Doing Business in Türkiye: Introduction

An overview: geography and population

The Republic of Türkiye is situated at the geographic crossroads of Europe and Asia. Türkiye shares European borders with Greece and Bulgaria and neighbors Syria, Iraq, Iran, Azerbaijan, Armenia and Georgia in Asia. It is surrounded by seas on three sides. The Black Sea forms its northern coastline and links Türkiye with Southeastern Europe, Russia and the Caucasus. The Aegean Sea borders its western coastline and channels through Europe. The Mediterranean Sea borders its southern coastline and ties Türkiye with the Middle East and North Africa.

Türkiye is also positioned at the intersection of strategic trade routes on three continents. Istanbul is a major regional air hub connecting passengers within a four-hour flight radius to capital cities in Europe, Western and Central Asia, the Middle East and Africa.

Türkiye is a member of the OECD, WTO and NATO and has been a European Union accession candidate since 2005.

Türkiye is home to the second largest population in Europe. According to TURKSTAT, the population of Türkiye as of 2022 is approximately 85.2 million people. Nearly three-quarters of the population is between the ages 15 to 64, with a median age of 33.5, 10 years younger than that of the European Union.

Economic overview

Introduction

A largely free-market economy with a combination of traditional agriculture, modern industry and a dynamic services sector, Türkiye’s economy is one of the largest in Europe and the MENA region. The World Bank database currently ranks Türkiye as having the 19^th highest GDP in the world, as measured according to current US$ value.

Often viewed by investors as having a large skilled and cost-effective workforce, the OECD ranks Türkiye as the 6^th largest labor pool in the world and the 3^rd largest labor pool among the European countries.

Main sectors

Agriculture, industry and services are all key components of the Turkish economy, contributing roughly 6.46 percent, 31.87 percent and 52.2 percent, respectively to the GDP. Manufacturing is driven by strong sectors such as automotive, textile and consumer goods. Türkiye’s automotive industry is the 13^th largest producer in the world. The services industry is driven by the financial services, telecommunications, construction, tourism and healthcare sectors. In particular, real estate assets have been a strong target of foreign investment.

Energy

Türkiye’s growing economy and the increasing demand for energy, which cannot be met by the currently available domestic energy resources, has resulted in a dependency on energy imports, primarily oil and gas. According to the International Energy Agency, more than 93 percent of the oil resources and 99 percent of the gas resources used in Türkiye are imported.

In recent years, dependency on fuel imports and environmental concerns have led to a focus on renewable energy sources such as wind, solar and geothermal. In addition, integration of nuclear power into the Turkish energy mix has become a key aspect of the country’s plans for securing the energy demand which is necessary for economic growth. Construction of the first of three planned nuclear power plants—the Akkuyu facility on the Mediterranean coast—began in April 2015 and is still ongoing. In 2023, the energy and natural resources minister announced that Türkiye found natural gas worth more than US$500bn in the Black Sea.

Liberalization of the energy market, through privatization of production and distribution assets, as well as market deregulation, has created significant investment opportunities in almost all components of the value chain for electricity, natural gas, oil and coal.

Türkiye is a critical energy corridor facilitating the trade of oil and gas between the world’s crucial suppliers in Western Asia and the large consumer market in Europe. Several large pipeline projects are in operation or under development. Of significance are the Baku-Tbilisi-Ceyhan (BTC) crude oil pipeline, which runs from the Caspian Sea to the Mediterranean, passing through Azerbaijan, Georgia and Türkiye; TurkStream, which runs from Russia to Türkiye through the Black Sea; and the Trans-Anatolian Natural Gas Pipeline (TANAP) which runs from Azerbaijan through Türkiye to Europe. 

Taxation

There are three general tax categories in Türkiye: income taxes, taxes on wealth and taxes on expenditure. In addition, there are social security contribution requirements for both employers and employees.

Income taxes are applicable to real persons as well as corporations. While the corporate tax rate is flat, personal income tax is levied at progressive rates on an individual’s annual taxable income, the highest rate being 40 percent. The tax rate pertaining to the corporate income (CIT) in Türkiye was set at 25 percent for the 2023 taxation period, however, the CIT rate for financial sector companies is 30 percent. Taxes on wealth include real property tax, motor vehicles tax, inheritance tax and gift tax. Real property tax ranges between 0.1 percent and 0.6 percent of the registered value of the real property. The rate of motor vehicles tax depends on the age and engine capacity of the vehicle. Inheritance and gift taxes are levied at a rate of 1 percent to 30 percent.

Taxes on expenditures include value added tax (KDV), special consumption tax, stamp tax and banking and insurance transaction tax (BSMV). Unless there is a specific exemption, KDV is levied at a rate that varies between 1 percent and 20 percent on the purchase (including importation) of various goods and services. Special consumption tax applies to the sale of certain goods such as alcohol and tobacco. Please see “Cost of Financing” under “Banking and Finance” for further details on taxes.

Social security contributions are calculated on the basis of monthly wages and are paid jointly by the employer and the employee. Currently, the employer’s share is 20.5 percent (subject to a 5 percentage point decrease, subject to certain conditions) and the employee’s share is 14 percent of monthly gross earnings, including salary and bonuses, where gross earnings are capped at a monthly amount (currently ₺100,608). As part of the social security contributions mentioned above, employers and employees are required to make contributions of 2 percent and 1 percent, respectively, of the employee’s gross salary to the unemployment insurance fund.

Türkiye has several investment incentive programs which provide benefits and exemptions from one or more types of taxes. Eligibility for an incentive program depends upon the scale, geographical location and strategic nature of the investment.

The Parliament is the primary competent authority that imposes, amends and revokes tax obligations. It may also authorize the President to set various tax rates, within the range specified by the relevant tax law. The Ministry of Finance implements tax laws and regulations.

Türkiye is party to double-taxation treaties with many countries. These treaties prevent double taxation and allow cooperation between Türkiye and other applicable tax authorities. For more information on Türkiye’s international treaty commitments, please see “International Treaties” under “Protection of Foreign Investments”.

Currency

Türkiye uses a floating exchange rate regime under which exchange rates are determined by supply and demand conditions in the market. Foreign exchange bid prices are published on a daily basis on the Central Bank website.

Legal system

Constitutional structure

The Turkish constitutional structure has operated as a multi-party system for 76 years.

The first constitution of the Republic of Türkiye was adopted in 1924 and the current constitution dates back to 1982. Although Türkiye initially adopted many of its legal codes from Switzerland, France and Italy, in recent years, in conjunction with the country’s European Union accession process, both the Constitution and the legal codes have undergone significant amendments. Please see “Constitutional Amendments of 2017” below for information on the scope of the most recent constitutional amendments.

The Turkish constitutional system is based on the separation of powers. The Constitution provides for a single legislative body, the Parliament, an executive branch comprised of the President, and an independent judiciary represented by a multi-layer court system divided into civil, criminal and administrative authorities.

The legislative power of the state is vested in the Parliament which is comprised of 600 members. Under a closed list electoral system, voters do not cast ballots for candidates but rather for a political party based on a candidate list presented by the political party. Seats in Parliament are proportionally allocated to political parties gaining 10 percent or more of the national electoral vote. Members of the Parliament represent the entire nation and serve five-year, renewable terms. The Parliament is vested with powers to adopt and repeal laws, debate and adopt legislative proposals on the state budget, print money, ratify international treaties and declare war.

The executive branch is the Presidency. The President is elected by direct national vote for a five-year term with the possibility of being re-elected for a second five-year term. The President is the head of state and has the power to veto legislation. A presidential veto may be overridden by the Parliament if a simple majority of its members adopt the proposed law for a second time and without amendment.

The Turkish judiciary is an independent body of the public administrative system. The overarching structure of the judiciary is a multipartite system embodying two distinct court systems: general courts (including civil, commercial, criminal, labor and family courts) and administrative courts. In the general and administrative judiciary, there are courts of first instance, appellate courts (istinaf mahkemeleri) and high courts. The high court of general jurisdiction is the High Court of Appeals (Yargıtay) and the Council of State (Danıştay) is the highest administrative court. The highest court for constitutional review and adjudication is the Constitutional Court of Türkiye (Anayasa Mahkemesi).

Turkish courts’ review of a dispute is focused on establishing the facts of the dispute and applying the provisions of the relevant code to those facts. Both the fact-finding and legal analysis functions are carried out by a judge who, in practice, often appoints expert witnesses to submit reports to the court. There is no jury system. Unlike in common law systems, the role of the judge is limited in terms of law-making. In the absence of an applicable statutory provision, judges may establish applicable rules on a case-by-case basis; however, this authority is rarely used. This authority does not extend to criminal law cases.

As a general rule, court precedents provide non-binding guidance to courts. In other words, the stare decisis principle, emblematic of common law jurisdictions, is less stringently adhered to in Türkiye. However, decisions of the plenary sessions of the High Court of Appeals and the Council of State that address conflicting applications of the law from different chambers (also known as decisions on the unification of conflicting judgments) establish binding precedents.

Constitutional Amendments of 2017 

The constitutional amendments approved through a public referendum held on April 16, 2017 include comprehensive revisions to the Turkish governmental system, replacing the dual-structured executive branch with a presidential system.

The amended Constitution grants broader executive powers to the President through consolidating the authorities of the now-defunct Council of Ministers, including those of the Prime Minister, in the President’s office. Subject to certain restrictions, the President has the right to issue presidential decrees (cumhurbaşkanlığı kararnamesi) to undertake activities whose approval is not, for whatever reason, sought from Parliament, such as a unilateral declaration of a state of emergency, a call for early elections or to issue regulations to implement laws. The President also has the right to propose an annual budget to the Parliament. If the Parliament does not ratify the President’s proposed annual budget, it may adopt a provisional budget. Failing passage of a provisional budget, the prior year’s budget, adjusted using a revaluation ratio, automatically becomes law.

Under the amended Constitution, the Council of Ministers was abolished and the Parliament no longer has the power to appoint or dismiss any executive officer. Rather, the Parliament may, with the approval of three-fifths of its members, call for early elections. Regardless of the branch of government calling for early elections, simultaneous elections are held for both the Parliament and the Presidency. In the event that Parliament calls an early election during the President’s second term, the incumbent President may be elected again.

The amended Constitution also, among other things, abolished the military judiciary, revised the structure and composition of the Constitutional Court and abolished the concept of by-laws (tüzük) that were, in the past, issued by the Council of Ministers upon review of the Council of State.

Sources of Law

Türkiye is a civil law jurisdiction. The legal system is based on comprehensive legal codes (laws). Duly ratified international treaties also carry the force of law. The provisions of a treaty become applicable when the Parliament enacts a law announcing the entry into force and execution of the relevant treaty.

Below is an explanation of the legal hierarchy under the current Constitution and is intended to be read with the sub-section, “Constitutional Amendments of 2017” above.

Laws may only be enacted by the Parliament, not by courts. However, since general laws are not always sufficient to accommodate the daily needs of society, administrative authorities are empowered to issue secondary legislation containing more technical, in-depth provisions relating to the implementation of a law.

The legal hierarchy in Türkiye can be stated as follows:

• First, the Constitution;
• Second, international treaties that are duly ratified by the Parliament concerning fundamental rights and freedoms (such as the European Convention on Human Rights);
• Third, statutory laws, presidential decrees, and other international treaties duly ratified by the Parliament;
• Fourth, regulations and ministerial communiqués.

Fundamental Laws

Türkiye’s fundamental laws are largely based on other major continental European legal systems. For instance, the Turkish civil law system incorporates elements of Swiss law, Turkish commercial law is largely based on German law, Turkish administrative law bears similarities to French law and the Turkish criminal code is similar to its Italian counterpart. The fundamental laws (also known as codes) in force in Türkiye are:

• The Civil Code governing the general rules and principles applicable to individuals and legal entities residing or incorporated in Türkiye, as well as their general dealings with each other (for example, personal status law and family law);
• The Code of Obligations regulating the rights and obligations (contractual or non-contractual) of private persons vis-à-vis each other;
• The Commercial Code regulating commercial undertakings, companies, negotiable instruments, maritime law and insurance agreements;
• The Labor Law governing the relationship between the employee and the employer;
• The Criminal Code governing general principles of criminal law, various categories of crimes, and applicable penalties; and
• Administrative law, composed of various laws regulating the functions of governmental bodies and their relationship with individuals and legal entities.

In addition to these fundamental laws, there are non-sectoral laws (such as competition and environmental law) and sectoral laws (such as banking, capital markets and energy) that form an important part of the business landscape. The main regulatory entities with rule-making and implementation authority are the various ministries and separate regulatory agencies created to supervise certain activities, including the BDDK, the Capital Markets Board, EPDK and the Competition Authority. These regulatory agencies are independent, administratively and financially autonomous public institutions.