Focus on: Law Development in Turkey


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Energy law overview

Recent trends and developments in Turkey and public-private partnership

In the last year, Turkey has hosted important financing projects in the energy, automotive, agriculture, heavy industry, textile, defence industry, aviation, technology and real estate sectors. In recent years, consortium models have come to the fore in large projects, and the incentives injected directly into the economy together with the government’s incentive policy have played a critical role in creating an impact in a short time. Financial supports given to SMEs and small businesses include raw materials, spare parts, etc. increased the profitability of the products and ensured that the investments were placed on solid foundations.

The Central Bank of the Republic of Turkey announced on 31 March 2020 that it will extend rediscount credits up to 60 billion TL for Turkish lira export and foreign exchange earning services in order to limit the adverse effects of the Covid-19 epidemic. Since it was observed that the working capital loan need was effectively met by the banking system in the previous period, it was decided to use the 20 billion TL facility allocated to Turkish lira rediscount credits more effectively as an advance loan with investment commitment in order to support investments in particular sectors that are critical for the country.

Of the remaining 40 billion TL limit in Turkish lira rediscount credits, 20 billion TL is being used by Türk Eximbank, 10 billion TL by public banks and 10 billion TL by other banks. In addition, the number of projects co-financed by both domestic and foreign creditors in Turkey has increased in recent years.

Currently, highway, airport, port, marina and tourism facility, customs facility and customs gate, urban infrastructure and energy facility project in Turkey are carried out with the models that can be shown as four main public private partnership (PPP) models; build-operate-transfer (BOT), build-operate (BOO), build-lease-transfer (BLT); and transfer of operating rights (TOOR).

Lenders and Sponsors and Deal Structuring

Sponsors in Turkey vary according to the size of the projects undertaken. In the Turkish market.  Lenders are generally licensed by the Banking Regulation and Supervision Agency (BRSA). However, many other actors in the industry can act as lenders, including multinational credit institutions and international financial institutions such as the European Bank for Reconstruction and Development (EBRD), the International Finance Corporation (IFC) and the European Investment Bank (EIB).

Regarding deal structuring, firstly, a special purpose vehicle (SPV) should be established according to the company form desired in the project. If the SPV is to be established as a company, it can be either a limited liability or a joint stock company. In this case, a joint stock company is preferred due to the limited liabilities and capital structure.

If there are multiple sponsors in the project, in order to determine their cooperation, rights and obligations, a shareholder’s agreement (SHA) is signed in addition to the articles of association (AoA), where every issue cannot be regulated due to the strict regulation of Turkish Law and the confidentiality of internal relations. In case of conflict, AoA will prevail according to legal regulations.

Since other methods such as joint ventures and consortiums that can be used in project financing require the direct responsibility of the sponsors, incorporation of a company is recommended if the project does not specifically define the structure. Nonetheless, the SPE can be tailored to the different needs and measures of various parties in cross-border transactions involving foreign lenders, creditors or securities providers.

Foreign investments

Restrictions regarding foreign lenders granting loans

In accordance with Decree  No. 32, Turkish residents are prohibited from taking out foreign currency loans from Turkey or abroad. Legal entities residing in Turkey can obtain loans in Turkish Lira from abroad if they use these loans through banks in Turkey. Legal entities residing in Turkey can also obtain foreign currency loans from abroad, provided that they comply with the principles and restrictions specified in the Decree No. 32 and use these loans through banks in Turkey. In general, legal entities residing in Turkey without foreign currency income must not take foreign currency loans from abroad.

On the other hand, there are no restrictions against providing security or guarantees to foreign lenders. This procedure is usually completed through a letter of guarantee issued by one of the Turkish banks on behalf of the project company.

Foreign investment system in Turkey

In line with the national policy liberalised towards foreign direct investments in Turkey with the amendments made in the Foreign Direct Investment Law No. 4875 (FDI Law) in 2003, in principle, foreign direct investments can enter the Turkish business landscape without the need for permission. Legal entities established in accordance with Turkish law with foreign capital are considered domestic companies regardless of the shareholding percentage of foreign investors. Foreign investors and their investments are treated the same as domestic investors and their investments. Moreover, with the FDI Law, some other principles that are of high importance for promoting a successful foreign investment environment such as freedom to invest, valuation of non-cash capital and employment of foreign personnel have found application. In this framework, foreign investors can freely establish companies, open branches and/or buy shares of an existing company and make know-how technical assistance agreements with local companies.

According to the FDI Law, companies with foreign capital established under the Turkish Commercial Code shall be treated equally with companies with domestic capital. In accordance with this principle, foreign investors have the right to establish a company with 100% foreign capital or buy all the shares of an existing Turkish company.

Within the scope of domestic laws and bilateral and multilateral investment protection agreements ratified by the Republic of Turkey, profit transfer is guaranteed.

While companies resident in Turkey are subject to certain restrictions to obtain foreign currency loans from abroad, they are free to borrow from abroad in Turkish currency or foreign currency. In addition, Turkish legal entities that do not have foreign currency income are not allowed to borrow foreign currency from abroad. In addition, companies residing in Turkey are allowed to use intercompany foreign currency loans from their parent companies, under the condition that such parent companies own 100% of their shares directly or indirectly.

Regarding offshore foreign currency accounts, having a bank account for the SPV in Turkey will be one of the prerequisites for the project, as large projects are often the subject of the tender. On the other hand, Turkish banks may decide to set this issue as a prerequisite. However, in cases where the project company is operated through offshore foreign currency accounts, special attention should be paid to dividend transfer and double taxation, depending on the concrete case and the investor’s country.

Structuring and documentation

Obligation to register or file the financing of project agreements

Private law subjects do not have any registration or filing obligations within the scope of the projects (financing or project agreements) they undertake in Turkey, without some exceptions such as public or public-private partnership projects that are subject to the tender procedure being required to be registered by the relevant tender institution, certain notification and permission obligations of the publicly held companies regarding Capital Markets Board and Banking Regulation and Supervision Agency.

Licence obligations

In Turkey, mining, petroleum works, water resources and the fields of activity within the scope of EMRA are among the fields that require a license for companies to operate. In order to carry out production, storage, transmission, distribution and similar activities in the fields of electricity, natural gas, petroleum and LPG within the scope of EMRA, a license must be obtained from the relevant institution.

It should be noted that, every foreign company that will operate in the electricity sector must be a limited liability company or joint stock company established in accordance with the regulations of the Turkish Commercial Code. In addition, there are separate regulations related to each resource/energy element regarding the regulations that should be included in the company’s articles of association, such as minimum capital requirements, periodical audit/reporting processes.

Competing security interests

Rules regarding the priority of competing security interests may vary depending on the type of security. While the priority is the chronological order in the issues of collateral and security, the mortgage and lien orders are also important. The parties are free to agree on a different order in any case. In some cases, priority may be given to public receivables under the Law on the Procedure for the Collection of Public Receivables.

The order of the contractual security depends on the date the security is created, or the order of the guarantees may be specified in the agreement.

Requirements in Turkish law

Within the scope of projects and financial contracts, capital and individual companies can be established within the scope of the Turkish Commercial Code. Also, through the establishment of partnerships or consortiums, projects and financial agreements can also be carried out. The partnership structure, management structure and responsibility structure of the partners and managers vary depending on the type of company. For example, the liability of the partners of commandite and collective company for the debts of the company is much heavier compared to the liability of limited liability and joint stock company partners. In addition, factors such as the field of activity of the project company, permits and licensing regulations to which it is bound, tax processes etc.  affect the legal form determination process of the company.

Assurances and security

Providing collateral to lenders

Real estate and all kinds of immovable mortgages, liens on movables and stocks, letters of guarantee, any receivable that is allowed to be assigned, equipment, bonds and repo can be used as loan collateral by lending institutions.

Regarding charges or interest on all current and future assets of a company, in Turkish law, the subject of the security must be definite, therefore, a floating charge or other security interest on current and future assets are not allowed.

On the other hand, the restriction on the companies regarding purchasing and/or accepting their own shares as security or guarantee should be taken into account. Furthermore, additional restrictions may be imposed depending on the nature of security or guarantees and depending on the lender’s request.

Grant of security interest

It is necessary to mention specific items in accordance with the type of collateral agreement and since the subject of the security is required to be definite, a general description of the scope of the determined coverage is not sufficient.


Enforcement of collateral

If the claim is unpaid and has become due, the secured lender can enforce its collateral, in accordance with the provisions of the Turkish Code of Obligations No. 6098. With the default of the claim, a specific time is given to the debtor by instigating a warning, unless a specific time has been agreed in the agreement.

The basic and most preferred collateral enforcement method is to request the sale of collaterals through enforcement offices in case the collaterals are valuable immovable and/or movable assets other than cash collateral, bank letter, or cheque. The right of a mortgage on immovable assets such as facilities or debtor’s properties or stock certificates of a debtor or guarantor’s company is the most common types of collateral in project finance. Following the application of the lender, the sale transaction is arranged by the enforcement office and if the market value of the collateral is not available, the collateral is sold by auction.

Element of foreignness

Pursuant to Article 24 of the Turkish International Private and Civil Procedure Law No. 5718 (MOHUK), the parties may decide to apply the foreign law, if there is a foreign element in an agreement. If the parties choose foreign law, the dispute shall be resolved before foreign jurisdictions in accordance with foreign law. In order to file a lawsuit before Turkish courts with a foreign judgment, the recognition and enforcement process of the judgment must be completed. After such a process, any request acquired before foreign courts or arbitral tribunals can be fulfilled before Turkish courts and enforcement offices.

Arbitral awards rendered by one of the states party to the United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards will be recognised and enforced in accordance with the provisions of the New York Convention without retrial, because Turkey is a contracting state to the relevant convention.

In terms of the arbitral awards given by a country other than contracting states of the New York Convention or a judgment by any foreign country’s court,  MOHUK shall apply to the recognition and enforcement procedures

Enforcement by a foreign lender

In terms of the rights to apply to courts and enforcement offices regarding their rights arising from loan or security agreements, foreign lenders and Turkish citizens generally have the same rights. However, with the Code of Civil Procedure No. 6100 and the MHK, exceptions have been made for Turkish citizens with no habitual residence and foreigners.

Bankruptcy and insolvency practices in Turkey

Various legal remedies envisaged in Turkish law to ensure restructuring other than bankruptcy can be summarised as concordat, restructuring through reconciliation and restructuring between the parties with external agreements without being brought before a court.

Concordat is a transaction that aims to prevent the bankruptcy of the debtor by delaying and restructuring the debts of the debtor who wants to pay his debt but cannot pay due to economic developments and market conditions.

One type of concordat called bankruptcy concordat begins when the debtor or one of the creditors who may claim the bankruptcy of the debtor submitting a concordat project to the commercial court of the first instance and determines when and how the debts will be paid. If the necessary conditions are met, the court gives the debtor a temporary respite and appoints a temporary concordat commissioner. The court must decide whether to grant the debtor a certain amount of time in the temporary period. Within the scope of the concordat process, creditor meetings will be held and the concordat project will be voted on. With the approval of the concordat, the concordat provisions become mandatory for all creditors.

Other types of concordats are the waiver of assets in which the creditors are authorised to dispose of the debtor’s assets or to transfer all or part of this asset to third parties and restructuring through conciliation envisaged for capital companies and cooperatives.

Impact of bankruptcy process

In line with the relevant provisions of the Execution and Bankruptcy Law No. 2004, it has been regulated that the receivables that are not yet due, will become due and demandable with the bankruptcy decision with one exception which is the receivables secured by a lien on immovable property of the debtor.

Receivables with a delaying condition or uncertain term can also be registered at the bankruptcy desk. However, at the end of the liquidation phase, the share allocated for these receivables can only be paid if the condition is fulfilled or the uncertain maturity is reached.

Risk assessment regarding lenders

As a rule, in order for the creditor to make a claim from the surety bond, it must first demand payment. However, in the event that the debtor’s bankruptcy is decided pursuant to Article 202 of the Execution and Bankruptcy Law No. 2004, the creditor can make a request directly from the guarantor/security provider without applying to the debtor. Therefore, this constitutes an advantage for lenders.

With other alternatives having been created within the legal system in order for the debtor, security provider or guarantor to claim their receivables in case of bankruptcy, the risk towards creditors is minimised.

Legal persons not subject to bankruptcy procedures

Pursuant to Article 43 of the Execution and Bankruptcy Law, persons subject to bankruptcy are those who are subject to the provisions of the Turkish Commercial Code and the real or legal persons who are declared to be subject to bankruptcy, although they are not merchants according to their special laws.

The natural and legal persons subject to bankruptcy can be named as commercial companies; foundations ; associations operating commercial enterprises to achieve their objectives; institutions and organisations established by the state; special provincial administrations, municipalities and villages and other public legal entities that will be managed in accordance with the provisions of private law in accordance with their own founding laws or that will carry out commercial activities (and therefore will be considered merchants). The merchant who quits the trade will be subject to bankruptcy for one more year from the announcement of its abandonment.

Establishments that spend more than half of their income on public duties are not considered merchants such as the state, special provincial administrations, municipalities and villages, other public legal entities, associations working for public benefit, and foundations that spend more than half of their income on public duties are not subject to bankruptcy. Moreover, the Social Security Institution is not subject to the foreclosure and bankruptcy provisions of the Execution and Bankruptcy Law.

Insurance practises in Turkey

Governance, restrictions, fees and/or taxes regarding insurance policies in Turkey

The Bank Insurance Transaction Tax (BITT) rate was determined as 5% with the decision dated 12 August 1991, No 91/2072, published in the Official Gazette on 16 August 1991, No 20962, and a 5% tax is applied to insurance transactions pursuant to Article 33 of Expenditure Tax Law No 6802. The burden of the tax is a subsidised obligation and as in VAT, is reflected on to the end user who benefits from the services.

However, the following are not subject to any kind of tax, duty and charge, pursuant to Article 29 of the same law: the money received for insurance against nuclear risks, mortgage finance institutions, housing finance institutions, and housing finance funds received in favour of all transactions within the scope of housing finance, and compulsory earthquake insurance (DASK) premiums.

Reinsurance insurance by foreign creditors

Regarding the risks in a project finance transaction, the risks are reinsured abroad, at a percentage determined depending on the types of transaction.  Both original insurances and reinsurance can be paid to the foreign creditor and transferable. “Reinsurance insurance” is the reinsurance of a certain part or all of the insured risk. In the event that the risk of large damages coming at the same time, insurance companies take out repeated insurance in order not to have difficulties in paying the damage. Insurance companies are able to spread out risks that are not financially possible to bear on their own by reinsurance. Then, the parts exceeding the risk that the insurance company can undertake are transferred to reinsurance companies via reinsurance agreements. Generally, foreign insurance companies reinsure the major tax assessment risks undertaken by Turkish insurance companies.

Tax practices in Turkey

Withholding tax

The major items that will be subject to tax withholding are self-employment payments, employee payments, rent payments, and dividends, in accordance with the relevant articles of the Income Tax Law and the Corporate Tax Law. On the other hand, according to Article 30/8-b of the Corporate Tax Law that regulates the cuts from the abroad credits; principal, interest and dividend payments, insurance, and reinsurance payments regarding loans obtained from foreign financial institutions are not subject to a tax deduction.

Regarding the other taxes, duties, charges

Besides the deductions envisaged in the above aforementioned article, creditors are evaluated separately with regards to Banking and Insurance Transactions Tax (BITT).

The money received by bankers in cash or on account for their own benefit due to their bank transactions and services are also subject to bank transactions tax, as per the 2nd paragraph of Article 28 of the Expense Taxes Law No. 6802 (The Law).

Limits of the interest amount

In cases where the parties do not determine the contractual interest and default interest rates, the Law on Legal Interest and Default Interest (Code No 3095) finds the application area in terms of regulating the percentage of interest to be applied. Moreover, the same law also regulates the capital interest and default interest percentages to be applied in commercial transactions.

Furthermore, there is a limit for the contractual interest rates to be determined between the parties in the Turkish Code of Obligations No 6098.  Pursuant to the Article 8/1 Turkish Commercial Code No 6102, interest rates in commercial transactions can be freely determined. Therefore, in project finance processes, the interest rate may be determined freely. Otherwise, the amounts indicated in Code No 3095 will apply.

Applicable law depending on the agreement

Project or finance agreements

As a rule, Turkish law will be applied to the agreements that do not contain a foreign element. However, in project or finance agreements, in cases where one of the parties is a foreigner, the application of foreign law can be decided.

The application of the domestic laws

First of all, as a rule, in the event that the parties to the agreement are Turkish then Turkish law shall be applied. The law to be applied in transactions and relations related to private law with foreign elements, the recognition of foreign decisions with the international authority of Turkish courts and rules on enforcement of decisions are regulated in the Law on International Private Law and Procedural Law (IPLPL) which entered into force after being published in the Official Gazette dated 12 December 2007, No 26728.

The “foreign element” mentioned is referring to a legal act or transaction being related to or relevant to more than one legal system and it can be evaluated in terms of person or place. When at least one of the parties is a foreign citizen, is a resident or has their habitual residence in a foreign country, a foreign element in terms of person can be in question. Whereas in cases when the signature place of an agreement or the place of fulfilment sought is in a foreign country, this would mean the foreign element in the sense of the place.

According to the Article 24 of IPLPL, – which will be applied to the agreements that contain a foreign element – the parties are free to choose the law to be applied to the agreement. Also, if the choice of law can be understood from the provisions of the agreement or the conditions of the case, it will be considered valid.

Pursuant to the same article, if the parties to the agreement have not chosen a law, the one most closely related to that agreement among the laws stipulated in the said article shall apply.

Even if there is no foreign element in the agreement, in the event that there are transactions regarding real rights on immovables in another country, the law of the country where these immovables are located will find the application area in legal transactions regarding real rights on immovables. Nevertheless, the fact that the parties having the opportunity to refer to foreign law rules and even to agree that foreign law will be applied to the agreement even though there is no foreign element in the agreement should be noted.