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Manufacturing in Turkey

Manufacturing in Turkey

Turkey
Typography

For a long time, Turkey has been a significant manufacturing hub for supplying the European market, and its significance has become even greater since joining the customs union with the European Union. Following a significant fall in the value of the Turkish lira in 2018, manufacturing costs in Turkey are now lower. As setting up manufacturing operations in a new country often entails a number of pitfalls and requires local insight from specialists of various fields, here is a short guide for Turkey.

Corporate Vehicles

The most common company forms in Turkey are joint stock companies and limited liability companies. The two are usually compared from the perspectives of director/manager liability, shareholder liability, and tax liability upon transfer of shares.

While joint stock companies are governed by a board of directors, limited liability companies are governed by one or more managers, who can also form a board. In limited liability companies, at least one of the shareholders must also be a manager fully authorized to represent the company. The liability of both directors and managers is fault-based for financial losses suffered due to mismanagement. Directors and managers may also both be held liable for unpaid public debts of the company or criminal acts committed by the company, among other things.

Shareholder liability in joint stock companies is limited to the share capital, whereas in limited liability companies shareholders are liable for the company’s public debts (e.g., taxes and social security payables).

Finally, in terms of tax liability due to capital gains arising from transfer of shares, there is none for joint stock companies if the shares were held for at least two years, as opposed to limited liability companies, where a share transfer is fully taxable.

Real Estate and Construction

Companies incorporated in Turkey are generally free to acquire title and rights in rem over real estate assets in Turkey, albeit subject to a governorship clearance confirming that the property in question is not located within a military zone.

There are a wide variety of construction agreement forms and precedents available in Turkey. The level of detail and sophistication of an agreement used in a deal depends on the transaction size and the profile of the transacting parties, and ranges from short and simple contracts to FIDIC standard forms.

Utilities

Companies which consume electricity over a certain threshold are allowed to purchase electricity from any supplier of their choosing. This frees these companies up to negotiate their own terms for their energy needs. Others are required to purchase electricity from the authorized electricity company in the region. Plants may install their own renewable energy or cogeneration facilities and sell any unused energy output.

Employment

There is a statutory minimum wage in place. For 2019, the gross minimum wage is TL 2,558.40 (approximately EUR 420 as of writing). Employers also pay statutory social security premiums by withholding the employees’ shares and adding to that the employer’s share.

A trade union can acquire access to a workplace and become entitled to enter into collective bargaining agreements with the employer: (a) if 1% of the employees working in the line of work of the trade union are union members; (b) if more than half of the employees working at a workplace are members of the trade union; or (c) in case of an enterprise consisting of more than one workplace, if 40% of the employees working at the enterprise (i.e., 40% of the total number of employees in all work places of the company) are members of the relevant trade union.

Suppliers

Under Turkish law, there are certain rules and regulations protecting small-scaled suppliers against bigger enterprises. These include, inter alia: (i) a restriction regarding the maximum amount of payment term that may be imposed on a supplier, (ii) bigger enterprises automatically defaulting without the supplier having to serve a default notice, and (iii) bigger enterprises being required to pay suppliers special statutory interest at a higher rate than the standard commercial interest rate.

A number of commonly-used collateral types are also used for protection against commercial and insolvency-related risks of suppliers. Bank guarantee letters are the best for protection, but small-scaled enterprises in particular may sometimes have difficulties obtaining them, and even if they can, they are usually too costly. Other than that, mortgages, movable pledges, share pledges, bonds, cheques, personal sureties, and third party guarantees are the most common examples of provided securities. Cheques are a good means of security as they lead to blacklisting by the banks if they bounce. Mortgages take too much time to perfect, and it is not possible to enforce any agreed private sale mechanisms for movable and/or share pledges. 

By Selim Keki, Partner, and Ali Can Goren, Associate, Balcioglu Selcuk Akman Keki Attorney Partnership

This Article was originally published in Issue 6.2 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.

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