of the Turkish Commercial Code No. 6103 (“Code on Effectiveness of New TCC”), the new code came into effect on July 1,
2012.

The main goal of the New TCC is to develop a corporate governance approach that meets international standards; to foster private equity and public offering
activities; to create transparency in managing operations; and to align the Turkish business environment with EU legislation, as well as for the accession
process.

Major amendments in the New TCC can be outlined as:

Shareholding Structure

The New TCC allows the establishment of joint stock companies (A.Ş.) or limited liability companies (Ltd. Şti.) with only a single shareholder.

According to the former code, joint stock companies could be established with a minimum of five shareholders, while limited liability companies could be
formed with a minimum of two partners.

Therefore, the New TCC removes the obligation for foreign companies to secure mandatory minority shareholders in order to comply with the minimum
shareholder number requirements by the former TCC. The shares of previously established companies can now be held by a single party.

Board of Directors*

Under the New TCC, in compliance with the EU legislation, the board of directors may now be comprised of a single person instead of at least three members.
This offers foreign investors the opportunity to do business more easily, as board meetings may be hindered if there are a large number of shareholders
that have to travel frequently between countries.

The New TCC does not require physical presence of board members; it allows board meetings to be held in an electronic environment and board resolutions may
also be approved via electronic signatures. Through these amendments, the New TCC will prevent foreign companies from incurring unnecessary travel
expenses.

Additionally, legal entities may be appointed as board members. This means foreign shareholders no longer have to deal with red tape such as, excessive
legal documents or holding shareholder meetings in order to change board members. Different representatives may be appointed as a board member on each
occasion if he or she is entitled to by the legal entity.

The obligation that board members must be shareholders has also been abolished. According to the New TCC, any independent individual may be a board member.
This ensures a professional board of directors that can act separately from shareholders, and in turn, boosting corporate governance.

*in accordance with provisions pursuant to Joint-stock company (A.Ş.)

Registered Capital System

The New TCC offers non-public companies the opportunity to adopt a registered capital system, so non-public joint stock companies may benefit from the
opportunity of flexible capital increases introduced by the registered capital system. This is seen as a great advantage for foreign companies to increase
capital whilst reducing bureaucracy and/or travel expenses.

Intellectual Property Rights

Intellectual property rights may be contributed as capital in-kind. In order to contribute such assets as capital in-kind, those assets shall have
transferable qualifications, and become eligible for valuation in cash.

Ultra-Vires

The former TCC incorporated the doctrine of Ultra Vires that is “corporations can only be authorized to acquire rights and undertake debts, provided that
they conduct their business within the field of operations defined in the articles of incorporation.” This doctrine of Ultra Vires was abolished on June 1,
2012, therefore, transactions of companies, which operate outside the business areas specified in their articles of association, will be effective.

Establishing a Business in Turkey

Turkey’s regulatory environment is extremely business-friendly. You can establish a business in Turkey irrespective of nationality, or place of residence.

Company Establishment in One Day

It is possible to establish a company in a single day by applying to the relevant trade registry office with the required documents. The company is
established once the founders declare their intent to set up a joint stock company in the articles of association, which have been issued in accordance
with the law, and where they, with their notarized signatures, unconditionally acknowledge and undertake to pay the whole capital. The company receives its
“legal entity” status upon registration with the trade registry.

Types of Companies

Incorporated companies such as a:

· Joint-stock company (A.Ş.)

· Limited liability company (Ltd. Şti.)

· Commandite company

· Collective company

Joint Stock Company

Joint stock companies are founded by at least one shareholder (a real person or a legal entity) and the minimum capital requirement for joint stock
companies is TL 50.000. At least 25% of the nominal value of the shares subscribed in cash must be paid during the foundation procedures and the rest is
paid within 24 months by the shareholders.

The company’s stock capital is divided into shares and the liability of the shareholders is limited to the subscribed capital and paid by the shareholder.

Joint stock companies can be founded for any commercial purpose, by domestic or foreign capital. Foundation of banks, financial leasing companies,
factoring companies, consumer finance and card services companies, asset management companies, insurance companies, holding companies established in the
form of a joint stock company, companies who operate exchange offices, companies who operate public warehouses, agricultural product licensed warehousing
companies, audit companies, inspection companies, technology development zones administrative companies are subject to the permission of the Ministry.

A joint stock company is managed by its board of directors and the general assembly. It is subject to corporate taxation.

Limited Liability Company

Limited liability companies are founded by at least one shareholder (a real person or a legal entity) and the minimum capital requirement for joint stock
companies is TL 10.000. At least 25% of the nominal value of the shares subscribed in cash must be paid during the foundation procedures and the rest is
paid within 24 months by the shareholders.

The company’s stock capital is divided into shares and the liability of the shareholders is limited to the subscribed capital and paid by the shareholder.

A joint stock company is managed by its management board and the general assembly. It is subject to corporate taxation.

Commandite Company

It is the company established to operate a commercial enterprise under a trade name. Whereas the liability of some shareholders is limited to the capital
subscribed and paid by the shareholder (commanditer), for some shareholders there is no limitation of liability. Legal entities can only be commanditer. No
minimum capital is required. The rights and obligations of the shareholders are determined by the articles of association.

Collective Company

It is the company established to operate a commercial enterprise under a trade name and, the liability of none of the shareholders is limited only to the
capital subscribed and paid by the shareholder. No minimum capital is required. It is mandatory that all the shareholders be real persons. The rights and
obligations of the shareholders are determined by the articles of association.

Companies registered outside of Turkey can also establish liaison offices or branches in Turkey.

Branches

Companies registered outside of Turkey can establish branches in Turkey to carry out their commercial activities. It is mandatory to use the name of the
main company in the title of the branch. The decision of the main company’s authorized decision making body is required fort he establishment. The branches
can perform revenue-generating activities. They are subject to corporate taxation.

Liaison Office

Companies registered outside of Turkey can establish liaison offices in Turkey. Liaison offices cannot perform revenue-generating activities, can only
perform activities such as representation, promotion, inspection and research. All expenses are covered by the foreign currency brought to Turkey. Liaison
offices are not subject to corporate taxation, since they are not revenue-oriented.

Company Establishment Procedures

Three copies of articles of association (one copy original) which are notarized are prepared. Following the notarization of articles of association, within
15 days at the latest, application to the relevant trade registry office with the documents set below is needed.

Documents for the Company Establishment

· Letter of Undertaking (Trade Registry Regulation Article 24)

· Articles of association including notarized signatures of founders and notary certification proving that all shares constituting the registered capital
have been subscribed by the founders in the articles of association

  • Founders’ statement signed by the founders

· The bank letter proving that the share capital has been deposited

· The bank receipt indicating that 0.04% of the company capital has been deposited to the account of the Turkish Competition Authority at a state bank

· Permit or letter of compliance for companies whose corporation is subject to the permit or letter of compliance issued by the relevant ministry or other
official institutions

· Notarized copy of signatures of persons with the authority to represent and bind the company

· Application number indicating that the trade name to be used has been checked and confirmed by the Trade Registry Office

· Company establishment statement form (3 original copies)

  • Certificate of residence of founding partners

· Notarized translation of passport in case the foreign shareholder is a real person; apostilled and notarized translation of registry document issued by
the competent authority in case the foreign shareholder is a legal entity.

Taxes

Turkey has one of the most competitive corporate tax rates in the OECD region. The Corporate Tax Law No. 5520 that was enacted on June 21, 2006 made some
important amendments to the current applications and also included new concepts in the tax legislation. With the new Corporate Tax Law in place, Turkish
corporate tax legislation now has noticeably clearer, more objective and better harmonized provisions which are in line with international standards.

Turkish tax regime can be classified under three main headings:

1.1. Income Taxes

Turkish tax system includes two main income taxes; namely individual income tax and corporate income tax. Although individual income tax and corporate
income tax are governed by different laws, many rules and provisions pursuant to individual income tax also apply to corporations, particularly in terms of
income elements and determination of net income.

1.1.1. Individual Income Tax

Real persons’ income is subject to individual income tax. The income is defined as the net amount of all earnings and revenues derived by an individual
within a single calendar year. As per the Income Tax Law, income may consist of the elements listed below:

  • Business profits
  • Agricultural profits
  • Salaries and wages
  • Income from independent personal services
  • Income from immovable property and rights (rental income)
  • Income from movable property (income from capital investment)
  • Other income and earnings

According to the Turkish Tax Legislation, there are two main types of tax statuses 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.

The individual income tax rate varies from 15% to 35%.

Individual income tax rates applicable for 2015 are as follows:

Income Scales (TRY)

(Employment Income)

Rate (%)

Income Scales (TRY)

(Non-Employment Income)

Rate (%)

Up to 12,000

15

Up to 12,000

15

12,001-29,000

20

12,001-29,000

20

29,001-106,000

27

29,001-66,000

27

106,001 and over

35

66,001 and over

35

1.1.2. Corporate Income Taxes

In case income elements specified in the Income Tax Law are derived by corporations, taxation is applicable for the legal entities of these corporations.
Corporate taxpayers defined in the law are as follows:

  • Capital companies
  • Cooperatives
  • Public economic enterprises
  • Economic enterprises owned by associations and foundations
  • Joint ventures

Corporations with legal or business centers located in Turkey, are qualified as residents and subject to tax on their income derived in Turkey and other
countries. If both the legal and business centers are not located in Turkey, then these corporations are qualified as non-residents and subject to tax only
on their income derived in Turkey. The legal center is the place stipulated in the Articles of Association or incorporation law of corporations that are
subject to tax, while the business center is defined as the place where business activities are concentrated and managed.

In Turkey, the corporate income tax rate levied on business profits is 20%.

Resident corporations are subject to a 15% withholding tax when dividends are paid out to shareholders; however, dividends paid by resident corporations to
resident corporations are not subject to withholding tax. As a share capital increase by the corporation using the retained earnings is not considered to
be a dividend distribution, no withholding tax for dividends applies. Similarly, non-resident corporations are subject to a 15% withholding tax during
remittance of such profits to the headquarters. The withholding tax is applied on the amount after the deduction of corporate income tax from taxable
branch profits.


1.2. Taxes on Expenditure

1.2.1. Value Added Tax (VAT)

The generally applied VAT rate varies between 1%, 8%, and 18%. Commercial, industrial, agricultural, and independent professional goods and services, goods
and services imported into the country, and deliveries of goods and services as a result of other activities are all subject to VAT.

VAT exemptions include but are not limited to the following:

  • Exports of goods and services

· Roaming services rendered in Turkey for customers outside Turkey (i.e. non-resident customers) in line with international roaming agreements, where a
reciprocity condition is in place

  • Contract manufacturing for clients operating in free zones
  • Petroleum exploration activities
  • Services rendered at harbors and airports for vessels and aircrafts
  • Supply of machinery and equipment in scope of an investment certificate
  • Transit transportation

· Deliveries and services made to diplomatic representatives and consulates on condition of reciprocity, international organizations with tax exemption
status and to their employees

· Banking and insurance transactions which are subject to Banking and Insurance Transactions Tax

1.2.2. Special Consumption Tax (SCT)

There are four main product groups that are subject to SCT at different tax rates:

· Petroleum products, natural gas, lubricating oil, solvents, and derivatives of solvents

  • Automobiles and other vehicles, motorcycles, planes, helicopters, yachts
  • Tobacco and tobacco products, alcoholic beverages
  • Luxury products

Unlike VAT which is applied on each delivery, SCT is charged only once.

1.2.3. Banking and Insurance Transaction Tax

Banking and insurance company transactions remain exempt from VAT but are subject to a Banking and Insurance Transaction Tax. This tax applies to income
earned by banks, such as loan interest. Although the general rate is 5%, some transactions such as interest on deposit transactions between banks are taxed
at 1%. No tax is levied on sales from foreign exchange transactions since 2008.

1.2.4. Stamp Duty

Stamp duty applies to a wide range of documents including contracts, notes payable, capital contributions, letters of credit, letters of guarantee,
financial statements, and payrolls. Stamp duty is levied as a percentage of the value of the document at rates ranging from 0.189% to 0.948% and collected
as a fixed price (a pre-determined price) for some documents.

1.3. Taxes on Wealth

There are three kinds of taxes on wealth:

  • Property taxes
  • Motor vehicle tax
  • Inheritance and gift tax

Buildings, apartments and land owned in Turkey are subject to real estate tax ranging at a rate between 0.1% and 0.6%, while Contribution to the
Conservation of Immovable Cultural Property is levied at a rate of 10% of this real estate tax. Motor vehicle taxes are collected on the basis of fixed
amounts that vary according to the age and engine capacity of the vehicles every year. Meanwhile, inheritance and gift taxes are levied at a rate of 1% to
30%.

Terms of Employment

Terms of employment in Turkey are mainly governed by the Labor Law and Trade Union Law.

Pursuant to the Labor Law, there are various types of employment contracts:

a) Employment contracts for “temporary” and “permanent” work

b) Employment contracts for a “definite period” or an “indefinite period”

c) Employment contracts for “part-time” and “full-time” work

d) Employment contracts for “work-upon-call”

e) Employment contracts with a trial period

f) Employment contacts constituted with a team contract

Employment contracts are exempt from stamp tax and any type of duties and fees.

Any kind of discrimination among employees with respect to language, race, gender, political opinion, philosophical approach, religion or similar criteria
is prohibited by law. Discrimination based on the gender of an employee is prohibited when determining the amount of remuneration for employees working in
the same or equivalent jobs.

Working Hours and Overtime

Under the Labor Law, the maximum regular working hours are 45 hours per week. In principle, 45 hours should be split equally among the working days.
However, in accordance with the Labor Law, working hours may be arranged by the employer within the legal limits.

As a rule, hours exceeding the limit of 45 hours per week are to be paid as “overtime hours”. The wage/salary for each hour of overtime work is paid by
raising the hourly rate of the regular working salary by fifty percent. Instead of the overtime payment, employees may be granted 1.5 hours of free time
for every overtime hour worked. Overtime hours worked during weekends and public holidays are to be paid as wage for one day holiday and overtime wage.
These rates may be increased on the basis of a collective or personal employment contracts between employees and employers. The total number of overtime
hours worked per year may not exceed 270 hours.

Annual Paid Vacation

There are six paid public holidays per year (January 1st, April 23rd, May 1st , May 19th, August 30 th, October 29th), plus two paid periods of religious holiday, which comes to eight days in total. Employees are entitled to paid
annual vacation for the periods indicated below, provided that they have worked for at least one year including the probation period:

Years of work

Minimum paid vacation period

1 – 5 years (inclusive)

14 working days

5 – 15 years

20 working days

15 years (inclusive) or longer

26 working days

These benefits are the minimum levels set by law and may be increased on the basis of a collective or personal employment contracts.

As per the Labor Law, in case the employer recruits at least 10 workers within the same workplace or across the whole country; any premium, wage,
compensation, etc. to be paid to workers shall be paid in Turkish Lira (TRY) to the bank accounts of employees. If wage and salary amounts are not paid
into employees’ bank accounts, an administrative penalty is charged to the employer. It is possible to denominate wages/salaries in terms of a foreign
currency. In this case, wages/salaries shall be paid in TRY calculated on the basis of the relevant foreign currency rate prevailing as of the payment
date.

Termination of Employment Contract

According to the relevant provisions of the Labor Law no. 4857, employers and employees are required to give specified notification periods prior to the
termination of an employment contract, as shown in the following table.

Required minimum notification periods for employers and employees

Duration of service

Duration of notification period

0 – 6 months

2 weeks

6 – 18 months

4 weeks

18 – 36 months

6 weeks

more than 36 months

8 weeks

There are two types of termination for an employment contract:

1) Termination with notification

Both the employee and the employer may terminate an employment contract concluded for an indefinite period based on the notification periods indicated in
the above table. The party who does not abide by the rule to serve notice shall pay compensation covering the wages which correspond to the notification
period in order to terminate the employment contract.

2) Termination of an employment contract before the end of the contract period or before the notification periods stated above, based on justifiable and
rightful reasons stated in the Labor Law

Both the employer and employee have the right to terminate an employment contract before its expiry or without having to comply with the prescribed
notification periods, in the following cases:

· Reasons of health

· Cases arising from immoral, dishonorable or malicious conduct or other similar behavior

· Force majeure

Severance Pay

An employee who quits satisfying the conditions indicated in the Labor Law or whose employment contract is terminated by the employer must be compensated
with a severance pay to be calculated based on the employees’ seniority at the work place. This indemnity pay is calculated on the basis of the last thirty
days’ gross wage per year of the employment contract from the commencement date of employment. The thirty days’ payment per year of employment may not
exceed the upper limit determined semi-annually. However, severance pay may be agreed to be paid at an amount higher than the limit indicated above in case
there is a provision in the employment contract.

The reasons on the basis of which employees are entitled to receive severance pay are as follows:

· Leaving the workplace due to the compulsory military service (for males)

· Retirement (in order to receive old age, retirement pension or disability allowance from the relevant insurance institutions)

· Resignation of the employee after completing 3,600 premium days and 15 years of insurance period (in case of fulfillment of retirement conditions except
the age limit and resignation with the submission of the document from the Social Security Institution indicating the fulfillment of retirement conditions,
excluding the age limit, to the employer)

· Voluntary termination by female employees within one year following the date of marriage

· Death of the employee

· Termination of the employment contract not based on a valid reason listed in the Labor Law by the employer and termination of the employment contract by
the employer with valid a reason

Job Security

According to Labor Law, in case the employment contract is terminated by the employer, it is required that the underlying reason of this termination be
notified to the employee, and the reason of termination be valid. The employee has the right to file a lawsuit in Labor Court within one month from the
date of notification of termination. In the lawsuit to be filed, liability of proving that termination is based on a valid reason belongs to the employer,
and if the employee claims that termination is due to another reason, he/she is obligated to prove this claim. In case the court decides that the
termination is invalid and the employee is to be reemployed, and if the employee does not apply to the employer within ten work days from the date of
notification of the decision to him/her, termination executed by the employer is deemed as a valid termination, and employer is only held responsible for
the legal consequences.

Turkish Social Security System

The social security system in Turkey went through a major transformation in 2007, resulting in a more efficient and fast functioning system, based on
centralizing the control of different social security funds in a single institution.

The three insurance funds, namely SSK, Emekli Sandigi and Bag-Kur, were merged under a sole body called the Social Security Institution (SSI) in 2007. The
three insurance funds together cover around 81% of the population as of 2008. The system started to be fully operational at the beginning of 2008.


Social Security Premium Payments


Social security premiums (as a percentage of employee’s gross earnings) are payable by both employers and employees. To given an outline, the below table
shows the rates regarding the issue.

Social Security Premiums (office employees)

Type of risk

Employer’s

share (%)

Employee’s

share (%)

Total (%)

Short – term risks

2*

2*

Long – term risks

11

9

20

General health insurance

7.5

5

12.5

Contribution to unemployment insurance

2

1

3

Total

21.5*

15

36.5*

*Pursuant to Law no. 6385, the premium rates with respect to short-term risks have been set at %2 for all employers regardless of risk
rates.


Foreigners making social security contributions in their home countries do not have to pay the Turkish social security premiums if there is a reciprocal
agreement between the home country and Turkey.


Unemployment Insurance Premium Payments

Employees, employers and the state are required to make a compulsory contribution to the Unemployment Insurance Plan at the rates of 1%, 2% and 1%,
respectively, of the gross salary of the employee. Like the social security premium payments, unemployment insurance premiums are also to be paid on a
monthly basis. Employers are able to deduct such contributions from their taxable income. On the other hand, an employee’s contributions are deductible
from the income tax base of the employee.


A foreign individual who remains covered under the compulsory social security system of his/her home country that has a social security agreement in effect
with Turkey is not liable for insurance payments to the Turkish social security. The proof of foreign coverage is to be filed with the local social
security office. If the employee is not subject to a foreign social security, full contributions will generally be imposed. Unemployment insurance premiums
are declared and paid to the Social Security Institution together with social security premium contributions.