foreign investment

CONTRACT DRAFTING & REVIEW

As our legal team do not think or work only as lawyers but also as business men, merchants, investors, financiers, engineers and any kind of technical person as the case may necessitate; we better define the strategy and the needs of our clients when drafting and reviewing the international contracts where the parties are subject to different laws.

Besides basic types of contract such as construction, sale & purchase, transportation, service, rent and employment contracts; we also advise on review and drafting consortium agreements, Terms and Conditions, Letter of Intent, NDA and any specific type of agreements that our clients may require during their business. And by virtue of our knowledge of multi languages, we provide the legal translations of the said contracts, when needed.

FOREIGN DIRECT INVESTMENTS

Foreign Direct Investments in Turkey

C&G has a strong expertise in international expansion of foreign companies. Our Istanbul based law Office entirely focuses on foreign strategic alliances and direct investments in Turkey, mainly EU funds and financial aids; and assists its foreign client companies on the research on govermental incentives.

Besides the establishment all types of companies or Liason Offices and Branch Offices, our law office assists our clients on legal steps for the set up of manufacturing and assembly plants, distribution centers, service centers, call centers, R&D facilities, data centers, warehouse, clinic and any others facilities and affiliated headquarters in Turkey.

Our services include also advising and assisting in obtaining work and residence permit in Turkey.

Overseas Investments for Turkish Investors

The international background of our team allows us to work in collobaration with specialized lawyers or legal consultants in specific countries. Hence; C&G Law Office has advised and is advising multiple Turkish clients on their investements in foreign countries all over the world via its international lawyer team, by finding solutions fit to their requirements, goals and budgets. On the other hand, we represent also our clients regarding the disputes related to their several investments in among other countries, since our capability stretches across various jurisdictions worldwide.

RENEWABLE ENERGY RESOURCES IN TURKEY

“The dream for an energy supply based on 100% renewable energies is coming true.”

“The revolutionary developments in technology as well as in legal frameworks make it possible for the national use of secure, sustainable and competitively priced renewable energy sources.”[1]

As known, Turkey has abundant reserves of renewable energy sources. The most important renewable sources of Turkey’s energy sector are electrical, solar in its various forms, wind, biomass and geothermal; and the benefits of exploiting these sources would be enormous.

Turkey, both geographically and geopolitically, situated in a region that makes it a natural “energy bridge” between the major proven oil and natural gas producing areas in the Middle East, Caspian Sea regions and Central Asia on the one hand and consumer markets in Europe on the other. Moreover, Turkey, itself, is a rapidly growing energy consumer. Due to its demographic and economic growth, Turkey constitutes a major energy market, as well as playing an active role within the projects to ensure the diversification of both energy resources and transport routes.

It is envisaged that the world energy consumption, of which is expected to increase by approximately 40 % within the next 20 years, will be fulfilled by the region where Turkey is located. [2]

Turkey’s total installed power of the Power Plants commissioned within 2010 is 3.674,5 MW, out of which 1.324,6 MW portion of it is the Power Plants producing electricity from Renewable Energy Resources, energy distribution by the Electricity producing Power Plants originating:

474 MW of it from wind power
816,6 MW of it from hydraulic
17 MW of it from geothermal
17 MW of it from landfill gas and biogas

Looking ahead, the energy supply from renewables for future must be wisely structured to make use of all our resources, such as;

ELECTRICAL ENERGY:

As of end of 2008, the 17% of the electricity produced in Turkey has been obtained through Renewable Energy Resources. As per revised strategy document for Electricity Sector, this ratio is aimed to reach 20% by the year 2020.

Turkey’s total installed electricity capacity is around 45,000MW1 while about 16,000MW of this figure constitutes renewable energy capacity. Further, 16,000MW also includes large Hydro Electricity power plants that fall out of the scope of “renewable energy resources” under the Renewable Energy Law.

1000 MW Renewable Power has been installed in 2009 by private sector and 19,6% of Turkey’s electricity has been produced thru Renewable Energy Resources. [3]

Cross Border Electricity Trade between Turkey and ENTSO-E’s Continental Europe Synchronous Area:³

“On 18 September 2010, the Turkish power system was synchronized to the interconnected power systems of Continental Europe and entered the stabilization period.

Turkish Electricity System is connected to the Bulgarian Electricity System by two 400 kV transmission lines, and by one 400 kV transmission line to the Greek Electricity System. The cross-border trade is possible in four directions: Bulgaria-Turkey, Turkey-Bulgaria, Greece-Turkey and Turkey-Greece. Both Bulgaria and Greece are members of ENTSO-E.”

With the Amendment Law No. 6094 of 29 December, 2010, Turkish Parliament amended the Law on Utilization of RES for Generating Electrical Energy of 10/05/2005 no 5346.

The Amendment Law introduces amendments to improve the incentive mechanism of the electrical energy generated by the license holders and encourage renewable energy investment opportunities in Turkey. Renewable Energy Resources (RES) are non-fossil energy resources such as hydraulic, wind, solar, geothermal, biomass, biogas (including landfill gas – LFG), wave, current and tidal energy.

RES Support Mechanism

Generation Licence Holders who are subject to RES Support Mechanism and who have commenced or will commence operating as of the date this Law became effective on 18 May 2005 till 31 December 2015 shall benefit from the fixed prices for a period of 10 years.

Exempted production

In the event that real persons and entities generating electrical energy from Renewable Energy Resources shall export their surplus productions to the distribution system, they can benefit from the fixed prices for a term of 10 years.

Use of domestic products

In the event that the mechanical and/or electro-mechanical equipment used in the production facilities of license holder entities based on the Renewable Energy Resources are manufactured domestically; domestic participation rate will be added to the fixed prices and shall be applicable for a period of 5 years from the date of commencement of commercial operation of the relevant production facility.

Land Usage Fee Incentives

A discount of 85% for permission, lease, rights of easement and servitude right fees based on renewable energy resources, their transportation roads and transmission lines to the system connection point, including those to be transferred to distribution companies or the “TEİAŞ” will be applicable for the first 10 years, including the period of investment and operation. Pursuant to the Amendment Law, this discount is applicable for the generation facilities which become operative by 31 December 2015, including facilities which were already operational at the date of enactment of the Amendments.

Permission shall be granted for the construction of energy production facilities based on renewable energy resources in national and natural parks, natural monuments and nature preservation sites, preservation forests, conserved forestry, wildlife development zones, special environmental protection zones provided that the necessary permissions are obtained from the Ministry of Environment and from the regional protection board in case of natural preservation areas.

SOLAR ENERGY:

It has been calculated that Turkey receives sunlight equivalent to roughly 11 thousand times the amount of electricity generated in Turkey in 1996.

Clearly, both photovoltaic and solar-thermal systems could be used to great effect. The potential for PV is virtually unlimited, and the price for these systems is declining rapidly.

Solar Power Specific Restrictions:

According to the Amendment Law on Utilization of Renewable Energy Resources in Electricity Generation, the total installed capacity of solar power generation plants with RES Certificates that connect to the transmission line before 31/12/2013 cannot exceed 600MW, limiting the number of solar power-based generation facilities entitled to an RES Certificate.

WIND ENERGY:

Wind energy is already in use in many parts of the world at a competitive price with conventional technologies. In this context, Renewable Energy Resources appear to be one of the most efficient and effective solutions for sustainable energy development.

In Turkey, wind energy potential is high; consequently same applies to the investment of wind energy. Turkey has a land surface area of about 800.000 km². Being surrounded with Black Sea in the north, The Marmara and the Aegean in the west and the Mediterranean in the south, Turkey has a very long coast line of 8500 km and the most attractive regions for wind energy applications. These regions are highly suitable for wind power generation, since the wind speed exceeds 3 m/s in most of these areas. It has ideal climate for wind and solar energy investments, with an average of more than 7 (seven) hours of sunshine a day and wind speed of 7.7 m/s average coming from Aegean, Black and Mediterranean seas. Turkey has the highest share in technical wind energy potential in Europe.

As per revised strategy document for Electricity Sector, it is aimed to reach 20.000 MW by the year 2020, also wind energy investors are targeting to produce the 20 % of Turkey’s total electricity by the year 2023.

GEOTHERMAL ENERGY:

Turkey has one eighth of the world’s geothermal potential and is ranked 7th in the world.

The Turkish Government has already recognised the potential of geothermal and in 1972 began to implement a program of construction which would have seen nearly 710 Megawatts installed by now. Unfortunately, the program was not fully implemented and this rich resource remains unexploited.

BIOMASS ENERGY

Turkey has always been one of the major agricultural countries in the world. Agriculture is becoming more important due to biomass energy being one of the major resources in Turkey. Various agricultural residues are available in Turkey as the sources of biomass energy. Utilization of biomass is a very attractive energy resource, since biomass uses local feed stocks and labour. Turkey relies on biomass to provide much of its energy requirement. More efficient use of biomass in producing energy, both electrical and thermal, may allow Turkey to reduce petroleum imports, thus affecting its balance of payments dramatically.

Pursuant to the Law on Utilization of RES for Generating Electrical Energy of 10/05/2005 no 5346 Biomass is defined as; resources obtained from agricultural and forestry products including vegetable oil wastes, agricultural harvesting wastes as well as from organic wastes, and from the by-products formed after their processing.

According to Turkey’s Biogas Plant Inventory; almost 180 million m3 annually biogas produced from 20 running biogas plants. Recently landfill gas extraction gained importance (total capacity 162,7 million m3/year). The efficiency ratio is between 30-38% electricity and 80-85% overall depending on various parameters. Operating cost, especially labour cost is cheap in Turkey. Turkey has potential of 2000 plants with each capacity of 500 kWel.

In future scenarios based on surveys, biogas can be used in a carbon negative energy system and help reduce climate change, by capturing and storing the carbon dioxide from biogas into the ground, the climate neutral biogas becomes carbon negative, and scrubs our past CO2 emissions out of the atmosphere.

[1] These words are taken from the latest International 100% Renewable Energy Conference and Exhibition held between 6-8 October, 2011 in Istanbul, organized by EUROSOLAR Turkey, The Turkish Division of European Association for Renewable.

[2] Excerpt taken from the Minister of Energy & Natural Resources – Taner Yıldız’s presentation of 2011 Budget of the Energy & Natural Resources Ministry at Turkish Grand National Assembly – Parliamentary Counsel.

[3] These figures are based on the statistics on Turkey’s installed capacity in 2009 disclosed in the web site of TEIAS (Turkish Electricity Transmission Company).

AMENDMENTS TO REAL ESTATE ACQUISITION LIMITS IN TURKEY FOR FOREIGN PERSONS AND FOREIGN COMPANIES

Turkish Parliament adopted a new law which removes reciprocity principle that was barring citizens of 89 countries from owning a property in Turkey. In other words, it is no longer required that a foreign person’s home country allows for a citizen of the Republic of Turkey to acquire real estate in order for that foreign person to be able to buy property in Turkey.

With the new law, foreign buyers can purchase land up to the 10% of a town’s acreage or 30 hectares throughout the country instead of 2,5 hectares. On the other hand, the Turkish Council of Ministers may raise this amount up to 60 hectares. In any event, the local land registry office should take the approval from the Military in order to determine if the related land is or not in military or security zone.

Besides, under the new legislation, foreign companies established in accordance with their own country’s laws may acquire real estates in Turkey only in accordance with the provisions of special codes and only to conduct their areas of activity mentioned on their Articles of Associations. Thus; these corporations are required to submit their projects to the approval of the relevant Ministry within two years. If approved, the project will be sent to the local land registry office. The companies other than the said commercial companies cannot acquire real estates in Turkey.

Pursuant to the article 35 of the Title Deeds Law no. 2644, the Turkish Council of Ministers may determine, restrict, sustain totally or partially or prohibit the acquisition of real estate of foreign persons or foreign companies upon the country, citizen, geographical region, term, number, rate, category, qualification, areameter or quantity.

Legal Steps to follow for acquiring Real Estate of foreign investors can be explained as:

Checking Title Deed Registry of real estate if there is any restriction right on the property,
Request the approval of the competent National Military Authority which will be submitted following its research on the potential new proprietor and also on the real estate which is subject to an acquisition by a foreigner whether it is located out of Military Forbidden Zones and Security Zones or not,
Following the approval of the Military, the signature of the official sale agreement before the related Title Deed Registry in order to register the property in the name of the new proprietor,
Submitting a declaration to the related local municipality related to the new ownership

With the same regulation, it has been also determined that the location, registration, announcement and planning of the areas with protected status such as natural protected areas, wetlands, private environmental protection areas are under the responsibility of the Ministry of Environment and Urban Planning.

FRAMEWORK OF EU FUNDING INSTRUMENTS, EUROPEAID CONTRACTS AND THEIR FINANCIAL BENEFITS WITHIN THE SCOPE OF FINANCIAL EUROPEAID PROJECTS IN TURKEY

Since January 1^ST, 2007, European Union invests in EU candidate countries such as Albania, Bosnia and Herzegovina, the former Yugoslav Republic of Macedonia, Kosovo, Montenegro, Serbia as well as in Turkey to achieve EU Standards in order to facilitate their accessions into the EU. For this purpose; by its cooperation with the related candidate countries’ authorities, EU provides procurement, contracting and funds to the abovementioned candidate countries within the scope of the Council Regulation (EC) No 1085/2006 of 17 July 2006 establishing an Instrument for Pre-Accession Assistance (“Regulation IPA-I”).

The eligibility for grants, the rules of participation and origin have been stated under the Article 19 of this Regulation IPA-I. The most significant factor for eligibility is that the tenders for EU EuropeAid External Aid Projects are open to all natural persons who are nationals of and to legal persons who are established in a Member State, in a country which is a beneficiary of this Regulation as well as in a country which is a beneficiary of the European Neighbourhood and Partnership Instrument, or in a Member State of the European Economic Area.[1]

Mostly, the proposals are also be submitted in the name of a duly established Business Partnership or Consortium. The calls for all tenders are announced on the web site of European Community and of Central Finance and Contract Unit of the Republic of Turkey.

By awarding this EuropeAid Tenders; during the whole project, right along with the “tax exemption certificate” as an important and significant financial advantage; the European Community (“EC”) Contractor and its suppliers will be entitled to several administrative advantages for granting of facilities during the implementation of the related EuropeAid project.

To sum up; the Instrument For Pre-Accession Assistance (“IPA”) is an investment of the EU by which EU supports in concrete perspective the “enlargement countries” and mostly “current EU candidate countries and potential EU candidate countries” to provide the stability and prosperity with its closest neighbours as well as to achieve a sustainable economic recovery and a competitiveness by means of the public administration reform on the environment and climate change, transport, energy supply, competitiveness and innovation, education, employment and social polices, agriculture and rural development, regional and territorial cooperation.

In this regard, under the IPA – I Regulation; IPA fund is divided in to 5 components within the scope of;

Transition Assistance and Institution Building,
Regional and Cross-Border Co-operation

Regional Development

Human Resources Development,
Rural Developments.

Last year, upon the expiration of the effective period of IPA-I Regulation, the second part of EU Funding Instruments, the IPA-II Regulation has been adopted on May 2, 2014 for the period 2014-2020.

For all EU candidates, the total allocations for the first period were 11.5 billion and, 11.7 billion has been dedicated for the second period.

eu turkey

The Reforms in Preparation for EU Membership and Socio-Economic and Regional Development have the lion’s share of this Euro._4.4 billion and the Agriculture and Rural Development is the succeeding component of the said allocation for all EU candidates.

By a wide margin Turkey has highest amount of allocation as Euro._4.4 billion for the second stage of EU enlargement policy.

As aforementioned said; the most important and significant financial advantage is to be beneficiary of a large tax exemption throught a tax exemption certificate acquired within the scope of any service rendered and/or goods supplied and/or works executed under the EC contract. It is certain that, such an exemption shall only be applied to the goods supplied or services rendered or works executed under the scope of the related EuropeAid contract.

Pursuant to the Article 26 of the Framework Agreement between Turkey and EU; it has been clearly stated that any taxes, customs and import duties and levies and/or taxes of equivalent effect are not eligible under IPA; hence the contractor should be relieved from any taxes, duties, levies imposed in Turkey during the whole project limited with the project’s budget including the co-financing provided by the Republic of Turkey.

In accordance with the said Article of the Framework Agreement, a General Communiqué numbered 1 of the Framework Agreement between Turkey and European Union for Assistance under the Instrument For Pre-Accession has been published in Turkey and came into the force on 24.12.2008 (“Communiqué). Under this Communiqué and following five related Communiqués; the contractor will be entitled to have a “Tax Exemption Certificate” which covers the Income and Corporate Tax, Special Communication Tax, Special Consumption Tax and Motor Vehicle Tax, as well as Stamp Duty.

Meanwhile, not to be taken out of context, it should be also noted that nowadays Turkey improves reforms in taxation in compliance with the economic adjustment programme of Turkey; on the other side, the Draft Income Tax Law is pending before the Parliament of Turkey in order to achieve legislative alignment with EU and mostly to rule out the unnecessary frustrating repetition of paperwork by simplifying the procedures of current Turkish Tax Administration taxation system which is based mainly on indirect taxation.

In addition, a valid work permit or a permit exemption certificate should be facilitated for key experts or for people staying in Turkey within the scope of the related EC contract.

[1] The ENPI’s beneficiary countries are Russia and the ENP partner countries such as Algeria, Egypt, Israel, Jordan, Lebanon, Libya, Morocco, Palestine, Syria, Tunisia, Armenia, Azerbaijan, Belarus, Georgia, Moldova, Ukraine. EU Cooperation with Syria is currently suspended due to political situation. European Economic Area includes EU countries and also Iceland, Liechtenstein and Norway.

Tag: foreign investment