Turkey has become an important center of foreign investments due to its strategic location and nexus to the largest consumer markets in the world. As we see foreign capital pouring into the Turkish companies in different industries, foreign investors should be aware of certain mandatory restrictions to avoid potential implications of such laws to their investments.
Acquisition of real estate or limited rights in rem on real estate has particular importance when it comes to the infrastructure or industrial investments as well as energy investments. The Land Registry Law No. 2664 (“the Law”) sets out various restrictions with respect to the purchase of real estate and acquisition of limited rights in rem on real estate located in Republic of Turkey by foreigners, foreign legal entities or Turkish companies with foreign capitals.
As per Article 36 of the Law, following Turkish companies (companies in the scope of Article 36) are allowed to acquire real estate in Turkey provided that relevant department of the relevant governorate where the real estate is located determines such acquisition is within the scope of activity set forth in the Articles of Association of the company:
Turkish companies, capital of which is, directly or indirectly, held by foreign individuals or international organizations;
Turkish entities whose majority of management is appointed by foreign individuals or international organizations,
Same rules apply to acquisitions by Turkish companies in case;
another Turkish company with foreign capital becomes a shareholder in relevant Turkish company with a share percentage equal to or exceeding 50%,
foreign entities or individuals acquires control over relevant Turkish company,
foreign investors acquires shares in the capital of relevant Turkish company provided that relevant Turkish company is a real property owner.
Moreover, as per Military Forbidden Zones and Security Zones Law No 2565, acquisition of real estate by Turkish companies with foreign element is subject to permission of relevant governorship on account of whether such real estate remain in an area in a military forbidden zone, military security zone or another zone restricted due to proximity to military to forbidden zones or other strategic reasons. If the real estate is located in a military forbidden zone or security zone, a permission of the General Staff or the commandership that has been authorized if the respective land is located in a high military zone or a security zone.
Acquisition of real estates located in a special security zone, however, will require authorization from the governorship of the place.
In order to prevent the attempts to circumventing the mandatory rules, share transfers from Turkish capital companies to foreign companies should be notified to the Treasury, so that Treasury can notify the relevant governorates to determine whether real estate owned by relevant foreign capital Turkish company is located in a zone with a special category.
Because real estate investments and limited rights in rem acquired in the absence of a certificate of authorization will be disposed by the Ministry of Treasury and Finance, it is vital to make required notifications and obtain required authorizations when investing in a real estate owner Turkish company.
REFERENCES
[1] Military Forbidden Zones and Security Zones Law No 2565
[2] The Land Registry Law No. 2664
[3] https://www.tkgm.gov.tr/
AUTHOR
Attn. Ferhan Yıldızlı
Attn. Mert Dilmen