Foundations in Turkey

8/9/2019 Foundations in Turkey

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FOUNDATIONS IN TURKEY

Turkey has a vibrant civil society with civil society organizations (CSOs) working in numerous areas. Since officially becoming an EU candidate country in

2003, Turkey has implemented a series of reforms that promote democratization, including reforms to its ba sic framework laws affecting civil s ociety.

Up until 2004, when a new Associations Law was enacted in Turkey, the autonomy of the Turkish CSOs was fairly restricted. The new Law was viewedpositively by both civil society and the EU. It lifted some of the limitations on civil society. Listed below are some of the key improvements contained in theLaw:

1. Associations are no longer required to obtain prior authorization for foreign fu nding, partnerships or activities.

2. Associations are no longer required to inform local government officials of the day/time/location of general assembly meetings and no longerrequired to invite a government official/commissary to general assembly meetings.

3. Audit officials must give 24 hour prior notice and just cause for random audits.4. Associations are permitted to open representative offices in other cou ntries.5. Security forces no longer allowed on t he premises of associations without a c ourt order.6. Specific provisions and restrictions for student associations have been e ntirely removed.7. Children from the age of 15 can form c hildrens associations.8. Standards relating to internal audits have been improved to ensure accountability of members and management.9. Associations are able to form temporary platforms/initiatives to pursue common objectives.

Subsequently, in 2008, Turkey adopted a Foundations Law, which further improved the legal environment. Today Turkish CSOs are more active than theyhave ever been before and are more aware of the deficiencies within the law that limit their activities. Future reforms are both necessary and inevitable.

At a Glance

Organizational Forms Associations Foundations

Registration Body Ministry of Interior, Department of Associations

The courts, with possible review made by the GeneraDirectorate of Foundations

Barriers to Entry

At least 7 founders required to establish association.Executive board of at least 5 people required. Board must haveTurkish majority. Foreigners can be members of board providedthey reside in Turkey.

Minimum capital of 50,000 Turkish lira (approx.35, 00USD) required to establish foundation.

Barriers to Activities

Standard annual reporting forms considered cumbersome and timeconsuming.Required to complete standard forms before receiving or usingforeign funding or opening new branch offices.

Standard annual reporting forms considered cumbersomand time consuming. Required to complete standard formbefore receiving or using foreign funding or opening newbranch offices.

Barriers to Speech and/or

Advocacy Prohibition against directly engaging in political activities. Prohibition against directly engaging in political activities

Barriers to International

Contact

Required to notify Government when receiving grant from

international organization.

Required to notify Government when receiving grant from

international organization.

Barriers to Resources Required to notify Government before using foreign f unding.Required to notify Government within one month oreceiving foreign funding.

Legal Snapshot

International and Regional Hu man Rights Agreements

International Agreements Key Year

International Covenant on Civil and Political Rights (ICCPR) Yes 2003

Optional Protocol to ICCPR (ICCPR-OP1) Yes 2006

International Covenant on Economic, Social, and Cultural Rights (ICESCR) Yes 2003

Optional Protocol to ICESCR (OP-ICESCR) No --International Convention on the Elimination of All Forms of Racial Discrimination (ICERD) Yes 2002

Convention on the Elimination of All Forms of Discrimination Against Women (CEDAW) Yes 1985

Optional Protocol to the Convention on the Elimination of Discrimination Against Women Yes 2002

Convention on the Rights of the Child (CRC) Yes 1995

International Convention on the Protection of the Rights of All Migrant Workers and Members of their Families (ICRMW) Yes 2004

Convention on the Rights of Persons with Disabilities (CRPD) Yes 2009

* Category includes ratification, accession, or succession to the treaty

National Laws and Regulations Affecting Sector

Relevant national laws include the following:



y Law 5253: Associations Law

y Law 5737: Foundations Law

y Law 4721: Civil Code

y Associations: Articles 56-100

y Foundations: Article 101-117

y Law 2860: Law on Collection of Donations

y Law 2911: Law on Demonstrations

y Law 4962: Tax Exem ption for Foundations

y Income Tax Law

y Corporate Tax Law

y Property Tax law

y VAT Law

Pending NGO Legislative / Regulatory Initiatives

There are no p ending legislative or regulatory initiatives.

Legal Analysis

Organizational Forms

There are two legal forms of CSOs in Turkey: associations and foundations. Article 33 of the Constitution grants the right to form these entities. Theseorganizations must be not-for-profit establishments. Article 56 of the C ivil Code states: An association is defined as a society formed by unity of at least seven

real persons or legal entities for realization of a common object other than sharing of profit by collecting information and performing studies for such purpose.Article 101 of the Civil Code defines foundations as charity groups in the status of a legal entity formed by re al persons or legal entities dedicating their privat

property and rights for public use.

Associations are registered with the Department of Associations under the Ministry of Interior. Although many associations believe that the registrationprocess is being handled according to the law, they still claim that the process is slow and cumbersome at times. All associations have to form a generalassembly, an executive board consisting of five individuals, and an auditing committee of three persons.

Foundations are established and registered through a court decree. The court may ask the General Directorate of Foundations to review each applicationFoundations only need for m an administrative body. Additionally, foundations must have a minimum capital of 50.000 Turkish Liras (app. 35.000 USD).

Public Benefit Status

The law in Turkey provides for public benefit status for CSOs, but only a very limited number of organizations have been granted public benefit status. Toillustrate: Out of more than 84,000 registered associations, only about 420 are recognized as public benefit organizations.

Article 27 of the Associations Law grants authority to the Council of Ministers to determine which CSOs can be granted this status. Article 20 of Law 4962provides the legal basis for tax exemptions of those foundations that are granted public benefit status.

Associations and foundations seeking public benefit status must secure the approval of the Council of Ministers. Upon receiving an application for publicbenefit status, the Council of Ministers must determine whether or not the activities of the CSO actually benefit the general public and are not intended toserve any one particular group. Since the law does not provide a clear definition of what activities constitute public benefit, the decision-making process isubject to discretion of the Council. Unsurprisingly, decisions are sometimes perceived as being highly political. However, there are specific minimumrequirements in the law which CSOs must meet; for instance, foundations must spend more than two-thirds and associations more than half of their revenuetoward their mission.

Barriers to Entry

All Turkish citizens can establish or be a member of associations. Some restrictions are applicable, however, to military and security personnel, judges andattorneys working under the Ministry of Justice and some other government officials working w ithin designated ministries. In addition, only foreigners with a

residence permit are permitted to found or join an association in Turkey.

In general, if the regulations are satisfied, NGOs will not be refused registration. Article 56 states that N o association may be formed for an object contrary to

the laws and ethics. Article 101 of the Civil Code states that Formation of a foundation contrary to the characteristics of the Republic defined by the

Constitution, Constitutional rules, laws, ethics, national integrity and national interest, or with the aim of supporting a distinctive race or community, is restricted.

Moreover, the required content of the association by-laws is overly detailed.

The Foundations Law sets a minimum capital requirement of 50.000 Turkish Liras (app. 35.000 USD) in order to establish a foundation. Although there is nominimum requirement for founders or members for foundations, at least seven founders are required to form an association. Additionally, associations arerequired to form an executive board made up of at least five people, while foundations are only encouraged to do so. Foreigners can be members of boardsas long as they reside in Turkey. However, the executive board must still have a Turkish majority.



According to implementing regulations for the Associations Law, associations seeking office space within residential buildings must secure the permission oall residents living in the building a requirement that is burdensome at best, and in some cases practically impossible. The failure to secure office space mayprove a barrier to the process of registration for associations.

In order to form a federation or a confederation, the Associations Law requires a minimum of 5 and 3 organizations, respectively, to come togetherProblematically, however, the law re quires that member organizations must have t he same purpose, which is unnecessarily limiting.

Barriers to Operational Activity

In general, Turkish CSOs are free to operate and are free from government harassment such as frequent inspections, requests for documentation, etc

Government officials are prohibited from attending meetings and CSOs can hold internal meetings free from external pressure. CSOs are not required toinform the government about their programs and projects.

There are, however, some standard forms that CSOs must complete each year which can be cumbersome and time consuming for some organizationsSpecifically, associations and foundations must complete annual statements which are submitted either to the Interior Ministry, Department of Associations orto the General Directorate of Foundations. Additionally, CSOs must complete standard forms before receiving and/or utilizing foreign funding and openingnew branches or offices.

In addition, CSOs frequently are fined for improper record keeping. Article 33 of the Associations Law holds the chair of the executive board of theassociation responsible i.e., personally liable for any sanctions and/or fines assessed against the a ssociation.

Foreign organizations are subjected to serious bureaucratic rules when opening a branch office in Turkey.

If a CSO becomes involved in a n illegal activity, the organization can be terminated by a court order. Organizations that violate the law can be terminated only

with a court order.

Barriers to International Contact

There are no restrictions for Turkish CSOs to operate in other countries. But when receiving a grant from an international organization, CSOs must notify theappropriate government office. International CSOs operating in Turkey must receive permission from the Government prior to starting their ac tivity.

Barriers to Resources

Foreign Funding

There are no limitations on foreign funding, but there is a notification requirement relating to foreign funding. Foundations must notify public authoritieswithin one month after receiving the funding, while associations must notify the Government before using the funding.

Domestic Funding

There are no special government programs providing funding for CSOs. Local authorities and municipalities provide more funding then the centralgovernment. There are no clear laws or regulations governing public funding for C SOs.

Both associations and foundations can engage directly in economic activities, establish and/or become partners in economic enterprises or companiesAlthough CSO income is not generally subject to corporate tax, the income from economic activities is taxable.

Donors to public benefit organizations can claim a tax deduction of up to 5% of their taxable income.

The Draft Bill of Charitable Foundations Approved In Plenary Session of National Assembly

The draft bill provides that determine the principles and liabilities of General Management and Assembly of Charitable Foundations.

According to the new regulations of the draft bill, the foreigners can establish a foundation in Turkey. They can take positions in

administrative bodies of charitable foundations.

During establish a foundation; the administrators have been selected through their own receptions. The court will determine the least property holdings of the administrators. The p eople of majority will have to be residing in Turkey who

will have a position in charitable foundations

Turkeys revised Foundation Law and important amendments

The most important legal basis in Turkey relating to foundations is the Foundation Law. The new Foundation Law was adopted and put into effect onFebruary 20, 2008. It brought about many changes. It allows foundations established in Turkey to play an effective role in business life. While foundationswere equivalent to charitable institutions in Turkish practice in the past, the revised Foundation Law aims to make foundations important participants insocial and business life.

The amendments in the Foundation Law were made to adjust to European Union rules and aimed to produce a new legal identity for foundations. We expecthat the regulation required for practicing will be issued in the fall of this year. This regulation should be waited for to have more information on theamendments.



The present article explains the organization and establishment of foundations by foreigners in Turkey, their foreign activities as well as their activitiesrelated to the said amendments.

How foreigners establish foundations in Turkey According to article 5 of the Foundation Law, foreigners can establish foundations in Turkey based onlegal and actual reciprocity. The main framework of the reciprocity principle mentioned in the said article will be the international reciprocity principleaccording to article 2 of the Foundation Law.

The terms foreigner, reciprocity principle and new foundationbin article 5 of the Foundation Law, which regulates how foreigners may establishfoundations in Turkey, should first be analyzed and clarified:

Foreigner: The term mentioned in the law means natural persons residing outside Turkey as well as legal persons established in foreign countries. Foreignerincludes foreign associations and foundations established in foreign countries as well as their business enterprises. Thus, business enterprises of foreign

associations and foundations established in foreign countries will also be allowed to establish foundations in Turkey by using their assets and their rightsexisting anywhere around the world and in Turkey. Reciprocity principle: This is a basic principle effective when countries practice sovereignty powers ininternational relations. According to this principle, citizens of different countries have equal rights and obligations.

The reciprocity principle was included in the Foundation Laws decree legally and actually to see whether this principle is practiced or not. For example, ifnatural Turkish citizens and legal persons incorporated in Turkey are allowed to establish foundations in a c ertain country and if they are allowed to actuallyexercise this right and may establish foundations in that country, the citizens of that country will also be allowed to establish foundations in Turkey under thesame provisions.

N ew foundation: This term existing in article 3 of the Foundation Law means foundations established according to the Turkish Civil Code.

Management of foundations established in Turkey

According to the 5th clause of article 6 of the Foundation Law, managerial bodies of foundations are put together according to the foundation deed. Most of thepersons working for managerial bodies of foundations must reside in Turkey.

The status relating to residing in Turkey will be determined according to the decree of article 19 of the Turkish Civil Code. According to the decree of thisarticle, the residence of a person is the address at which he intends to stay permanently. Therefore, a person is considered as residing in the country in whichhe has the most vital interests.

How foundations established by foreigners obtain real estate in Turkey

The decrees of the Turkish Land Registration Law relating to real estate purchases by natural foreign persons are based on the reciprocity principle and wilbe applied to foundations whose founders are mostly foreigners.

International activities of foundations

According to the decree of article 25 of the Foundation Law under the title of International activities, all foundations can undertake the followinginternational activities provided they are mentioned in their foundation deeds:

. Engaging in international activities and cooperation according to t heir objectives and activities . Opening branches abroad . Establishing senior associations abroad . Affiliating with organizations established abroad Foundations may acquire various assets to carry out their activities in Turkey as well as ab road

and to enter into cooperations. Examples of such activities of foundations established in Turkey according to the decree of the 2nd clause of article25 of the Foundation Law are the following:

. Foundations may receive grants or assistance in kin d or in cash from natural persons, institutions and organizations existing at home or abroad. . They may make available grants and assistance in kind or in cash to foundations and associations with similar objectives existing at home or

abroad.

Assistance in cash to foundations established in Turkey can be received or offered from or to abroad or home only through bank c orrespondence according tothe decree of the law. With regard to the assistance in kind from abroad or home, there is no restriction on receiving or sending, because there is nocorresponding regulation in the clauses decree.

How foundations establish business enterprises and companies

The new Foundation Law a ims to allow foundations to play a more active role in business life. Foundations are therefore allowed to establish organizationsfor achieving this goal. It is believed that business enterprises and companies established by foundations help foundations achieve their goals more rapidly.

Foundations whose founders are mostly foreigners will be allowed to establish business enterprises and companies a nd to participate in existing companie

to achieve their goals and to provide income for the foundations, provided that the General Directorate for Foundations is informed according to theargumentum a contrario comment of article 26 of the Foundation Law.

Inheritance tax on real estate and movable goods granted to found ations established by foreigners in Turkey

According to the 8th clause of article 77 of t he Foundation Law, real estate and movable goods granted to foundations when they are established or after theywere established are exempt from i nheritance tax. This exemption is also valid for foundations established in Turkey by foreigners.

Organization of foreign foundations in Turkey

There is no clear regulation in the Foundation Law about how foundations established abroad can act in Turkey, open branches or agencies, establish senioassociations, affiliate with a senior association or cooperate with foundations established in Turkey. International activities and organizational models forfoundations established abroad should be specified with an appendix to be made to the law in the future.

Conclusion



The amendments in the Foundation Law changed the foundation concept fundamentally in Turkey. Although foundations were charitable institutions in thepast, they are about to become important organizations in business life. The corresponding amendments were expressed as a requirement for adaptationduring the debates in the Justice Committee of the Turkish Parliament. Due to these amendments, foundations are eligible to

. Open branches and agencies . Engage in international activities and cooperation . Establish senior associations at home and abroad . Affiliate with institutions established abroad . Establish business enterprises and companies . Become partner of existing companies

Briefly, the legal amendment mentioned above eliminates any difference between a foundation and a trade company with respect to operating. In fact, this

change has not been completed yet. How ever, a developing trend toward a modern view of foundations can be seen already. Because, foundations are legallyallowed to establish business enterprises and companies and because, foreigners are legally allowed to establish foundations in Turkey. I believe thatforeigners will monitor the further development of Turkish foundations closely in near future.

The foundation of a company in Turkey is with the direct investment law from the year 2003 for foreign investors substantially one simplified. Now, inparticular foreign investors are on an equal footing w ith Turkish entrepreneurs after abolishing different hurdles like e.g. the minimum investment border aa value of 50.000 USD. Now consists the only one difference in the fact that foreign investor has fulfill some additional formalities as e.g. settled the translationof the documents.

However this equalization position was lightly affected by a judgment of the Supreme Court in 2008, which leads to the introduction of a licensing procedurefor real estate acquisition.

Since 2001 the Turkish economy grows more stably and over 7% annually, so that the purchasing power of the recent population increases substantially. Thesize of the local Turkish market with its about 71.5 million inhabitants and 11,170 USD Gross Domestic Product per inhabitant (conditions 2008) is thus forforeign investors and exporters of outstanding importance. Also the labor costs and w ork time advantages play a substantial role for the choice of Turkey as

location.

With foreign direct investments in Turkey, Turkish limited companies (limited sirket) and Turkish corporations (anonim sirket) represent, depending uponindividual case the most popular company forms. For this rea son our explanations are limited on that in the following.

1. Foundation - Limited Company in Turkey (limited sirket)

The conditions of the Turkish limited are listed in the Turkish commercial code in Article 503 pp.

After Turkish corporate law at least 2 natural or legal entities are necessary to establish a Turkish limited in Turkey. The one-man limited is in Turkey not yepermissible at present, but in t he current corporate law reform it is intend to allow ist.

The minimum capital stock of the limited company in Turkey amounts to 5,000 TL (approx. 2,400 Euros). The Turkish Limited is liable to its creditors onlywith their capital stock. The individual partners are liable with their personal fortune only exceptionally because the limited is in debt at the State of (tax and

social security debts).

The Turkish Limited possesses at least 2 organs after the law: The company general meeting and the managing directors. The company general meeting maytake place also outside of the registered place of business and seize resolutions even with the circulation method. Here it is to be still pointed out that also aforeign citizen can be managing director of a T urkish Limited. In this case he has to request for a residence- and work permit for itself afterwards.

The resolutions of the Turkish Limited over portion transmission, capital increase, dissolution of the partnership etc. must be approved of ¾ of theshareholders who own together ¾ of the capital stock. This regulation makes the unanimity the rule and must be well considered by the founders, inparticular with the Turkish Limited with 2 partners.

With the conclusion of the articles of association, before the notary the actual establishment of the Turkish Limited begins. The articles of association must beclosed in writing, notarize and are subject to legally given minimum requirements, like e.g. the data concerning the partners, i.e. their first names, surnamesdomicile and nationality. The founders can assign a lawyer for the completion of all establishment formalities by a notarially authenticated authorizationwhereby they must come for the establishment not personally into Turkey. The foundation method is finished after the entry into the Re gister of Companiesand the proclamation in the Register of Companies sheet. The Turkish Limited attains its legal capacity with the entry in the Register of Companies.

The establishment takes place within 2 - 7 days after the filing of an application. The foundation charges behave between approx. 600 and 1,200 Eurosdepending upon the number of partners, length of the articles of the association and the number of documents which have to be translated.

2. Foundation - Corporation in Turkey (anonim sirket)

After Turkish corporate law at least 5 natural or legal entities must act together, in order to be able to create a corporation in Turkey.

The minimum capital stock of the corporation in Turkey a mounts to 50,000 TL (approx. 24,000 Euros). The Turkish corporation is liable to its c reditors likethe Turkish Limited only with their capital stock. However contrary to the Turkish Limited there are no liability of the partners (shareholders) with privatefortune, even they also have public debts by the State of (t ax and social security debts).



The corporation compared with the Turkish Limited is in particular more favorable concerning the organization of share transfers. Differently than at aTurkish Limited the partners can sell their s hares without restrictions at will and for the transmission there is notarial contract necessary.

The corporation in Turkey possesses at least 3 organs after the law: The general meeting, the executive committee and the supervisory board. The generalmeeting must take place annually at least once and in principle within the competence borders of the respective Register of Companies, since also arepresentative of the Ministry of T rade must be present thereby. The executive committee consists at least of 3 persons and may take place also outside of theregistered place of business and seize resolutions even with the circulation method. In the supervisory board at least one person must sit, who is not to behowever with the society in an employer-employee relationship. Also at a corporation foreigners may be ordered to the executive committee and berequested afterwards the residence and work permit.

With the conclusion of the articles of a ssociation before the notary the actual establishment of the corporation in Turkey b egins. Exactly the same as during

the establishment of the Turkish Limited the articles of association must be closed in writing, notarized and are subject to legally given minimumrequirements, like e.g. the data concerning the partners, i.e. their first names, surnames, domicile and nationality. The founders can assign a lawyer for thecompletion of all establishment formalities by a notarially authorization, whereby they must come for the establishment not personally into Turkey. Thefoundation method is finished after the entry into the Register of Companies and the proclamation in the Register of Companies sheet. The Turkishcorporation attains its legal capacity with the entry in the Register of Companies.

The establishment of the Turkish corporation takes place within 2 - 7 days after the filing of an application. The foundation charges behave between approx2.800 and 3,600 Euros, depending upon the number of partners, length of the articles of the association and the number of documents which have to betranslated.

COMPANY ESTABLISHMENT IN TURKEY NO PRE-PERMITSThe pre establishment permits to be taken from The U nder secretariat of Treasury and Ministry of Industry and Trade, required by the previous legislationhas been abolished.

COMPANY ESTABLISHMENT IN FEW-DAYS

It is now possible to establish a company just in 1 day when applied to the related Trade Registry Office with the required documents. The company gets itslegal entity upon registration at the Trade Registry.

COMPANIES WHICH CAN BE ESTABLISHEDIncorporated Companies such as:

Joint Stock Companies Limited Companies Commandite Companies Collective Companies Unincorporated Companies such as: Joint-Venture Business Association Consortium

COMPANIES WITH SPECIAL LEGISLATIONBanks, private finance institutions, insurance companies, financial leasing co mpanies, factoring companies, holding companies, companies operating foreigncurrency exchange offices, companies dealing with public warehousing, publicly held companies subject to the Capital Markets Law, companies that arefounders and operators of free zones are still subject to permit from the Ministry of Industry and T rade.

JOINT STOCK COMPANYThe companys stock capital is divided into s hares and the liability of the shareholders is limited to the capital subscribed and paid by the shareholder. At least5 shareholders (real person or legal entity) and minimum capital of YTL 50.000 is mandatory. The mandatory company organs are general assembly, board ofdirectors and supervisory board.

LIMITED COMPANYIt is the company established with at least 2 and at most 50 real person or legal entities and the liability of the shareholders is limited to the capital subscribedand paid by t he shareholder. Minimum capital of YTL 5.000 is mandatory. Unlike joint stock companies, no stock c ertificate is issued.

COMMANDITE COMPANYIt is the company established to operate a commercial enterprise under a trade name. Whereas the liability of some shareholders is limited to the capitalsubscribed and paid by the shareholder (commanditer), for some shareholders there is no limitation of liability. Legal entities can only be commanditer. Nominimum capital is required. The rights and obligations of the shareholders are determined by t he Articles of Association.

COLLECTIVE COMPANYIt 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 capitalsubscribed and paid by the shareholder. No minimum capital is required. It i s mandatory that all the shareholders be real person. The rights and obligations ofthe shareholders are determined by the Articles of A ssociation.

COMPANY ESTABLISHMENT PROCEDURES3 copies of articles of association (one copy original) which are notarized are prepared.Following the notarization of articles of association, within 15 days at latest, application to the relevant Trade Registry Office with the documents set below isneeded.

Documents for the Company Establishment Company Establishment Petition and Notification Form duly filled in and signed by persons authorized to re present the company*, Notarized signatures of persons authorized to represent the company together with the company trade name, Letter of Commitment in accordance with Article 29 of the T rade Registry Regulation, The list of the documents to be procured and forms to b e filled can be dow nloaded from www.sanayi.gov.tr and www.hazine.gov.tr



Bank receipt of the deposit, amounting to 0.04% of the company ca pital, Certified copies of the ID cert ificates of the real person founders a nd their residence certificates (if they have Turkish citizenship), In case there are any real persons of foreign citizenship among the founders of the company, the Xerox copy of his/her passport to be presented

together with the passport itself or its notarized copy, In case the foreign shareholder(s) is a legal entity; the original copy of t he Certificate of Activity issued by the competent authorities and approved

by the relevant Turkish Consulate or a postilled and i ts notarized translation, In case there are any rights and movable and im movable assets to be put in as c apital for a company to be established; expert report of the

assessment made to ascertain the value of these and the related court decision for the expert assignment.

Registration Procedures

The registration and establishment procedures have been simplified to a very great extent, after the enactment of Foreign Direct Investment Law and

revisions made in the Commercial Code and various other Laws. The complex and time c onsuming procedures have been eliminated for both local and foreigninvestors and the number of tra nsactions have been minimized to the following steps.

Registration of a Company

Registration to the Trade Registry

Following documents are required to be submitted to the Trade Registry Office. (The documents required may vary depending on if the shareholders are legaentities or if they are real persons)

Articles of Association certified by a Public Notary

A receipt issued by the bank verifying the payment of capital contribution if the capital is contributed by the shareholders at establishment

A bank receipt verifying the payment of Fund for Protection of Competition 4% in the 10.000 of the c apital commitment

Signature declarations and passport copies of the persons authorized to represent and bind the company (copies of the identity and residencecertificates for Turkish ci tizens)

Photos and passport copies of the real person shareholders

Registration to Tax Office An application to the tax office is required wherein the company headquarters is located, on the same day or the day before the registration date. A taxregistration number is received and legal books are c ertified by a Public Notary.

The rent contract certified by the Notary Public as well as t he notarized Circular of Signatory should be submitted to the related Tax Office.Following these registrations, the establishment procedures are completed and the company may start to operate. Expected period for finalizing the aboveregistrations is 2-3 days.

Registration of a Branch

Application to the Ministry of Industry and C ommerceResolution of the board of directors or the authorized organs of the parent company concerning the establishment of a branch office is required to besubmitted to the Ministry of Industry and Commerce.

Registration to the Trade Registry and Announcement

Following documents are required to b e submitted to the Trade Registry Office. (. De pending on the structure and the country at which the mother company isresident the documents required may vary considerably )

Board Of Directors or the authorized organs resolution concerning the establishment of a branch office in Turkey

Signature declaration and passport copy of the person authorized to r epresent and bind the branch (c opy of the identity and residence certificatfor Turkish citizens)

Proxy that will function as a signature circular granted to the authorized representative in Turkey.

Document from the Chamber of Commerce of the P arent Company

Registration to Tax OfficeRegistration procedure for a branch is the same as for the companies.

Registration of a Liaison Office

Establishment procedure of a liaison of office is briefly as follows:

Application to the General Directorate of Foreign Investment of the Undersecretariat of Treasury for a permission

Application to the Tax Office

Within one month after obtaining the permission from the General Directorate of Foreign Investment an application must be made to the tax office. Althoughthe liaison office itself is not subject to taxes and the employees are exempt from income tax, tax office registration is required for the withholding taxliabilities over the rental payments to be extended to real persons and for the stamp tax liabilities over the salary payments

Acquisition of a n Existing FirmA foreign investor may also buy the shares of an existing company wholly or partially, without a need for a prior permission or approval. There are no speciaarrangements or restrictions imposed on foreigners for the acquisition of an existing firm.Foreigners may freely purchase shares on the Istanbul Stock Exchange as w ell.

Following are the general conditions for purchasing shares in a joint stock company:

Endorsement and delivery of the share certificates to the buyer by the seller in case share certificates are printed

Written agreement for transfer of shares in case share certificates are not printed

Board of Directors resolution regarding registration of the shares in to the share ledger of t he company



Registration of the shares into the share ledger under the name of the new owner

Notification to the General Directorate of Foreign Investment

Following are the general conditions for purchasing shares in a limited liability company:

A written, notarized agreement between the seller and the buyer

A written notification about the share transfer to the legal personality of the company

The consent of at least 75% of t he shareholders, representing at least 75% of the capital

Announcement and Registration of the transfer at the Trade Registry.

Registration in the share ledger book of the company

Notification to the General Directorate of Foreign Investment

Investment Incentives The general incentive regime is applied varying to the location, scale and subject of investments. In terms of application of general incentives, Turkey isdivided into three types of r egions:

Developed Regions: The city boundaries of Istanbul and Kocaeli; and the m unicipality boundaries of An kara, Izmir, Bursa, Adana and Antalya) First priority regions: 50 cities determined by t he Council of Ministers Normal Regions: The remaining cities To be eligible for these incentive measures, the minimum amount of fixed investment must be 200 billion TL for the first priority regions and 400

billion TL for the developed and the normal regions The main incentive tools granted to investors by the current legislation are; Exemption from customs duties and fund l evies Investment allowance VAT (Value Added Tax) exemption for imported and locally purchased machinery and equipment Exemption from taxes, duties and fees

Exemption from customs duties and fund levies: This incentive measure ensures that the imported machinery and equipment for the investment can be broughto the country with the exemption of customs duties and fund levies. The machinery and equipment, which are to be imported under this measure, must be

included in the import machinery and equipment list to be approved by GDFI. Within this context, raw materials and intermediate goods cannot be imported.

Investment allowance: Investment allowance is a c orporate tax exemption applied to taxpayers. The expenses incurred within the scope of their investmentthose relating to buildings, machinery and equipment are entitled to benefit from the investment allowance. With the latest amendment in the income tax lawall the investments which amounted above 5.000.000.000- TL are entitled to benefit from the investment allowance. Investment allowance rate is fixed at 40% for all types of investments regardless of region or value. The withholding tax which has been levied up on the taxable income before deduction of theinvestment allowance prior to the amendment is abolished in order to provide more effective rate of 40 % with a net value. There is no need to obtain a prioapproval or permission like an investment incentive certificate for the investment to be eligible for investment allowance incentive. The correspondingpercentage amount of the fixed investment cost can be deducted from the future taxable profits starting with the year the cost realized. Investment allowanceamount can also be readjusted for inflation.

V AT exemption for imported and locally purchased machinery and equipment: The Value Added Tax, which is due to be paid for both the imported and locallypurchased machinery and equipment, shall be exempted by this incentive measure. The imported machinery and equipment, which are included in the impormachinery list approved by GDFI, can be brought to Turkey without paying Value Added Tax. The locally purchased machinery and equipment should also beincluded in the locally purchased machinery list to be approved by GDFI. With this approved machinery list, the investor can purchase the local machinerywithout paying the VAT to the seller.

Exemption from certain taxes, duties and fees: The investors who commit to realize 1.000 US Dollars of exports upon the completion of the investment aregranted exemption from the taxes, duties an d fees related to;

Establishing a company Increasing capital within the investment period Receiving investment credits whose terms are at least one year Registration of land and properties as capital-in-kind

Taxation

The Turkish tax regime can be classified under three main headings:

Income TaxesCorporate Income TaxesIndividual Income Taxes

Taxes on ExpenditureValue Added Tax

Banking and Insurance Transaction TaxesStamp Duty

Taxes on WealthInheritance and Gift Taxes

Property Tax

Income Taxes

Income taxes in Turkey are levied upon the income, both domestic and foreign, of individuals and corporations resident in Turkey. Non-residents earningincome in Turkey through employment, ownership of property, carrying on a business or from other activities giving rise to income are also subject to tax, buonly on their Turkish derived income.



Corporate Income Tax :

For tax purposes, companies are grouped a s limited liability companies (corporations and limited companies) and personal companies (limited and ordinarypartnerships). Corporate tax applies to limited liability companies. State economic enterprises and business entities owned by societies, foundations and locaauthorities are also subject to corporation tax.Whether a company is subject to full or limited tax liability depends on its status of residence. A company, whose statutory domicile or place of managemenare established in Turkey (resident company), will have full tax liability; in this case, worldwide income is taxable. If a non-resident company conductsbusiness through a branch or a joint venture, it will have limited tax liability; ie. fully subject to corporate tax on profits earned in Turkey on an annual basis. Ifthere is no presence in Turkey, withholding tax will generally be charged on income earned; for example, for services provided in Turkey. However, if there i san avoidance of double taxation treaty, reduced rates of withholding may apply.The basic corporate tax rate is 30%; with additional levies amounting to 10% of the tax, the total tax rate becomes 33%. For resident corporations, tax islevied on worldwide income, but credit is given for foreign tax payable in respect of income from foreign sources (up to the amount of Turkish corporateincome tax, ie. 30%)

Corporate entities having their statutory domicile and place of management outside Turkey, but established in Turkey in the form of a branch are subject totax on an annual return based on income received from the permanent establishment in Turkey.From the non-resident's point of view, many payments abroad including those for professional services and technical assistance, royalties and rentals aresubject to withholding tax at rates varying between 10% and 25%. In this regard, countries having avoidance of double taxation treaties with Turkey haveconsiderable advantages. Turkey has signed such treaties with 46 countries and the investors of these countries can benefit from a reduction in withholdingtaxes.

Individual Income Tax: The limited tax liability covers trade or business income from a permanent establishment, salaries for work done in Turkey (regardless of where paid orwhether or not remitted to Turkey), rental income from real property in Turkey, Turkish derived interest, and income from the sale of patents, copyrights andsimilar intangible assets. The ra nge of tax ra te for individual taxes is 15- 45%

Taxes on expenditure

Value Added Tax (VAT):Deliveries of goods and services are subject to VAT at rates varying from 1% to 25%. The general rate applied is 17%. Intercompany interest charges aresubject to VAT at 18%. The VAT rate on most leased assets is 1% with the exception of 25% on leased cars and 8% on other leased land transport vehicles

Lease contracts are exempt from all types of taxes, duties and stamp taxes. VAT is charged on imports at normal rates.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 incomeearned by the banks, for example on loan interest.Stamp Duty:

Stamp duty applies to a wide range of documents, including contracts, agreements, notes payable, capital contributions letters of credit, letters of guaranteefinancial statements and payrolls. Stamp duty is levied as a percentage of the value of the document.

Taxes on wealth

Inheritance and Gift Taxes:

Items acquired as gifts or through inheritance are subject to taxes between 1% and 30% of the item's appraised value. Tax paid in a foreign country oninherited property is deducted from the taxable value of the asset. Inheritance tax is payable over the period of five years and in tw o installments per year.Property Taxes: Property taxes are paid each year on the tax values of land and buildings at rates varying from 0.3% to 0.6%. In the case of the sale of property, a 4.8% levy ispaid on the sales value by both the buyer a nd the seller. The rate is reduced to 2.4% if the property is contributed as capital-in-kind.

Accounting and Auditing

The legislation regulating the accounting profession divides accounting professionals into three categories: Independent accountants (SM) Independent accounting and financial consultants (SMMM) Certified financial consultants (YMM)

Individual persons or entities acting as auditors for corporations and regulatory agencies must be licensed as independent accounting and financialconsultants (SMMM) or certified financial consultants (YMM). The Ministry of Finance requires certifications, being mainly tax related, to be carried out onlyby certified financial consultants (YMM). The accounting records that must be kept are as follows:

Journal General ledger Inventory ledger

These records should be kept in Turkish and in Turkish Lira and be authenticated by a public notary. Although these are the basic legal books required, othersmay be needed depending on the type of business. Companies may keep computerized records provided that they comply with these basic requirements.The government requires that all corporations produce an annual report setting out the Balance Sheet and Profit and Loss Statement of the company inaccordance with a standard chart of accounts, to be filed with t he Trade Registry.Companies subject to CMB regulations (banks, public companies- the companies which have more than 250 shareholders or whose shares or bonds are

quoted on the stock exchange) are required to use specific formats for financial statements and comply with more detailed CMB requirements. The quotedcompanies should publish quarterly financial statements. Companies subject to particular regulation, specifically banks and insurance companies are requiredto produce and publicize quarterly and annual reports.

Audit Requirements

There are no legal requirements in Turkey for the independent audit of the statutory financial statements, although the Turkish Commercial Code requires alcompanies to have a "statutory auditor". However, banks, brokerage firms, public companies and those companies which issue bonds or other financial papersare subject to CMB requirements. CMB requires the financial statements of these companies to be audited by those independent firms listed by the CMB. Theaccounting policies and the auditing principles required under CMB regulations are similar to international standards.Audits for entities receiving government or investment funding including state or privately owned i nvestment development banks are usually performed inaccordance with Generally Accepted Auditing Standards (GAAS).

Companies operating internationally also generally request their financial statements to be audited in accordance with GAAS.

Employment Regulations



The legal working week is 45 hours in T urkey. Overtime may not exceed 3 hours a day or 90 days a year. A minimum wage is set by t he government, but actuawages are higher than the minimum wage rate. Salaries are normally reviewed on a half yearly or quarterly basis. The review of wages depends on w hethethere is a collective bargaining agreement with a union and how long this is valid for. Fringe benefits cost employers about 30-40% of blue collar worker'sgross wages and 25-30% of white collar salaries. The most common fringe benefits are meals, transportation, and yearly bonuses of two or four month'ssalaries.Labor Law requires that all employees should be covered by t he social security system and pay social security contributions. The system includes benefits forindustrial accidents and sickness, health insurance, maternity, disability, old age and death. It also covers almost all costs of a modest level of medical careContributions as a percentage of gross salary are payable by individual employees and employers. The contribution rate for the employer and employee isaround 19, 5-25% and 14% of the gross salary respectively. For citizens of countries with which Turkey has bilateral social security agreements, it is possibleto stay within their ow n national social security schemes.

SHORTLY:

With the passage of the Foreign Direct Investment Law in 2003, the process of establishing a company in Turkey has become a lot easier:

Foreign nationals may now become shareholders of Turkish companies with no capital investment requirement and are allowed to establish any type of entityavailable under Turkish law. Depending on the type and size of your company, there are many incentives available to encourage inward investments. Forinstance, the Turkish Board of Ministers has recently passed a decision that would allow for customs tax a nd VAT immunity, as well as a substantial reductionin the corporate tax for newly established companies that creates jobs in certain areas of Turkey.

We have provided general information and listed the required documents for formation of a company, branch or liaison office in Turkey below.

Company

There are two types of companies that could be e stablished: a Limited Liability Company (LLC) and a Joint-Stock Company. Both types of entities have a legalidentity. The minimum paid in capital for a LLC is 5,000 TL and requires at least 2 founders (maximum 50). For a Joint-Stock Company, the paid in capital is50,000 TL and requires at least 5 founders. It should be noted that the paid in capital for both types of companies are not im mediately due at incorporation;

1/4 of the capital is required within 3 months after establishment and the remainder within 3 y ears. To register for a LLC, we would have to lodge a petition tothe provincial trade registration office, and for a Joint-Stock Company, the registration process would have to be done wit h the Ministry of I ndustry and TradeThe current corporate tax in Turkey is a flat rate of 20%.

Some Required Establishment Documents

1) Articles of Association2) Letter petitioning for establishment and notice signed by companys representative3) Notarized signatures of companys representative with the companys trade name4) Letter of Commitment 5) Bank receipt showing a deposit of 0.04% of t he companys capital6) Notarized copies of the passport, ID and residence certificates (for Turkish citizens) of the founders of the company7) Certificate of Activity if there is a foreign shareholder legal entity, approved by the Turkish Consulate (with a postilled and notarized translation)

Branch Office

A branch office does not have a separate legal identity as it is seen as an extension of a foreign company. Any i ncome originating from the branch is taxed bythe Turkish government as a non-resident company. To establish a branch, your company would have to gain permission from the Ministry of Trade andCommerce and register with the regional Trade Registry Office.

Ministry of Trade and C ommerce Required Documents

1)Letter issued by the company or its representative. The letter must include the following: a) Name of Establishing Companyb) Date of Incorporationc) Nationalityd) Amount of stated capitale) Name, Last Name, Address and nationality of the com panys representative in Turkey (appointed forthe branch)f) Legal Undertaking indicating that the representative shall abide by Turkish laws and regulations in thetransactions carried out by the Branch inside Turkeyg) Address of the branch office

h) Field of activityi) Amount of Capital

2) Resolution of the co mpetent organ of the company, regarding the establishment of the branch (the original and one translated copy)3) Company Articles of Association (original and one tra nslated copy)4) Official Document indicating the place, time and the country under the laws of which the company was incorporated; and certificate of activity indicatingthe status of the company (original and one translated copy)

5) Power of Attorney of the representative in Turkey, with the scope to cover the following aspects:a. Authority to carry out the transactions indicated in the Companys Articles of Associationb. Authority to represent the companyc. Authority to represent the company before all courts in matters arising out of activities carried out onbehalf of the company whether as plaintiff, defendant or a third partyd. Authority to appoint a representative in accordance with the powers he holds, in the case he m ust temporarily leave the country



e. Authority to appoint representatives to branches which w ill be established subsidiary to the head entity

6) Documents listed must be certified by a public notary of t he country the laws of which the com pany is subject to and by the Turkish Consulate in that country or the Turkish Ministry of Foreign Affairs or in accordance with the Hague Convention of 1961 Abolishing the Requirement of Legalization for ForeignPublic Documents. These certifications must also be made for the notarized Turkish translations.

Trade Registry Office Required Documents

1) Application2) Establishment Statement (the relevant parts of the form to be f illed out and signed by the authorized official- 5 copies)3) Power of Attorney issued for the representative in Turkey (3 copies)4) Letter issued by the Ministry of Trade and Commerce granting permission of establishment

5) Additional Statement approved by the Ministry of Trade and Commerce and 3 copies of its written announcement 6) If the branch manager is a Turkish citizen, a copy of the identity; if foreigner, a notarized and translated copy of the passport and indication of the taxidentification number (2 copies)7) Declaration of Signature by the branch representative issued under the branchs name (2 copies), which is certified by the Turkish Consulate or inaccordance with the Hague Convention of 1961 Abolishing the Requirement of Legalization for Foreign Public Documents (Apostle)8) Letter of Commitment (should be undersigned by the authorized official)9) Chamber Registration Statement (the form should be typed and contain the photos of the branch representatives)

Liaison Office

A liaison office, like the branch office, does not have a legal personality as it is viewed as an extension of the company. A key difference is that t he liaison officecan not engage in commercial activities; it can only act a contact point, conduct market research, or coordinate marketing efforts of the company. Permits toestablish a liaison office are issued by the D irectorate of Foreign Investment of the Under secretariat of Treasury and are valid for a period of 3 years fromtheir issuance and can be extended upon application.

Documents required for the application are as follows:

1) Certificate of Activity of the Establishing Company2) Annual Financial Statement and Income Statement or Activity Report of the Establishing Company3) Power of Attorney issued by the Company to the person appointed or authorized to manage the activities of the liaison office4) All documents should be submitted in original5) The liaison office must be registered with the tax office

HOLDING COMP ANY

A holding company is a corporation that is organized for the purpose of owning stock in other corporations. A company may become a holding company byacquiring enough voting stock in another company to exercise control of its operations, or by forming a new corporation and retaining all or part of the newcorporation's stock. While owning more than 50 percent of the voting stock of another company ensures control, in many cases it is possible to exercisecontrol of another company by owning as little as ten percent of its stock.

Holding companies and the companies they control have a parent-subsidiary relationship. When a holding company owns a controlling interest in another

company, the holding company is called the parent company and th e controlled company is called the subsidiary. If the parent owns all of the voting stock oanother company, that company is said to be a w holly-owned subsidiary of the parent company.

Holding companies and their subsidiaries can establish pyramids, whereby one subsidiary owns a controlling interest in another company, thus becoming itsparent company. While three to five levels are common in corporate pyramid structures, as many as 60 levels have been known to exist in practice. In the caseof public utility holding companies, regulations of the Securities and Exchange Commission allow only two levels of holding companies in addition to theoperating subsidiaries.

A holding company is said to be a "pure" holding company if it exists solely for the purpose of owning stock in other companies and does not engage inbusiness operations separate from its subsidiaries. If the parent company also engages in i ts own business operations, then it is said to be a "mixed" holdingcompany or a holding-operating company. Holding companies whose subsidiaries engage in unrelated lines of business are called conglomerates.

There are many advantages to establishing a holding company. From a financial point of view, it is usually possible to obtain control of another company withless investment than would be required in a merger or consolidation. A holding company only needs a controlling interest in the acquired company, notcomplete interest as in the case of a merger or consolidation. Consequently, it is possible to obtain control over large properties with less investment than

would otherwise be required in a merger or consolidation.

Another advantage is that shares of stock in the subsidiary company are held as assets on the books of the parent company and can be used as collateral foadditional debt financing. In addition, one company can acquire stock in another company w ithout approval of its stockholders; mergers and consolidationtypically require stockholder approval. Holding companies and their subsidiaries are considered separate legal entities, so that the assets of the parentcompany and the individual subsidiaries are protected against creditors' claims against one of the subsidiaries. However, holding companies and theirsubsidiaries may be considered a single economic entity, and c onsolidated financial statements are then prepared for t he entire structure.

For tax purposes, the parent company must own at least 80 percent of the voting stock in another company in order to be able to file a consolidated tax returnThe tax advantage here is that losses from one subsidiary can be used to offset profits from another subsidiary and reduce the overall taxable corporateincome on the consolidated tax return. A significant disadvantage occurs when a company holds less than 80 percent of the subsidiary's voting stock; in thacase separate tax returns must be filed for the parent and the subsidiary, and intercorporate dividends are subject to an additional tax.



From a management point of view, the parent-subsidiary relationship of holding companies and their subsidiaries allows for decentralized management.Each subsidiary retains its own management team, and the subsidiaries become responsible to the parent company on a profit and loss basis. Unprofitablesubsidiaries can more easily be sold off than can divisions of a consolidated business. Subsidiaries retain their corporate identities, and t he holding companybenefits from any goodwill and recognition attached to the subsidiary's name. Parent companies may provide specialized staff services for the benefit of any otheir subsidiaries.

HOLDING COMPANIES:

The form of a Turkey holding company is usually A.S. or Ltd. company, or a s pecific holding company (as defined in the Turkish Commercial Code, which is aspecial type of an A.S. formed with the primary purpose of investing in other companies). There is no material taxation difference between these forms, but it should be noted that the special holding company is advantageous, because it has a higher dividend capacity than other forms.

Turkish corporate tax law also specifies a special holding company regime and related tax incentives for the purpose of holding the shares or foreigninvestments through a holding company in T urkey.

A Turkey holding company is not usually seen as an efficient alternative, because of the absence a tax grouping regime in Turkey, which means the acquisitioncosts and interest expenses at the level of holding company cannot b e offset against t he targets profits. Although it is theoretically possible to achieve adeductibility of acq uisition costs and interest expenses through a post-acquisition merger of t he holding company into the target, such structures are underscrutiny by the Turkish tax authorities and have been challenged through the substance-over-form principle. Such structures should, therefore, be analyzedcarefully and professional advice should be sought on a ca se-by-case basis.

The foreign purchaser may choose to make the acquisition itself, perhaps to shelter its own taxable profits with the financing costs. This will not cause anydirect taxation problems in Turkey. However, Turkey charges WHT on interest and dividend payments to a foreign party; so, if relevant, an intermediatecompany resident in a more favorable treaty territory may be preferred.

Non-Resident Intermediate Holding Company

To ensure a more tax-efficient flow of payments from the Turkish entity to its foreign parent, and to eliminate potential capital gains tax that may be a pplied

on a subsequent exit, an intermediate holding company resident in another territory could be used. While determining the applicability of treaty benefits,Turkish authorities usually rely on a tax-residency certificate issued by the tax authorities of t he territory where the intermediary holding is located. So thesubstance tests, if any, should be done from the perspective of the tax law s of the territory where the intermediary holding is to be located.

Local Branch

It is possible for a foreign company to hold the shares of a Turkish target through a branch established in Turkey. In general, the branch (though regarded as anon-resident for tax purposes) is subject to tax rules similar to those applying to other company forms i n terms of its Turkey income and transactions.

However, in practice a branch is not seen as a favorable option because of the following: dividends paid from a Turkish target to the branch are not entitled to participation exemption;

the remittance of profits as well as dividends from the branch to its foreign parent are subject to WHT; and

it is an inflexible structure, because the branch cannot be legally transferred to a third party in a subsequent exit.

Joint Ventures

A joint venture can be established in between a Turkish company and one or more local or foreign entities. If such a joint ve nture company is incorporated, it takes an ordinary legal form as discussed above (that is, A.S. or Ltd.) and is thus subject to same tax implications. An incorporated joint venture may beregistered for tax purposes but it can only be used for specific contractual works and is not available as a holding company structure.

Choice of Acquisition Funding

A purchaser structuring an acquisition in Turkey will need to consider whether to fund the vehicle with debt or equity. Hybrid financing instruments are not recognized for tax purposes in Turkey, so it is usually necessary to follow the legal definition when classifying a financing structure as debt or equity, and toidentify the respective tax implications.

The principles underlying these approaches are discussed below.

Debt

There is no limit on the amount of debt t hat can be put i nto a Turkish company and no general restriction on the deductibility of interest. Interest expensesincurred for business purposes are deductible on an acc rual basis.

Interest expenses incurred for financing an asset acquisition need to be capitalized as the depreciated cost of the asset until the end of the year in which theasset is acquired. Interest expenses incurred thereafter can either be recognized as period expenses or c apitalized.

The deductibility of interest may be restricted by thin-capitalization or transfer pricing rules (see later in the chapter).

It should be noted that debt financing from a foreign source may attract a surcharge (at 3 percent) if it is in the form of a foreign loan with an average maturityof less than one year. This can be avoided by structuring the loan in foreign currency with an average maturity of more than a ye ar.

On the other hand, debt financing from a local source in Turkey (such as a bank) does not attract such surcharge, but the i nterest payments may be subject to abanking transaction tax generally at 5 percent.

Deductibility of Interest

As noted above, Turkish tax laws do not impose a general restriction on deductibility of interest, but there are specific restrictions as explained below:

Thin-Capitalization Rules



If the amount of debt (measured at anytime during t he year) provided to a Turkish entity by its shareholders (or related parties) exceeds three times of theequity (that is, shareholders equity measured as per the statutory accounts opening balance sheet of t he period concerned) the excess of debt above the 3:1ratio is re-characterized as disguised equity. As a consequence of this thin-capitalization status: any financial expenses incurred on t he disguised equity (related-party debt exceeding three times shareholders equity) cannot b e deducted for corporatetax purposes; and

the interest actually paid on the disguised equity is re-characterized as disguised dividends and subject to dividend WHT at 15 percent (unless reduced by adouble taxation treaty [DTT]).

Note that an injection of equity or reserves to the company w ithin a period does not help to overcome the thin-capitalization status for the current period,because the shareholders equity is measured as of the op ening balance sheet, but it may help for subsequent periods.

When debt is obtained fro m an external bank against cash guarantees provided by the shareholders, thin-capitalization rules still apply.

Transfer Pricing RulesWhen a Turkish entity receives f unding from its shareholders (or related-parties), the interest and other expenses charged on the loan should be shown to bearms length. Any excess paid by the Turkish entity above the arms length rate ca nnot be deducted for corporate tax purposes. Furthermore, such excessamount is re-characterized as disguised dividends and subject to dividend WHT a t 15 percent (unless reduced by a DTT).

Turkeys transfer pricing regulations are similar to Organization for Economic Cooperation and Development (OECD) guidelines; hence any report ordocumentation prepared in a foreign country e mploying the same rules should normally be suitable as supporting documents in Turkey.

Interest Incurred on Share Ac quisition

As a general rule, expenses incurred for the purpose of tax-exempt activities are not deductible against income from other taxable activities of a company. Thiswas a typical problem for a holding company with interest expenses incurred for the purpose of acquiring shares in another Turkish entity, which willpotentially lead to tax exempt dividend and capital gains income.

A provision in the new Corporate Tax Law stipulates that a holding company in a similar position has the right to deduct such interest expenses against taxable income derived from other activities. But since, in practice, a pure holding company does not generate other taxable income, interest expenses carriedforward as tax losses may ex pire after the carry forward period of five years. This may require further post-acquisition structuring.

Withholding Tax on Debt and Methods to Reduce or Eliminate

Interest payments to non-resident corporations are subject to WHT (va rying from 0 percent, 1 percent, 5 percent, to 10 percent). The WHT rate is reduced to0 percent, if the interest is paid to a lender who qualifies as a foreign bank or financial institution.

It should be also noted that the interest payments to foreign parties other than banks may attract 18-percent VAT on a reverse-charge basis if the foreignparty receiving the interest does not qualify as a bank or financial institution. There will be also a stamp tax of 0.75 percent on the loan contract, unless theloan is received from a b ank or financial institution.

Therefore, it is usually less efficient to borrow directly from the Turkish entity and its foreign parent/group entity, but these tax inefficiencies may beeliminated through some additional structures.

The new Corporate Tax Law introduced anti-avoidance rules for transactions with entities in low-tax jurisdictions tax heavens), by imposing a 30-percent WHT on various types of payments to residents of those jurisdictions (a list of these countries is yet to be issued by the Ministry of Finance). The impact of these rules on the ultimate WHT application should be noted.

Checklist for Debt Funding

The use of external bank debt may avoid thin-capitalization and transfer pricing problems, but debt obtained from an external bank against cashguarantee provided by t he shareholders, is still subject to thin-capitalization rules.

The use of external bank debt (eve n with a guarantee by s hareholders) should eliminate the WHT and VAT implications on interest payments,unless the structure is open to challenge on substance grounds.

The absence of tax grouping means interest expenses incurred by a holding company in Turkey cannot be offset against taxable profits of t hetarget, but can be carried forward as tax loss to be offset against any other taxable gains that may be arise in future.

Injection into the equity and reserves of the Turkish entity in one y ear is only included in the debt/equity calculation for the following year. Thismeans that when considering the required related-party debt capacity of the following year, any required injection to equity or reserves by theshareholders needs to be completed before the e nd of the current period.

It is possible that tax deductions may be available at higher rates in ot her territories.

A debt from a foreign source may attract a surcharge (at 3 percent) if it has an average maturity of less than one year. A debt from a local source (such as a bank) in Turkey does not attract such a surcharge, but interest payments may be subject to a banking

transaction tax, generally at 5 percent.

Equity

Equity injections are subject to a competition board fee of 0.04 percent, with no limit and including additional capital injections to the corporation. The fee isalso payable on capital in-kind contributions. No other taxes or duties are levied on equity funding.However, the level of equity funding in a Turkish entity may need to be considered for other reasons, such as:

More equity may lead to an i ncreased legal reserve requirement in the entity (as a percentage of the eq uity), and so reduce the dividend capacity.



Equity is less flexible should the parent subsequently wish to recover the funds, because the reduction of equity in a Turkish company is subject to a regulated process that requires, amongst other things, the approval of a Trade Court.

In view of Turkeys thin-capitalization rules (3:1 debt-to-equity ratio) a tax-efficient related party financing structure may require a review of theequity level in the e ntity.

There may be also other non-tax grounds for preferring equity. For example, in certain circumstances it may be desirable for a company to have apre-determined debt-to-equity ratio. This may apply to companies subject to industrial regulations (such as. a Turkish holding company of a bankor insurance company), or that expect to submit public bids ( such as. privatization projects or license applications)

Tax Free Reorganizations

Turkish Corporate Tax Law allows for tax free mergers, divisions, and share swaps provided that certain procedural obligations are complied with. The m ainfeature of such tax neutral reorganization is that it should be performed on the basis of book values (that is, no step up for the value of the assets) and t he

historical tax liabilities, if any, are assumed by the surviving entities.

Hybrids

Hybrid financing instruments are not recognized for tax purposes in Turkey, so it is usually necessary to follow legal definitions to classify a financingstructure as debt or equity, and determine the respective tax implications.

The thin-capitalization rules will also need to be c onsidered, if the lender is a related-party.

Discounted Securities

The tax treatment of securities issued at a discount differs from the accounting treatment in that the issuer cannot obtain a tax deduction on the difference inbetween nominal and discounted values unless the limits are allowed by the law and the authority granted by t he law. In Turkey the main borrower is thegovernment and there are few private debt securities issued by private sector.

Deferred Settlement

An acquisition often involves an element of deferred consideration, the amount of which can only be determined at a later date o n the basis of the businesspost-acquisition performance. The right to receive an unknown future amount is not regarded as an asset that must be valued for Turkish tax purposes. Suchamounts should represent a part of th e transaction (as a tax triggering event) at t he date when the due a mounts can be calculated and claimed by the partiesaccording to the terms and conditions of the contract.

For example, in a normal share acquisition structure, the deferred settlement amounts should be included in t he final purchase price as a price adjustment andmay be subject to tax or exempted, depending on the tax status of the original transaction.

Other Considerations

Turkey does not normally tax the gains of non-residents except when the non-resident has a permanent establishment or a permanent representative inTurkey and the income can be a ttributed. A specific tax regime applies to capital gains derived from disposal of shares by a non-resident. The gain on sale of shares/participation rights of a com pany in Turkey may become taxable in Turkey:

if the transaction occurs in Turkey; and if the transaction is valued in Turkey.

Such transactions have to be evaluated for Turkish tax purposes, depending on the status of the buyer and the seller, the type of the entity whose shares arebeing transferred, and the method used to effect the share transfer.

Concerns of the Seller

The seller is liable to tax on gains realized on the sale of the assets of a business. Losses arising from the sale of assets are available for immediate deduction orcarry-forward.

The seller is liable to tax o n gains arising from the sale of shares. Losses are available to offset income from other activities of the corporation.

Seventy-five percent of the gains derived from sale of real estate property or sale of shares of a Turkish company by another Turkish company may beexempted from corporate taxation provided the real estate property or the shares have been held for at least two years and t he gains enjoying the exemptionare retained in a special reserve account for five years.

This requirement not to repatriate f unds for five years may be impossible to satisfy, of course, if the seller plans to leave the business entirely.

Since gains derived by a Turkish individual from the sale of shares of a T urkish A.S. after a holding period of two years are fully tax exempt, such a seller would

strongly oppose structuring the transaction as asset deal, or would expect the tax liabilities arising on an asset deal to b e borne by the purchaser by w ay of acorresponding increase in purchase price.

Moreover, apart from taxation reasons, a seller in need of cash would be reluctant to agree to an asset deal, because the repatriation of cash from the sellingentity to its shareholders would also pose some problems:

Company Law and Accounting

A foreign company may do business in Turkey in one of the following ways: operate as a contractor, establish a branch, or form a subsidiary. All are subject tothe provisions of Turkish Com mercial Code.

The uniform chart of acc ounts (as defined by the Turkish Tax Procedural Code) is compulsory for all companies except those subject to regulatory and/orsupervisory agencies, which should use T urkish Financial Reporting Standards (TFRS) for their sectors, such as ba nks, brokers, and insurance, leasing, andfactoring companies. TFRS are aligned with International Financial Reporting Standards (IFRS).



The annual accounts for all companies must include an income statement, a balance sheet, and notes to each. Accounts must b e drafted and approved by thegeneral shareholders meeting within three months of the end of the financial period.

There is a draft bill in Parliament to change the Turkish Commercial Code, which is expected to e stablish IFRS as the statutory accounting requirement forTurkish companies as well.

Group Relief/Consolidation

Consolidation for tax purposes is not allowed. Each entity is subject to tax on a stand-alone basis.

Transfer Pricing

Turkey introduced transfer pricing regulations to its Corporate Tax Law effective from 2007. They are generally in alignment with theOECD model. The regulations are applicable to both domestic and cross-border transactions between related parties, but a transfer pricing adjustment is not

required for domestic transactions between Turkish tax-registered entities as long as there is no ultimate fiscal loss for the government.

The regulations require that prices, fees, and charges for inter-company transactions (including interest on intra-group financing) should be determined on anarms length basis, as determined by an acceptable methodology.

Dual Residency

Dual residency status is not directly referred to or explained in Turkish tax laws and is not, t herefore, relevant for structuring an M&A tra nsaction in Turkey,from a Turkish tax perspective.

Foreign Investments of a Local Target Company

Turkey has introduced a controlled foreign company (CFC) regime in the new Corporate Tax Law. CFC status is determined by a number of criteria, but normally an operating company with a n active business should not be classified as a CFC. On the other hand, an intermediary holding company owned by aTurkish company is likely to be deemed a CFC if the intermediary holding benefits from a participation exemption regime, and is thus not effectively payingtaxes, in its territory. The acquisition of shares in a Turkish target should not lead to a change in the CFC status of its foreign investments.

Turkey also introduced a holding regime in the new Corporate Tax Law, to e ncourage holding foreign investments through a company established in Turkey.

The form of the company can be the usual A.S. or Ltd. There are no particular requirements from a Company Law perspective to qualify as a holding company.

If the holding company meets the conditions stipulated in the Corporate Tax Law, the dividends and potential capital gains on investments by the Turkishtarget can be fully exempt from corporate taxes. Furthermore, the dividend WHT to be applied during the ultimate repatriation of profit from the Turkeytarget to its shareholders is reduced by 50 percent (that is, 7.5 percent instead of 15 percent).

Comparison of Asset and Share Purchases

Advantages of Asset Purchases

1. Purchase price can be d epreciated or amortized for tax purposes.2. Step-up in tax b asis (through revaluation) is obt ained.3. Previous liabilities of the seller are not inherited.4. Possible to acquire part of the business.5. More flexibility in funding.6. Absorbing a profitable business into a loss-making company i s possible.

Disadvantages of A sset Purchases

1. Potential need to renegotiate existing agreements, and renew licenses, among others.2. More transaction costs (such as stamp taxes and title deed re gistration fees).3. Exemptions on sale of shares are not applicable.4. Tax losses remain with the seller.5. Not favorable for the seller in terms of cash flow.

Advantages of Share Purchases

1. Purchase on net-asset basis, so lower capital outlay.2. Likely to be more attractive to the seller due to available tax exemptions and cash flow.3. Acquire the tax attributes of the target (that is, tax losses).4. Continue to enjoy existing contracts and licenses, among others.

Disadvantages of Share Purchases

1. Acquisition of potential tax liability (difference between market value and tax basis of assets in the target company, which would be crystallized ondisposal of such assets).

2. Inability to recognize goodwill available for tax depreciation.

3. Acquisition of c ontingent (unknown) tax liabilities of the target.

Re-Determination of Withholding Taxes (WH T) on Interest Payments

In accordance with the Turkish Corporate Tax Law, and the related Decrees issued by the Council of Mi nisters:

Tthe interest payments from a Turkish entity to a non-resident entity were subject to WHT at 10 percent; which could be reduced to 0 percent if the foreignentity receiving the payment qualified as a bank or financial institution.

As a part of the fiscal stimulus measures responding to the global financial crisis, the following re-determination on interest rates was made:

the application of 0 percent WHT on interest payments to foreign banks and financial institutions is continued (but excludes payments to intra-groupfinancing companies, so called SPVs);

reduced WHT of 5 percent is introduced for interest payments to foreign entities due to purchase of goods on credit;



reduced WHT of 1 percent is introduced for interest payments of banks on credits received through securitization; and

10 percent WHT on interest payments other than the above mentioned are still applicable.

The above changes do not represent a major change for M& A structuring in Turkey, but they should be taken i nto account when determining the financingstructure of an acquisition, or leakage from future cash flow that may be a key factor in the financial model underlying the investment plans.

Asset Purchase or Share Purchase

A foreign company can acquire a Turkish company by acquiring either its a ssets, or its shares.

An asset acquisition can be effected either through a branch of t he foreign entity, which is taxable in Turkey on a non-resident tax status, or through a Turkishsubsidiary of the foreign company.

Purchase of Assets

Goodwill (that is, a positive difference between the purchase price and the fair market value of assets acquired, if any) can b e recognized and depreciated overfive years.

Tangible and intangible assets can be amortized, based on the rates determined in accordance w ith the useful life of the assets as announced by the Ministry oFinance.

Transfers between the related parties have to be at fair market value.

Purchase PriceIn principle, the transfer of assets under a n asset-deal type transaction should be conducted a t fair value, which should be the market value. Transfersbetween related parties must be documented to comply with transfer pricing requirements.

For the buyer to book the individual assets at their transfer value and determine the goodwill amount (if any), the purchase price has to be broken down andallocated to individual assets being transferred. It is generally advisable for the purchase agreement to specify the allocation, which will normally be

acceptable for tax purposes provided it is co mmercially justifiable.

The allocation of purchase price is more important if there are any assets in the deal, the transfer of which may be exempt from corporate tax a nd/or VAT(such as real estate property or shares/participation rights in another e ntity).

GoodwillIn case of an asset-deal, an excess of the purchase price over the fair value of the assets being transferred represent the goodwill,which can be capitalized by the buyer a nd depreciated for tax purposes over a period of five years.

Turkish tax law does not require recognition of internally developed goodwill and rights in the tax ba sis balance sheet, so there is usually no tax basis cost forthe goodwill in the sellers books and it, therefore, represents pure taxable income.

DepreciationThe depreciation period of assets are refreshed in an asset deal. The selling entity has the right to deduct all remaining net book value of assets as the tax basiscost against the transfer value; and the buyer has to book t he assets at their transfer value and start depreciating a new term of useful life for each asset (asprescribed by the Communiqués of the Ministry of Finance).

Tax AttributesThe tax attributes (that is, tax losses and incentives) are not transferred to a buyer in an asset deal. However, the selling entity has the right to use its existingtax losses and VAT credits against the taxable profits (such as capital gains) and VAT obligations arising from the asset transfer.

One should also note that if the target has used an Investment Incentive C ertificate

(common in energy investments) then the transfer of assets for the first five years is bot h subject to the permission of the Turkish Treasury and may give riseto a denial of potential tax exemptions the seller is already entitled to under the Investment Certificate.

On the other hand, the potential tax liabilities of the seller should not be transferred to the buyer in an asset deal, except for a special case identified in the LawRegarding Collection of Public Receivables, which allows the tax office to put aside a transaction and pursue the assets if the deal is structured to avoidpayment of the sellers tax liabilities of (which may only be possibility in the case of related-party transactions).

Value-Added Tax (VAT)Tax-free mergers (including tax-free SME mergers) and tax-free divisions (satisfying the conditions stipulated by the Corporate Tax Law) are exempt fromVAT.

Taxable mergers and asset transactions (including goodwill) are generally subject to VAT at 18 percent, but there is an exemption for real estate property orshares/participation rights held by a company for at least two years and transferred through an asset deal.

The purchaser is entitled to recover the VAT so incurred against its output VAT generated from its o perations, and, therefore, recovery of input VAT mayimpose a financial burden (time value of money), if the capacity to generate output VAT is limited after the acquisition.Sales of shares in an AS company are exempt from VAT. A sale of shares in a Ltd. company by another company is exempted from VA, if the participation isheld for at least two years. A sale of shares by an individual is not subject to VAT.

Transfer TaxesCertain documents prepared in Turkey (share purchase agreements, loan contracts, a nd mortgage instruments, among others) are subject to stamp duties,usually at 0.75 percent. Loan contracts (and security documents, such as a mortgage) with respect to a loan from a local or foreign bank are exempt from thestamp duty.



Merger agreements are also included in the scope of stamp duties. Nevertheless, documents related to tax- free mergers or t ax-free divisions (satisfying theconditions stipulated in the Corporate Tax Law) and documents related to the sale of real estate property or shares/participation rights held by a company at least two years are also exempt from stamp duty.

In an asset deal, a transfer of title to real estate is subject to a title deed registration fee of 1.5 percent for both seller and buyer separately. Registration of amortgage is subject to a fee of 0.36 percent.

Purchase of Shares

Acquisition of shares by a foreign entity has no immediate Turkish income tax consequences.

If the acquisition is through a T urkish branch or subsidiary, goodwill implicit in the share price ca nnot be recognized for tax amortization purposes. Nor is it possible to achieve a tax basis step-up for the target company assets.

A change in the shareholders will have no effect on the t ax attributes of the target company.

Tax Indemnities and WarrantiesIn a share deal transaction, the historical tax liabilities of the target (known or u nknown) remain in the company and are acquired by the new shareholder(s).It is, therefore, usual for the buyer to ask for tax indemnities and warranties in a share acquisition.

The accounts of a company are open for tax audit for five years and there is no procedure to agree the tax status of a company with t he tax authorities. In viewof this, and due to insufficient coverage of tax audits in Turkey (that is, t he tax authorities can only review a limited number of taxpayers and the tax litigationcases usually take long time for a final resolution), the indemnities and warranties are eve n more stringently applied in share acq uisitions in Turkey.

Tax LossesTax losses can be carried forward for five years. No carry-back is possible.

After the acquisition of shares, the target company can continue to carry forward its tax losses without any further specific requirements stemming from theshare transfer.

Tax losses of the merged entity can be used by the merging entity if tax- free merger conditions are met.

Crystallization of Tax ChargesSince the transfer of shares in a company has no eff ect on the tax status of the assets, this issue is not applicable for Turkey.

Pre-Sale DividendIf the target entity has retained profits available for distribution as dividends, the potential tax implications of a pre-sale dividend as against a capital gainshould be considered in the light of the circumstances buyer and seller.

Transfer TaxesAgreements relating to purchases and sales of shares are normally subject to stamp duty at 0.75 percent.

Agreements relating to transfers of shares of Turkish companies by other companies after a holding period of two years are exempt from stamp duties by virtue of the specific exemption provided by the C orporate Tax Law.

Tax Clearances

It is not possible to ask for tax clearances from the Turkish tax authorities regarding the tax status of a company.

It is only possible to ask for an official statement from the tax office outlining the reported, but unpaid tax liabilities of the company or c onfirming that thereare no overdue and unpaid tax obligations. However, such statements do not provide any assurance against the contingent tax liabilities that may be identifiedin the course of a tax audit.

It is also possible to ask for advance tax rulings for specific structural tax uncertainties in a merger or acquisition.

Choice of Acquisition Vehicle

The following section discusses the acquisition vehicles that may be used in structuring a merger or acquisition in Turkey.In all cases, there is no capital duty or stamp duty on injection of equity into a Turkish company or branch, but the equity contribution is subject to a f und (thais, contribution to the Competition Board) of 0.04 percent (four per 10,000)

A Turkey holding company may be a tax-efficient option if the acquisition in Turkey is financed with equity, rather than debt, and the foreign

investor intends to re-invest in Turkey. In this case, the Turkey holding company can receive dividends from the target entity without anytax leakages (that is, participation exemption rules), and may use the dividends received for re-investment in other Turkish businesses.

Holding companies in certain industries are subject to special regulations. Public utility holding companies are subject to the Public Utility Holding CompanyAct of 1935 and must meet special SEC requirements. Railroad holding companies were regulated by t he Interstate Commerce Commission (ICC) until thaagency was abolished at the end of 1995, at w hich time they came under the regulation of the newly created Surface Transportation Board.

Turkish society, which has a distinctly statist orientation but is also strongly influenced by family and group ties, attaches only secondary importance to therelatively new topic of corporate social responsibility (CSR), although this is gradually changing. Co mpanies charitable efforts, sponsorships and donationare generally confused with CSR or seen as roughly the same thing.

However, more is being expected of companies, particularly in the past few years. The prospect of membership in the European Union and the reforms carriedout as part of the harmonization process have had a positive effect on laws governing Turkish associations and foundations, and especially nongovernmentaorganizations. Favorable economic developments in recent years, such as single-digit inflation rates and impressive growth, have allowed Turkish companies



to become more involved in the social realm. Pressure from international customers has led Turkish companies to concentrate their CSR efforts in the areas oenvironmental protection and social standards. Export-based industry, particularly Turkeys textile sector, is seeking to become more competitive byinvesting heavily in modernization, but also by carrying out a variety of CSR activitiesÇ

A survey conducted in 2007 by the business magazine Capital Business showed that society expects entrepreneurs to play an active role, particularly ineducation, health and environmental issues. It is striking that most CSR efforts by Turkish companies, and by multinational companies in Turkey, are found inthe areas of society, education, culture, the arts, the environment, social welfare and health. The public discussion of corporate responsibility in Turkey isshaped primarily by the media which, for their part, are in an unusual situation, since publications are owned by consortiums with interests in othereconomic sectors (construction, energy, banking, etc.) and/or have a specific ideological slant (secular/Kemalist vs. religious/state-affiliated media).

Turkey has not yet established a central coordinating office or information agency to assist companies in their social efforts. The topic of CSR is handled by the

respective ministries.

In 2003, the Capital Markets Board of Turkey (CMB), which regulates the countrys capital markets, introduced guidelines for the countrys financial sectorbased on the OECD Principles of Corporate Governance, which might be described as the first quasi-legal framework for CSR. Participation is voluntary, bucompanies that opt out are required to explain why in their annual reports.

Nongovernmental organizations that are active in the economic sector, such as the Turkish Union of Chambers and Stock Exchanges (TOBB) and the TurkishIndustrialists and Businessmens Association (TÜSIAD), conduct various projects, issue regular reports and studies, and hold events aimed at encouragingTurkish companies to become involved in policy issues. In addition to influencing the political process, these two NGOs also assist their members in their civicengagement. The Business Council for S ustainable Development Turkey (www.tbcsd.org) and the CSR As sociation in Turkey (www.csrturkey.org), founded in2005, are the only associations devoted exclusively to issues of corporate social responsibility. The Turkish Ethical Values Center Foundation(www.tedmer.org.tr), the Private Sector Volunteers Association (www.osgd.org) and the Third Sector Foundation of Turkey ( www.tusev.org.tr) play animportant role in promoting CSR and act as a bridge for dialogue between companies and society at large.

The Turkish Quality Association (KalDer) is a leader in establishing standards for efficient, competitive and high-quality production. It awards a national prize

for quality each year, and one of the selection criteria is a companys commitment to CSR. KalDer joined the U N Global Compact in 2002, and since that time ihas sought to spread the word among Turkish companies.

Most nongovernmental organizations, however, are hardly in a position to organize effective campaigns because of their financial dependence on theirsupporters. The national branches of major i nternational NGOs are the only such organizations that may play a major role, and they are frequently accused ocollaborating with Turkeys international enemies and using t heir work to promote human, labor and social rights as a pretext for crushing the country.

Under the UN Global Compact Initiative, UNDP Turkey plays an important role in promoting CSR. With the support of the European Commission and UNDPthe first comprehensive study of CSR in Turkey was drawn up i n March 2008 (Turkey CSR Baseline Report). Also noteworthy are the efforts of the EuropeanCommissions Directorate-General for Enterprise and Industry, which has drawn t he attention of Turkish small and medium-sized enterprises to the topic oCSR by undertaking extensive educational campaigns and providing documentation in the Turkish language.

As pioneers in this area, German companies have long shown a high level of social engagement and responsibility in Turkey. In 2005 and 2006, GTZ formed apublic-private partnership (PPP) with Turkish nongovernmental organizations and government authorities to implement a C SR project called Introducing aUniform Model for Improving Social Standards, which focused on the textile and clothing industries.

Directorate General for Domestic Trade

According to the Law no. 3143 of January 8, 1985 on the Organization and Duties of our Ministry lays down the functions of the General Directorate for Domestic Trade as follows:

y To execute the duties given to the Ministry by Turkish Commercial Code on commercial registries,

y To perform the inspection of national and foreign partnerships in respect of duties given to the Ministry,

y To carry out the duties on the establishment and statutory changes of Joint Stock and Limited Companies and establishment of branches and agents of foreigncompanies in Turkey,

y To execute the establishment and supervision of Chambers of Commerce, C hambers of Industry and commodity exchanges,

y To perform the duties given to the Ministry on the establishment and supervision of agricultural warehouses and wholesale markets for fresh fruits and vegetables.

y To carry out similar tasks assigned by the Ministry.

Capital Corporations and Commercial Registries Department

Subject to the provisions of the Commercial Code No: 6762, the Ministry approves the establishment of the capital corporations, which have an ever increasing importance in theeconomic life of the country, their applications for the statutory modifications and the creation of branches in Turkey by foreign capital corporations or their participation in theexisting corporate entities. The number of joint stock companies and the number of limited liability companies in Turkey were 109.260 and 773.647 respectively in 2008.

Limited liability companies (ComC 503-556) are business associations with legal personality established by at least two, at most 50 partners having natural or legal personalityThese companies should have a fixed capital of at least 5.000 TL and must be registered in commercial registry in order to acquire existence. Liabilities of the partners are limitedonly by their promised capital shares. The promised capital can be 25 TL or folds in limited companies. These companies cannot issue securities or bonds. Allocation of at least oneauditor is compulsory for limited companies having more than 20 partners. Banks, private finance institutions, insurance companies, financial leasing companies, factoringcompanies, holding companies, companies operating foreign currency exchange offices, companies dealing in public warehousing, publicly held companies subject to the CapitaMarkets Law and companies that are founders and operators of free zones cannot be established as limited companies.

Joint Stock Companies are business associations with legal personality. A corporation has a fixed capital. The Articles of Association must state a legally required minimum capital(at least 50 000 TL). The amount of this stated capital reflects the initial financial strength of the corporation and is divided into shares on which share (stock) certificates are issuedPersons, either natural or legal, contribute or promise to contribute a certain amount of capital to the corporation in return for shares. Those corporations, which have more than250 shareholders or those which offer their shares or bonds to the public, are subject to the Capital Market Law, Law No. 2499 of 1981. A corporation is formed by at least five



persons and must be registered in commercial registry to acquire its existence. Corporations may be incorporators of other corporations. Liability of members is limited with theirsubscribed capital shares.

Foundation of a company Ministry of Industry and Trade keeps the permission authority for the establishment of Banks, private financing institutions, insurance companies, foreign Exchange offices, leasingand factoring companies, warehouses, holdings, free zones founding and exploiting companies, joint stock companies open to public and subject to capital markets regulationsThese companies must be established as join stock company.

All other companies can apply directly to commercial registries throughout Turkey, with the necessary documents and can be established with the registration in the commercialregistry.

Establishment and registration of a new company is very simple in Turkey. Submission of below mentioned document to the commercial Registry offices which are locatedthroughout the Turkey is enough for the establishment of a general purpose company. There is no different treatment to the foreign investors in establishing a company.

y A form filled and signed by the authorized representatives together with their notary approved signature examples.

y Articles of Association approved by the notary,

y Bank deposit to consumer protection fund at the amount of 4/10.000 of the capital.

All related information in the form is then forwarded to the relevant public authorities by the registration officers.

Commercial Registration is under the responsibility of Ministry of Industry and Trade. They are established within the facilities of chambers of commerce and chambers oindustries with the permission of the Ministry. Commercial Registry Officer is appointed subsequent to the approval of the Ministry. He performs the duties related to theadministration of commercial registry. The Ministry has the authority to inspect and audit transactions, accounts of commercial registry offices and to take measures if necessaryThere are 238 commercial registry offices.

Contributing to the simplification and improvement of business environment, MIT is carrying out a project called "Central Registration of Legal Personalities" which will integratethe different information of companies, associations, foundations, cooperatives and other legal entities via designating a single number to the entity. This project will contribute tothe e-government and Information Society practices by presenting the information required by the institutions from one point.

Tax Office, Social Security Agency, Ministry of Industry and Trade and other related Governmental bodies will identify that legal person with the same number. The project wilfacilitate sharing of information among the public institutions.

Chambers and Commodity Exchanges Department Chambers of commerce, chambers of industry, chambers of maritime trade, Commodity exchanges and Union of Chambers and Commodity Exchanges of Turkey (TOBB) carried outtheir activities under the supervision of Ministry of Industry and Trade. There are 181 chambers of commerce and industry, 58 chambers of commerce, 12 chambers of industry, 2chambers of maritime trade and 113 commodity exchanges. Permission for the establishment of a chambers and commodity exchanges is given by the Ministry. Their accounts andtransactions are regularly or random based inspected by the Controllers of General Directorate of Domestic Trade. Permission or judicium letters needed by the chamberscommodity exchanges or TOBB are prepared by the General Directorate of Domestic Trade.

Wholesale Markets and Licensed Warehouses Department Wholesale markets for fresh fruits and vegetables are subject to the inspection and supervision of General Directorate of Domestic Trade. These inspections are carried out by theinspectors and domestic trade controllers.

Warehouse system in Turkey is primarily regulated by the Agricultural Products Licensed Warehouse Act. No. 5300 that came into force on February 10, 2005 (published in theOfficial Gazette dated February 17, 2005 and numbered 25730). The establishment of warehouses for general commodities and for agricultural commodities is subject to thepermission of Ministry of Industry and Trade. Their transactions and accounts are also inspected by the Ministry.

A) Establishment Procedures

The establishment steps of joints stock companies, notwitstanding the special provisions of TCC and Capital Markets Law wi th regard to the gradualestablishment of joint stock companies, are described as below:

a) The Preparation of the Art icles of Association and its Notarization

It is obligatory that the articles of association of the company should contain the subjects stipulated in Article 279 of TCC, that it should be put down in writtenform and that it should be notarized after being signed by the founders.

The following points have, particularly, to be taken into account while preparing the articles of association:

aa. Founders The names, surnames and addresses of the founders, and in case there are citizens of foreign cou ntries among founders, the citizenship of these founder(s)have to be listed.

bb. Trade Name

The trade name has to be d etermined in accordance with Article 45 of TCC so as to indicate the business activity of the company. It is obligatory that the tradename has to incorporate the phrasing; Anonim irketi (Joint Stock Company). In case it contains the name and surname of the re al person, the phrasing that indicates the company type cannot be abbreviated or displayed in symbols.

Since trade names of legal entities are protected all over Turkey, the designated trade name should not have been registered beforehand at a ny registry office.The trade name should not carry an essence to mislead third parties with regard to the scope of activities, significance or financial status of the company, norshould contradict facts and public order.

The words Türk, Türkiye, Cumhuriyet and Milli can only be used in trade names provided that there is a decree of C ouncil of Ministers approving such usage



The trade name has to be i n Turkish language. Any fictitious names present in the trade name have to be in Turkish language as well.

The presence of foreign words in the trade name of a company may be permitted in cases, where these words do not contradict the law, the national, culturaland historical benefits; the name or brand promoting the goods or services constituting the business activity of the company is in a foreign language or thereis/are foreign shareholder/s in the company.

cc. HeadquarterThe name of the province and district of the province in which the headquarter of the company is located, has to be specified in the articles of association.Furthermore, the open address of the company has to be written in the articles of association.

It is not obligatory to make amendments in the articles of association only for a change of a ddress if the new address is within the same registry district.

However, an amendment in the articles of association is necessary if the new address is located at a registry center different than the previous one.

dd. Objective and Field of Activity

The field of activity in which the company is planning to operate should not have been prohibited by Article 271 of TCC.

A specific field of activity in which the company will actually be operating should be w ritten in the articles of association, at least on sectoral basis. The articlesof association should not be w ritten so as to cover all kinds of field of activity. Objectives and subjects of activity that ca n be written in the articles of association are limited with the subject specifed in the trade name of the c ompany.

ee. Capital The capital of the company should be minimum TRL 50 billion. In accordance with Articles 279 and 300 of TCC, it is obligatory that the capital a mount, thenominal value of each share and the method and terms concerning the payment of the capital shall be paid, has to be specified in the articles of association.

Accordingly, notwithstanding the provisions of special laws, it must be written in the capital clause of the articles of association of the company that the

capital has been fully committed - free of any collusion - and that 1/4th of the cash capital has been fully paid up or that it will be paid up latest within threemonths following the establishment of the company, and that the remaining portion will be paid up latest within three years.

Capital clause of the articles of association of companies which are obligated by special laws for payment of the whole or a fraction larger than 1/4th of theircapital will be arranged accordingly.

In the event that any rights, movable and immovable assets are being su bscribed as capital at company establishment stage, this commitment has to befulfilled latest within three months following the registration date of the company. In case the goods and rights put in as capital are registered at a s pecialregistry (such as land registry office, registry of ships, traffic registry, industrial property registry), these have to be registered on t he behalf of the c ompany,latest within three months of establishment.

b)The Registration of the Company at the Trade Registry and its Announcement

The articles of association are first notarized and then registered at t he Trade Registry Office where the company headquarter is located in or where thelocation of headquarter is associated with, within 15 days after notarization. The company becomes a legal entity by this registry. Items that requireannouncement after registry are announced in the Trade Registry Gazette.

B) Procedures for Amendments in Articles of Association

The steps for making amendments in the articles of association of joint stock companies, with the exception of those specified in Article 5 of this Communiqueare described below:

a) Board Resolution for Amendments in Articles of Association and the Preparation of the Amendment Text

aa. In General The board of directors resolves the amendments to be made in the articles of association, in compliance with the procedures and principles stipulated by theTCC and the articles of association; the amendment text is prepared so as to include the previous and new versions of the related article/s.

The amendment texts are signed by the com pany officials authorized to represent the company.

bb. Increase of Capital

With regard to the amendments to be made in articles of association involving capital increase, notwithstanding the provisions of special laws, it must bewritten in the capital clause of the amended text that the previous capital has been fully paid up and the that ca pital increase has been fully committed - free ofany collusion - and t hat 1/4th of the capital in cash has been fully paid up or at this portion capital increase will be paid up latest w ithin three monthsfollowing the registration of the capital increase and the re maining will be paid up latest within three years.

Amendments in the capital clause of the articles of association of companies which are obligated by special laws for payment of the whole or a fraction largerthan 1/4th of their capital increases will be arranged accordingly.

The capital in cash portion of the subscribed capital increase that is specified in the articles of association of the company, has to be deposited in a companyaccount opened at a bank or a private finance institution before the registration of the capital increase.



In the event that any rights, movable and immovable assets are being su bscribed for capital increase, this commitment has to be fulfilled latest within threemonths following the registration date of the capital increase. In case the goods and rights put in as capital are registered at a special registry (such as landregistry office, registry of ships, traffic registry, industrial property registry), these have to be re gistered on the behalf of the company, latest within t hreemonths following the registration date of the c apital increase.

b) Review of Am endments in Articles of Association in Shareholders Meeting and its Resolution

In case the shareholders are summoned for a meeting for amendments in the articles of association, the amended text has to be announced and notified to therelevant persons together with the original text in acc ordance with Article 368 of TCC and the amendments in the articles of association have to be resolved incompliance with the principles stipulated by the TC C and the articles of association.

c) Registry of the Amendments in Articles of Association at the Trade Registry and its Announcement

Amendments in the articles of association, with the exception of increase or reduction of capital have to be registered at the T rade Registry Office where thecompany headquarter is located, within 15 days following the shareholders meeting. In ca se these amendments violate the ri ghts of preferential stockholdersthis 15-days period starts u pon approval of the shareholders resolution by the preferential stockholders.

Amendments in the articles of association for a reduction of capital have to be registered at the Tra de Registry Office within 15 days after finalizing thetransactions specified in Articles 397 and 398 of TCC following the re solution of the shareholders meeting.

Amendments in the articles of association have to be registered at the Trade Registry Office within 15 days after finalizing the transactions in capital-in-cashincreases, whereas this 15-days period starts on the date of the shareholders meeting in non-cash capital increases.

When the capital increase needs some other legal or administrative procedures due to its special legislation, the 15 days period begins after these procedures.

With the exception of publicly held joint stock companies:

once the whole capital increase is subscribed, a list prepared in accordance with the examplar form given in Annex 5 of this Communique, duly signed by theCompany officials have to be announced in the Trade Registry Gazette together with the amendment texts, after the registration of the capital increase.

In case the capital increase process cannot be achieved, the Trade Registry Office is authorized to refund the relevant persons for the money deposited at thespecial account opened at a bank or a private finance institution for the subscribed capital shares before the capital increase process.

4) LIMITED LIABILITY COMP ANIES;

The minimum capital required for the establishment of a limited liability company is TRL 5 billion and there should be at least 2 founding shareholders as realpersons or legal entities, provided that there is no adverse provision in the special laws associated. The number of the shareholders should not be more than50.

A- Establishment Procedures

The establishment steps of limited liability companies are described below:

a)The Preparation of the Articles of Association and its Notarization:

It is obligatory that the articles of association of the company should contain the subjects stipulated in Articles 506 and 511 of TCC, it should be put down inwritten form and the signatures of all founders should be notarized.

aa. Founders The names, surnames and addresses of the founders, and in case there are citizens of foreign cou ntries among founders, the citizenship of these founder(s)have to be listed.

bb. Trade Name

The trade name of the company has to be determined in accordance with Article 45 of TCC so as to indicate the business activity of the company. It is

obligatory that the trade name has to incorporate the phrasing; Limited. In case it contains the name and surname of the real person, the phrasing that indicates the company type cannot be abbreviated or displayed in symbols.

Since the trade names of legal entities are protected all over Turkey, the designated trade name should not have bee n previously registered at any registryoffice. The trade name should not carry an essence to mislead third parties with regard to t he scope of activities, significance or financial status of thecompany, nor should contradict facts and public order.

The words Türk, Türkiye, Cumhuriyet and Milli can be used in trade names provided that there is a d ecree of Council of Ministers approving such usage.

The trade name has to be i n Turkish language. Any fictitious names present in the trade name have to be in Turkish language as well.

The presence of foreign words in the trade name of a company may be permitted in cases, where these words do not contradict the law, the national, culturaland historical benefits; where the name or brand promoting the goods or services constituting the business activity of the company is in a foreign language or



there is/are foreign shareholder/s in the company.

cc. Headquarter The name of the province and district of the province at which the headquarter of the company is located, has to be s pecified in the articles of association.Furthermore, the open address of the company has to be written in the articles of association.

It is not obligatory to make amendments in the articles of association only for a change of a ddress if the new address is within the same registry district.However, an amendment in the articles of association is necessary if the new address is located at a registry center different than the previous one.

dd. Objective and Field of Activity

The field of activity in which the company is planning to operate should not have been prohibited by Article 271 of TCC. (TC C Art. 503)Limited liability

companies cannot deal in banking and insurance business.

A specific field of activity in which the company will actually be operating should be w ritten in the articles of association, at least on sectoral basis. The articlesof association should not be w ritten so as to cover all kinds of field of activity. Objectives and subjects of activity that ca n be written in the articles of association are limited with the subject specifed in the company title.

ee. Capital

The capital of the company should be minimum TRL 5 billion. Capital amounts to be put in by shareholders can be of diverse amounts. Yet, the capital to beprovided by shareholders should be at least TRL 25 million or multiples of this amount.

In accordance with Articles 506 and 510 of TCC, it is obligatory that the principal capital of the company, capital amounts subscribed by each shareholder andthe method and terms of how this capital shall be paid has to be specified in the articles of association.

Accordingly, notwithstanding the provisions of special laws, it must be written in the capital clause of the articles of association of the company that thecapital has been fully subscribed - free of any collusion - and that 1/4th of the cash capital has been fully paid up or that it will be paid up latest within threemonths following the establishment of the company and that the remaining portion will be paid up latest w ithin three years.

Capital clause of the articles of association of companies which are obligated by special laws for payment of the whole or a portion larger than 1/4th of theircapital will be arranged accordingly.

In the event that any rights, movable and immovable assets are being su bscribed as capital at company establishment stage, this commitment has to befulfilled latest within three months following the registration date of the company. In case the goods and rights put in as capital are registered at a s pecialregistry (such as land registry office, registry of ships, traffic registry, industrial property registry), these have to be registered on t he behalf of the c ompany,latest within three months of establishment.

b) The Registration of the Company at the Trade Registry and its Announcement The articles of association are first notarized and then registered at t he Trade Registry Office where the company headquarter is located in or where thelocation of headquarter is associated with, within 15 days after notarization. The company becomes a legal entity by this registry. Items that require

announcement after registry are announced in the Trade Registry Gazette.

B) Procedure for Amendments in Articles of Association

The steps for making a mendments in the articles of association of limited liability companies are described below:

a) Resolution of Board of Shareholders for Amendments in Articles of Association and the Preparation of the Amendment Text

aa. In General

The board of shareholders resolves for amendments to be made in the articles of association in compliance with the procedures and principles stipulated bythe TCC and the articles of association; the amendment text is prepared so as to include the versions of the previous and new article/s.

bb. Increase of Capital

With regard to amendments to be made i n articles of association involving capital increase, notwithstanding the provisions of special laws, it must be writtenin the capital clause of the amendement text that the previous capital has been fully paid up and that the capital increase have been fully committed - free of any collusion - and t hat 1/4th of the cash capital has been paid up or at this portion the capital increase will be paid up latest within three months followingthe registration of the capital increase and the remaining will be paid up latest within three years.

Amendments in the capital clause of the articles of association of companies which are obligated by special laws for payment of the whole or a fraction largerthan 1/4th of their capital increases will be arranged accordingly. The cash capital portion of the subscribed capital increase that is specified in the articles of association of the company has to be deposited in a company account o pened at a bank or a private finance institution before the registration of the capitalincrease.

In the event that any rights, movable and immovable assets are being su bscribed for capital increase, this commitment has to be fulfilled latest within threemonths following the registration date of the capital increase. In case the goods and rights put in as capital are registered at a special registry (such as landregistry office, registry of ships, traffic registry, industrial property registry), these have to be re gistered on the behalf of the company, latest within t hree



months following the registration date of the c apital increase.

b) Registry of the Amendments in Articles of Association at the Trade Registry and its Announcement Amendments in the articles of association have to beregistered at the Trade Registry Office where the company headquarter is located, within 15 days following the date of the resolution of board of shareholders.

Amendments in the articles of association for a reduction of capital have to be registered at the Tra de Registry Office within 15 days after finalizing thetransactions specified in Articles 397 and 398 of TCC .

In case the capital increase process cannot be achieved, the Trade Registry Office is authorized to refund the relevant persons for the money deposited at thespecial account opened at a bank or a private finance institution for the subscribed capital shares during the capital increase process.

Joint Stock Companies Which are Subject to the Permit of the Ministry of Industry and Trade for Establishment and Amendment in Their Articles of Association:

Article 273 of TCC as revised by Article 2 of Law 4884:

Stipulates that: Establishment and amendments in articles of association of banks, private finance institutions, insurance companies, financial leasingcompanies, factoring companies, holding companies, companies operating foreign currency exchange offices, companies dealing in public warehousing,publicly held companies, subject to the Capital Markets Law, companies that are founders and operators of free zones are subject to permit from the Ministryof Industry and Trade.

In order to establish a company of the type listed above, an application has to be made to the Ministry (General Directorate of Internal Trade) so as to receivea permit before registering at the Trade Registry Office. As for amendments in articles of association this permit has to be received before the shareholdersmeeting at which the amendments will be resolved. Other transactions for the establishment of these companies and amendement in articles of association

thereof will be carried out in accordance with the procedures and principles specified in Article 3 of this Communique.

Payment of the Capital in Cash

Payments of shareholders against their capital subscriptions in cash during the establishment or the capital increase process have to be made to the accountsopened by the company at a ba nk or a private finance institution.

Repealed Provisions

Communique No: Domestic Trade 1995/1 which was published in the Official Gazette No: 22373 on 13 August 1995

And the entire circular authorizing the Provincial Industry and Trade Directorates for finalizing the establishment transactions of joint stock companies andlimited liability companies and the amendments in t he articles of association thereof have been re pealed.

DOCUMENTS REQUIRED FOR THE ESTABLISHMENTPROCEDURES OF JOINT STOCK AND LIMITED LIABILITY COMP ANIES A- Petition and form for company establishment notification, the examplar of which is given in Annex 4 of t his Communique, duly filled in and signed bypersons authorized to r epresent the company,B- Notarized articles of association; one original and 2 copies,C- Notarized signatures of persons authorized to represent the company together with the c ompany trade name,D- Letter of Commitment in accordance with Article 29 of the Trade Registry Regulation,E- Bank receipt of the deposit paid to the C onsumers Fund account, amounting to one thousandth of the company capital,F- For joint stock companies specified in Article 5 of this Communique, the original letter of permit of the Ministry,G- Certified copies of the ID certificates of the re al person founders, and their residence certificates.

DOCUMENTS REQUIRED FOR AMENDMENTS IN ARTICLES OF ASSOCIATION OF JOINT STOCK AND LIMITED LIABILITY COMP ANIES A- Petition for registration bearing the companys trade name, signed by company officials,B- Amendment text wh ich has been a pproved by the shareholders meeting in joint stock companies and by board of shareholders in limited liabilitycompanies, in 3 copies,C- Minutes of the shareholders meeting for joint stock companies and for limited liability companies having more than 20 shareholders; resolution of board ofshareholders for limited liability companies having 20 or fewer shareholders,

D- For joint stock companies, list of participating shareholders at the shareholders meeting,E- Letter of the Ministry of Industry and Trade assigning commissioner for the shareholders meeting for joint stock companies and limited liability companieshaving more than 20 shareholders,F- For joint stock companies specified in Article 5 of this Communique, the original letter of permit from the Ministry.

ROADMAP OF ESTABLISHING A COMP ANY IN TURKEY



QUESTIONS AND ANSWERS:

CHARTER 1: Registration and operation of NGOs

Legal forms of NGOs Foundations and associations are legal forms of NGOs in Turkey. All related questions will be answered separately for associations and foundations in the rese

Who can register an NGO . It is free for all Turkish citizens to establish a fo undation however some limitations remain for foreigners. Foreigners can establish foundations but themajority of the board of the foundation should reside in Turkey.. All Turkish citizens can establish or be members of associations. But some limitations remain for military and security personnel and the judges andattorneys working under the Ministry of J ustice.. All legal entities can form or become members of NGOs.. Physical persons have to be over 18 years in order to become founders or members of NGOs. However it is possible for children between 12-18 years to formchildren associations. Adults can not be members of children associations.

. Is there a minimum capital requirement There is no capital requirement for a ssociations. A minimum of 50.000Turkish Liras (app.35.000 USD) is required for foundations.. Is there a minimum requirement for founders/members?

At least seven founders are needed to establish an association. There is no minimum requirement regarding founders/members for foundations.. Where are NGO registered Associations are registered by the Ministry of Interior Department of Associations. There is a separate public body affiliated to the Prime Ministry for foundaticalled General Directorate of Foundations.. Grounds for refusal of registration and grounds for termination of registration Registration of NGOs can be refused only if their purpose is against the constitution or laws. If an NGO is dealing with illegal acts it can be terminated by a cour. Structure of the NGOs All associations have to form a General Assembly, Executive Board of five persons and an A uditing Committee of three persons. Foundations only have to formadministrative body of at least one person. But in real life they are encouraged to have board of at least 3 persons. However in reality many of them establish acommittees as well.. Is there a public benefit status in your country? There is public benefit status for NGOs in Turkey however only a very limited number of NGOs benefit from the status. The status is given by the Council of Ministers making the process highly political.. Reporting requirements and oversight authorities Both associations and foundations have to do a nnual reporting to Department of Associations or General Directorate of Foundations respectively. If an NGOhas public benefit status an additional reporting to the Ministry of Fi nance is also required.



. Possibility for direct economic activity Both associations and foundations can establish/may become partners in economic enterprises or companies. It is permitted to have direct economic activitybut all economic activities are subject to corporate taxation regardless of executed by a separate legal entity or not.. Possibility to register a commercial company If NGOs prefer to establish an economic enterprise it will not have a separate legal personality and the entityoperate under the NGOs legal personality.Whereas, establishing companies requires a separate legal personality under the Ministry of Trade which operate as private companies.. Possibilities to engage in political/public policy activity Political activities are prohibited for all NGOs in Turkey b ut in reality lot of NGOs deal with political activities especially in the field of public policy.

CHARTER 2: Taxation of NGOs

. Is NGO income taxed?

NGOs are not subject to income tax in Turkey.. Is there a tax on the NGO's economic activity income? All economic activities are subject to c orporate tax like an ordinary economic enterprise/company.. Is there a tax on donations? All donations are exempt from gift and inheritance tax.. Are there exemptions for donors of NGOs (both physical and legal)? There is very limited tax exemption for the donors. Only donations up to 5% of the a nnual income made to public benefit organizations are exempt fromcorporate/income tax.. Is there a tax on income from pass ive investments (interest on deposits, dividends, etc)? Income from passive investments is subject to income taxation of 10% to 15%.. Are there taxes on the property owned by NGOs? Properties owned by NGOs are subject to Property Tax. However there is limited exemption for the property used for NGOs purpose for public benefit organiz. Is there an inheritance tax on property inherited by an NGO? NGOs are exempt from inheritance tax. Is there tax on grants? There is no tax on grants.

. Is there any limitation on foreign funding (e.g. there needs to be a preliminary approval of the state, it can be only a certain percentage of your totaincome, etc.) There is no limitation on foreign funding. NGOs have to notify public authorities after receiving foreign funding in a month.. Are there any exemptions from VAT for NGOs? There is no VAT exemption for NGOs.

CHARTER 3: Public funding for NGOs

. Is there a special government program providing grants to NGOs? There is no special government program providing grants to NGOs.. Are there organizations that receive direct state subsidies because they are important or represent the interests of certain groups (e.g. the Red Cro

Union of Blind)? Some organizations receive public funding. But, there is no regulation, standard or "code good practice" for the general use of public funds.. Are there examples of local authorities providing funds to NGOs f or certain activities? Local authorities provide more fu nding to NGOs than c entral government. However the lack of regulations on the use of public funds c reates arbitrary implem. Are there cases when the state/local authorities hire an NGO to provide certain services or perform a certain task e.g. prepare a legislative analysi

provide food to old people. It is not legally possible for state to hire an NGO.. Can NGOs take part in pub lic procurement procedures and get contracts? NGOs can take part in public procurement procedures and get contracts like ordinary companies as long as they comply with the regulations of the procureme. Are state funds provided in a decentralized way (e.g. each ministry gives grants in its own area or there is one institution giving grants in different

NGOs may receive central or decentralized funds but because of the lack of regulations on the allocation of public funds the amounts of the public funds are un

CHARTER 4: NGO p articipation in decision-making

. Is there a state strategy for NGO-government relations? There are no written strategy NGO-government relations.. Is there a ministry or agency responsible for relations with NGOs? Department of Associations and General Directorate of Foundations are the re sponsible bodies for NGO relations. But the relations are w eak and there are nostandards setting the rules for relationship.. Is there a Parliamentary commission responsible for NGO issues? There is no Parliamentary Commission responsible for NGO issues.. Can NGO easily take part in debates in parliamentary committees?

It is very hard to have access to parliamentary committees. Only very limited NGOs have access with an i nvitation from the head of the parliamentary committ. Is there a legal requirement for ministries/parliament to publish draft laws on their websites and ask for comments from the public? All law drafts are published under the parliament webpage. Also most of the rough copies of the drafts are published on the web pages of the Pr ime Ministry arelated Ministries for public consultation.. Are there joint bodies between the administration and NGOs for consultations on d ifferent issues? There are no joint bo dies for consultations.. Is there a legal act or other state document requiring the administration to consult with NGOs? There is a Regulation on Draft Making that set the rules for the consultation of public authorities to NGOs on arbitrary basis.

OLCAY Z. TOPLUSOY/ 2010