- Introduction
With its roots dating back to 1873, today Borsa İstanbul (BIST) is a developed and accessible regulated market offering attractive opportunities for international investors, with significant global participation in the Turkish stock exchange. Borsa İstanbul generally provides a market that complies with international standards for foreign investors, and compared to other countries, there are no restrictions or burdens that would significantly challenge investors. The rights granted to domestic investors are also granted to foreign investors. Therefore, there are no factors in the legal framework that would complicate the conditions and deter foreign investors, and decisions regarding the initiation or termination of investments are more influenced by economic conditions.
- General Framework and Notification Under the Foreign Direct Investment Law
The previous approval system applied to foreign investments has been replaced with a notification system in 2003 under the Foreign Direct Investment Law No. 4875, introducing the principles of freedom and equal treatment. The law also allows for the free transfer of net profits, dividends, sales, and other transfer sources arising from these activities. Additionally, foreign companies not engaging in activities within Türkiye are permitted to open liaison offices upon application for permission.
In parallel, our current Capital Markets Law, which was passed in 2012 as a reform law to harmonize Turkish capital markets legislation with the EU acquis and to increase the integration and competitiveness of Turkish capital markets with global markets, has also liberalized the functioning of organized markets.
The concept of direct investment, which forms the scope of application of the Foreign Direct Investment Law, refers to foreign investors either i) establishing a new company or branch, or ii) acquiring shares of a company established in Türkiye (any percentage of shares acquired outside the stock exchange or 10 percent or more of the shares or voting power of a company acquired through the stock exchange).
Foreign investors meeting at least one of these conditions are required to fulfill their notification obligations. As seen, when purchasing shares on the stock exchange, if a foreign investor acquires 10% or more of a company’s shares, this triggers the obligation to notify under the law, with no need for approval. Notifications are made through the E-TUYS system (Electronic Incentive Application and Foreign Capital Information System).
Another regulation that applies (not only to foreign investors but also to domestic investors) is Article 198 of the Turkish Commercial Code. According to this disposition, if an undertaking holds directly or indirectly 5%, 10%, 20%, 25%, 33%, 50%, 67%, or 100% of the capital shares of a capital company, or if those shares fall below these thresholds, this undertaking must notify the capital company and the relevant authorities.
- Taxation Issue
Since they are considered non-resident taxpayers, foreign investors not residing in Türkiye are taxed only on their income generated in Türkiye. In contrast, domestic investors are considered full taxpayers in Türkiye and are required to pay taxes on their worldwide income. Regarding transactions on Borsa İstanbul, the tax situation is generally similar, and foreign investors are not subject to a heavier tax burden. To gain further insight into this issue, foreign investors should carefully examine the tax situation, considering double taxation treaties and any special circumstances. Moreover, since the transactions are carried out by banks and intermediary institutions as explained below, there is no particular difficulty or obstacle in this regard.
- Intermediary Institutions and Verification Processes
Foreign investors must work with a bank, or an intermediary institution based in Türkiye, just like domestic investors, to perform transactions on Borsa İstanbul. Banks and intermediary institutions receive and execute trade orders on behalf of the investors. Banks and intermediary institutions in the securities market are subject to KYC and AML obligations regulated within the framework of the Regulation on Measures Regarding the Prevention of Money Laundering and Financing of Terrorism. In this process, both foreign and domestic investors are required to verify their identity and address information. The accuracy of the investors’ identity and address information is verified by banks and intermediary institutions for security purposes. While this verification process is required for both groups, foreign investors may be asked to provide additional documents due to their foreign residency or citizenship status. For legal entities established abroad, the approved copies of documents corresponding to those required for legal entities established in Turkey are requested (documents certified by Turkish consulates or those with a certification stamp by the competent authorities of the country of origin, under the Hague Apostille Convention). Additionally, within the framework of a risk-based approach, identity information may be verified through notarized Turkish translations of these documents when necessary. Banks and intermediary institutions offer the same services to both foreign and domestic investors, and transaction fees are similar. However, foreign investors should also check the regulations specific to their home countries, if any.
- Conclusion
When considering the terms and conditions established by the legal framework, it can be stated that Borsa İstanbul, and Türkiye in general, is favorable for foreign investment. Given that the existing regulations are already flexible and based on the principle of equality, it is not expected that there will be significant changes in this area in the near future. Since the legal challenges foreign investors face are primarily regulatory measures that are limited in scope, these challenges can be easily overcome through careful review and professional legal advice, ensuring compliance with these regulations. In fact, it would be more appropriate to refer to these as points of consideration rather than legal barriers or obstacles. Aside from the notification in case of shares equal to or exceeding 10% of the capital, there is no separate regime or restrictions for foreign investors compared to domestic investors in transactions on Borsa İstanbul. However, especially for foreign investors who have not been actively engaged in trading or investing for a long time, legal consultancy is the main solution for overcoming potential obstacles, as they may not be familiar with the regulations and requirements. In this regard, qualified legal advice will significantly help foreign investors make the investment process safer and more efficient.
