Corporate Law Series · 3 of 5
A foreign partner may bring finance, technology or access to textile markets. The legal structure should also address reporting, management, tax, intellectual property and exit arrangements. Foreign share ownership and permission to work in Turkey are separate questions.
1. What can a foreign partnership contribute?
Potential benefits include an established distribution network, machinery finance, manufacturing know-how and experience with buyer quality or sustainability requirements. These benefits depend on what the partner actually undertakes to deliver; nationality alone does not guarantee market access or commercial reliability.
Before allocating equity, distinguish cash subscriptions, shareholder loans, equipment, licences, services and promises to introduce customers. Define their value, delivery timetable and the remedy if a promised contribution does not materialise.
2. Investment framework and reporting
Law No. 4875 on Foreign Direct Investment adopts investment freedom and equal treatment as its general framework, subject to applicable legislation and international agreements. A conventional textile investment does not automatically require a special foreign-investment approval merely because a shareholder is foreign.
A Turkish limited or joint-stock company can have foreign shareholders. Incorporation, share transfers, authority to represent a foreign corporate investor, registry documents and any translation, apostille or consular-certification requirements must be examined for the particular transaction.
E-TUYS
Companies and branches within the applicable foreign-investment reporting regime use the Ministry of Industry and Technology’s E-TUYS framework. The obligations should not be described simply as an annual form sent to the Ministry of Treasury and Finance. Investor information, capital changes, payments and share transfers can involve separate notifications.
The Ministry’s guide states that annual activity information for the preceding calendar year is entered by the end of May. The responsible authorised user, supporting records and event-based reporting calendar should be established at the outset.
Funds and in-kind contributions
Document the source, purpose and accounting treatment of incoming money. Capital, a shareholder loan, a service payment and an equipment contribution are different transactions. Applicable banking, foreign-exchange, valuation and registration requirements must be checked; it is inaccurate to say that every foreign contribution must necessarily be foreign currency accompanied by the same direct report to the Central Bank.
The general freedom to transfer qualifying proceeds abroad remains subject to applicable tax, banking and other legal requirements. A shareholders’ agreement cannot waive those obligations.
Property and other regulated issues
Investment freedom does not remove workplace licensing, industrial, environmental, employment, customs or product requirements. Special rules can also affect acquisition of real estate by a foreign-invested Turkish company. The actual activity and asset plan should be assessed rather than assuming that a textile label removes every restriction.
3. Work permits and exemptions
A person does not obtain an unrestricted right to work in Turkey merely by acquiring shares. The Ministry of Labour distinguishes the positions of shareholder-managers, shareholder board members, non-resident board members and non-managing partners.
For example, a foreign shareholder who manages a limited company and a foreign shareholder serving on a joint-stock company’s board fall within the relevant work-authorisation framework. Non-resident joint-stock board members and non-managing partners in other companies can fall within the exemption framework. The conditions, duration and required application must be checked before work begins.
Do not treat a residence document, share certificate, board appointment or a general power of attorney as automatically equivalent to the required work permit or exemption.
4. Structuring the agreement
Language, governing law and company documents
Bilingual documents can help the parties understand their obligations. State how inconsistent versions are resolved while observing mandatory Turkish-language rules where applicable. The governing law of contractual obligations, the rules governing a Turkish company and the chosen dispute forum are distinct matters.
Coordinate the shareholders’ agreement with the articles, management appointments, signing powers and any separate finance or licence agreements. A private promise does not automatically change registered representation powers or bind third parties.
Financial and operational provisions
- Funding: subscription deadlines, further funding, shareholder loans and consequences of default.
- Profit distributions: lawful distributable amounts, approval, tax documentation and payment arrangements.
- Technology and brands: the licensed rights, territory, quality controls, fees, duration and termination.
- Designs and collections: ownership of existing and jointly developed work, permitted use and post-exit access.
- Currency: pricing and exchange-risk mechanisms that comply with the foreign-exchange restrictions and exceptions applicable to the contract.
- Exit: transfer approvals, matching rights, valuation, payment, guarantees and any regulatory steps.
Review the foreign partner’s capacity and signing authority, corporate approvals, beneficial ownership and financing commitments. A promised overseas customer network should be translated into defined, measurable obligations where commercially appropriate.
5. Tax and cross-border payments
Dividend withholding depends on the recipient, payment date, domestic rules and any applicable tax treaty. The older statement that every foreign shareholder’s dividend is subject to a fixed ten per cent rate should not be relied on as a current universal rule. Confirm the applicable rate and documentary requirements before distribution.
A treaty can limit taxation where its conditions are satisfied, but relief is not automatic merely because two countries have signed an agreement. Tax residence, beneficial ownership, eligibility and proof must be examined. The number of treaties in force should also be checked rather than treated as a permanent figure.
Transactions with a related foreign shareholder or group company can fall within transfer-pricing rules. Goods, services, royalties, financing and management charges require a defensible commercial basis and appropriate documentation.
Qualifying exports can benefit from VAT exemption and, where the conditions are met, recovery of relevant input VAT. Foreign share ownership does not itself confer an export exemption or guarantee a refund. The transaction, customs and invoicing records remain important.
Legal, accounting and tax advisers should coordinate the structure before funds or intellectual property rights move. Interest, penalties, withholding, transfer pricing and permanent-establishment issues should be assessed for the actual arrangement.
6. Arbitration or court proceedings?
For a commercial dispute between private parties, a properly drafted arbitration clause may select an institution such as ISTAC, ICC or LCIA, subject to arbitrability and the applicable law. The clause should address the seat, rules, language, number of arbitrators and the scope of disputes covered.
ICSID is a different framework. Its Convention jurisdiction concerns qualifying investment disputes between a Contracting State, or a designated state entity, and a national of another Contracting State, with the necessary consent and other conditions. It is not an interchangeable option for an ordinary dispute between two private shareholders.
Compare likely claim size, interim protection, location of assets, cost, language and enforceability. Neither a Turkish court judgment nor an arbitral award is automatically enforceable everywhere without the relevant recognition and enforcement requirements.
A court clause and a mediation stage may be appropriate in some cases, while arbitration may suit others. The presence of a foreign shareholder alone does not establish which route is best. Certain company-law matters also require special consideration before assuming that they can be arbitrated.
7. Before accepting the investment
- Verify the investor’s identity, authority, funding and proposed commercial contribution.
- Choose the company and governance structure and identify required corporate approvals.
- Check registry documents, E-TUYS responsibilities and any other transaction-specific reporting.
- Separate share ownership from immigration and work-authorisation requirements.
- Review dividend taxation, related-party dealings and any treaty conditions.
- Define ownership and use of brands, technology and jointly developed designs.
- Agree an enforceable exit and dispute-resolution process.
Sources and series navigation
- Law No. 4875: English text reproduced by UNCTAD; the Turkish legal text governs.
- Ministry of Industry and Technology: E-TUYS investor-information guide.
- Ministry of Labour: work permits and exemptions for partners and board members.
- ICSID Convention, particularly Article 25.
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General information: This article concerns Turkish law and cross-border structuring issues. It does not replace legal or tax advice based on the parties, documents and proposed activity. Current requirements must be checked when carrying out a transaction.