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March 17, 2008, Monday

Property purchase ban against foreign companies in Turkey (1)

Sometimes it is very difficult to translate things. I rarely dare to translate a joke originally told in Turkish because it does not produce the same effect. However, I believe the time is right today, and I will try to tell you a Turkish joke that sheds some light on what is happening nowadays.Here is the joke: Imagine a deserted and forgotten village road -- the asphalt road is repaved every year but is badly damaged due to its poor quality. Similar to the road, the sidewalls for protection against landslides or falling rocks is not likely to protect drivers from any landslide or falling rock. The road may also become slippery due to quick freezes in cold weather, and the region is known as a place where bears live. The local authority found a solution for non-liability. Local law enforcement officers put a sign on the wall stating the follows in one sign: “CAUTION -- CASCADING ROCK -- SLIPPERY WHEN WET OR FROZEN -- BEAR CROSSING.” In short, saying everything could happen at any time in Turkey and that there is no real way to make predictions about the future.

I listened to this joke from Justice and Development Party (AK Party) Deputy Chairman Dengir Mir Mehmet Fırat during a speech he gave at Columbia University.

Incredible things are happening in Turkey. It was a very glorious moment when the Direct Investment Law was enacted in Turkey. Let’s see what the new law brought to Turkish investment life and then I will give the Constitutional Court’s decision and get into the details of this matter. The full name of the law is the Foreign Direct Investment Law, Law No. 4875 Date of Enactment June 5, 2003 Date of Publication in Official Gazette: June 17, 2003. (This is important because a law is only applicable after it is published in the Official Gazette unless stated otherwise.)

The law’s scope and objective is given in Article 1: “The objective of this law is to regulate the principles to encourage foreign direct investment [FDI]; to protect the rights of foreign investors; to define investment and investor in line with international standards; to establish a notification-based system for foreign direct investment rather than screening and approval; and to increase foreign direct investment through established policies. This law establishes the treatment to be applied to foreign direct investment.”

I don’t see any encouragement or any attraction for foreign direct investors nowadays.

Who is a foreign investor?

The law gives the definition as follows: “1) Real persons who are of foreign nationality, Turkish nationals resident abroad and 2) Foreign legal entities established under the laws of foreign countries and international institutions.”

What kind of investment is considered foreign investment under the FDI Law?

The law gives certain details in the form of “including but not limited to,” and I find it unnecessary to include every detail in this article. In short, the law considers the following investments as FDI: “1) Establishing a new company or branch of a foreign company by a foreign investor, 2) Share acquisitions of a company [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].”

I will keep writing on this topic tomorrow and also in the coming days.

NOTE: Berk Çektir is a licensed attorney at law and available to answer questions on the legal aspects of living in Turkey. Send enquiries to [email protected] The names of the readers are disclosed only upon written approval of the sender.

DISCLAIMER: The information provided here is intended to give basic legal information. You should get legal assistance from a licensed attorney at law while conducting legal transactions and not just rely on the information in this corner.

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