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A workable legal framework has been established in many industry sectors
Energy, Infrastructure & Competitive Markets
As an emerging market, Turkey has experienced a significant increase in the demand for electricity and consequently, the necessary investment and finance are up to $5 billion annually. It is projected that the total energy investment required may surpass $120 billion until 2023. Thus, the market requires capital from private companies. The government is aiding these investments by means of tenders for privatization and building or allowing new power plants within the next decade.
Turkey pursues reforms in the energy market to achieve liberalisation by allowing competition. The Turkish Competition Authority has published a report with the aim of guiding towards a competitive market structure. The report emphasizes the significant period between 2018-2019; when most power purchase agreements and guaranties entitled to these projects will expire. Also, the ongoing privatisation process of the state-owned power companies will be concluded by 2019. These developments will undoubtedly lead to a more competitive market.
Turkey enacted its first National Renewable Energy Action Plan in December 2014 with the support of the European Bank for Reconstruction and Development (EBRD). This plan is based on the EU Directive 2009/28/EC on the promotion of using renewable energy sources. Turkey has assured to meet 30% of its energy need from renewable sources by 2023. Turkey aims to add 35 GW of hydropower, 20 GW of wind power, 5 GW of solar energy, 1 GW of geothermal and 1 GW of biomass.
The Turkish Energy Market Regulatory Authority (EMRA) initiated the first pre-license tenders according to the Electricity Market Licensing Regulation (EMLR) while capping the application ceiling at 600 MW. The awarded bidders received two licenses for an 8 MW solar park in Elazig and a 5MW project in Erzurum in May 2014. As there is no precedent license, these have significant importance in terms of the procedure and license obligations of future license holders. However, the 600 MW capping will be amended in 2015. Under the EMLR, recipients of a pre-licence have to complete their power plant within 24 months. Next to compelling reasons, the enterprise may request an extension of the period for additional 12 months. The EMRA will decide on the extension petition by evaluating the kind of energy source and capacity.
The Natural Gas Market Law will be amended to divide the currently vertically integrated and state-owned Petroleum Pipeline Corporation (‘BOTAS’) into three divisions for transmission, storage, and other activities. This amendment will abolish the dominant position of BOTAS and establish a competitive investment friendly oil and gas market. The draft law also includes the privatisation of the “Istanbul Gas Distribution Company” subject to the Istanbul Municipality approval.
Telecommunications & e-commerce
The Information Communications Technologies Authority (‘ICTA’) has recently identified the potential growth in the telecommunication sector. According to ICTA’s report in 2014, the number of operators in the electronic communications sector was 645 and the number of authorizations granted to those operators is 1094.
The report outlines that in the mobile industry only three companies have significant market power. Thus, the Turkish government is eager to open this market to an additional mobile service provider. The renamed 4.5G network has already started rits roll out across the country at the beginning of 2016, after successful tender bids from the three main players, Turkcell, Vodafone and the newly named Turk Telecom (formerly AVEA) all of whom have varied licence rights after paying over introduced in 2015, particularly when the licences for 2600 MHz will be up for public tender. The government also outlined the need for creating the technical and legal basis to introduce and operate 4G technology.
The Electronic Commerce Law will come into force on May 1, 2015. Subject to the regulations of the new law is commerce by means of electronic mediums without the requirement of personal communication. As an overview, the law will regulate and define the trade relations, the obligations and liabilities of online service providers, the form and content of agreements executed by electronic devices, information duties, and penalties for the violation of the regulations. Most notably, the law will impose legal provisions for online service providers. The providers have to provide the consumer with clear and accessible detailed information regarding terms and conditions of the agreement before it is entered into. These regulations also include technical possibilities to correct a fault that might have occurred in the process of entering the agreement by means of e-commerce.
The Consumer Protection Law (CPL) came into force in May 2014. The law’s primary purpose is to grant the consumer the right to receive all relevant information relating to the contract and its terms before concluding legal transactions. Thus, the law imposes on the merchant partner an obligation to inform the consumer before or during the conclusion of a contract. When the consumer was not sufficiently informed of certain matters, he will benefit from the rights to the detriment of the party who has drafted the contract.
Furthermore, the law regulates the state prohibition and subsequent sanctions for the practices of false or misleading advertisements.
Real Estate, Property and Business.
An important factor on the Turkish construction market has been the government introducing the Law on Transformation of Disaster Risk Areas (LTDRA) in 2012, triggering an urban regeneration revolution in all the main cities. Within this regeneration process another 6.5 million residential homes will be demolished and reconstructed, and it is estimated 400 billion USD will be spent over the next 20 years. The LTDRA and its subsequent regulations implemented several incentives to support the urban regeneration. These include giving financial support, giving buyers low mortgage interest and exempting the purchase of real estate from several public charges.
The government will also enact law and regulation to create demand for investments and by making an investment friendly legal environment. For example, with the Energy Efficiency Law, no 5627 and regulations, the government imposed, the legal requirement to make public buildings energy efficient and included privately owned buildings in the process. The Turkish government encourages the use of modern construction technologies and the establishment of energy-saving buildings.
The Land Registry Law was amended by Law No. 6302, which simplifies the process of purchasing real estate and extended the list of countries whose nationals may acquire property from 53 to 129. The law also outlines 52 countries, whose citizens may acquire property but with certain restrictions.
Commercial corporationsmay also purchase real estate and limited in rem property rights in accordance with special laws such as the Petroleum Law, the Law on Encouragement of Tourism, and the Law on Industrial Zones. If a business duly established under the Turkish Commercial Code, No. 6103, and the foreign investors hold either individually or collectively 50% or more shares, the company may freely purchase up to 30 hectares of property in Turkey and acquire limited in rem rights. Interestingly, under the Commercial Code, there are no legal limits on the purchase of real estate for companies when foreign investors who hold less than 50 % of the company’s shares. These incentives introduced by the government will benefit both companies and individuals alike and create more opportunities for foreign investors to enter the Turkish real estate market and it appears that the Turkish government with its current agenda will provide more incentives for the property sector.
Health & Safety, Foreign Employees
The government plans to enact stricter regulations on upholding the Occupational Health and Safety Law, No. 6331. Under many changes, it will introduce a system of workplace accident recording for each employer. This system will reward companies that have a record of no workplace accidents with tax benefits and impose sanctions to employers who fail to comply or have a record of continuous workplace safety accidents.
The Law on Foreigners and International Protection, No. 6458, Turkey tries to coordinate the legal and bureaucratic prerequisites in response to an increasing demand for foreign employees. The Law regulates and simplifies the conditions for obtaining a residence permit and Article 6 of the Law regarding Work Permit for Foreigners, No. 4817, has been modified and now allows foreign nationals to receive permanent work permission, after a lawful stay of eight years.
Many questions remain as for the real-time implications of both laws. The situation is that both laws are not comprehensive and leave unnecessary space for interpretation, i.e. whether the documents provided by the foreigner for a residence permit meet the criteria of the law and listed documents, as this is decided differently by each local authority. Being in a different district within the same city may place various bureaucratic obstacles and expenses. The government plans to enact regulations and internal instructions, to unify the application procedure and to train each authority adequately.
Banking, Finance and Capital Markets
An Investor friendly banking sectorwith the primary goal to establish a leading global financial centre in Istanbul, the Turkish government continues to create the necessary legal framework. The foundation was enacted with the recent Capital Market Law, No. 6362 (CML). The Capital Market Board (CMB) continues to align Turkey's legal basis to comply with EU regulations. The following enactments and communiqués have been declared by the CMB to ensure the functionality and development of the capital markets by establishing a secure, transparent, and competitive environment for investors.
Communiqué No. III-37.1, published in July 2014, introduced a categorisation system for investment firms based on their activities, imposing a minimum capital for these companies by July 2015. It rescinds the license-based approach and states the minimum capital requirements as:
"Introducing Brokers" TL 2,000,000
"Execution Brokers" TL 10,000,000
"Market Makers" TL 25,000,000
This legal change will inevitably result in mergers or acquisitions of present investment firms to meet the Broker minimum capital.
The Communiqué No. II-19.1, published in January 2014, strengthened the protection for dividends. It set the principles and procedures for the payment of dividends in accordance with Article 19 and 20 of the CML. Corporations will now have to distribute their dividends equally (pro rata) to all shares existing at the date of distribution, regardless of their dates of issuance and acquisition. Dividend privileges related rights are, however, reserved. The decision to pay dividends in (x number of) instalments lies upon the corporation's general assembly of shareholders. Carrying dividends to next year or distributing dividends to interest parties, directors, employees or other non-shareholders are not permitted unless and until the dividend determined for shareholders are fully paid in cash.
A new Electronic Fund Platform introduced by the CML, TEFAS came into effect on January 2015. The platform allows investors access to buy mutual funds (that are incorporated by permission of CMB) through a single investment account. TEFAS is open to all foreign, local, individual, and institutional investors. There are currently 253 funds (of CMB licensed Banks and investment institutions) traded on the platform. TEFAS can be described as a supermarket that creates simple access to mutual funds.
The Capital Markets Board of Turkey (CMB) announced in March 2015 their plan to change the regulations concerning promotions for winning clients to banks or intermediary companies. Currently, the promotional benefits are based only on a share of the revenue achieved by the venture capital market company through the gain of the customer and promotions are only permitted when clients are won through telemarketing. The CMB wants to allow promotions benefits for winning customers by any means and not only the person winning the client but also the client itself shall benefit from the promotional campaigns. Promotion will be permitted when the gain of the customer has provided any kinds of interests and benefits to the bank or other capital market company.
Incentives for Angel investorsrealising that it is crucial but difficult for small size start-up enterprises to receive adequate funding. The Turkish government enacted fiscal incentives for investing in small businesses. Under the Law to Amend the Individual Pension Savings and Investment System Law, No. 6327, its subsequent Regulation on Individual Capital Participation and the Income Tax Law, No. 193, the so-called Business Angel are entitled to substantial tax benefits upon their investments.
The Regulation has recently been amended and increased the income tax reduction for angel investors from 75% to 100% when investing in enterprises active in the fields of research and development, and innovations. The maximum reduction amount is thereby TL 1 Million. This new incentive will benefit both the investors and the start-up or small business depending on funding.
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