Supplementary memorandum submitted by
CBI
TRADE LAW
The Turkish government is currently revising
the 51-year old trade law to make it more investor friendly. The
new bill will scrap double taxation for foreign investors, increase
transparency and fair competition, and include stricter adherence
to European Union (EU) regulations on auditing. Other measures
include easier company start ups and a clear definition of and
legal status for holdings.
The reform of the trade law, and first and foremost
the adaptation of the 80-year old Code of Obligations, is certainly
good news for investors. Turkey is known for its obstructive bureaucracy
and corruption (irregular payments frequently feature in public
tenders).
With the bulk of investment coming from EU countries,
the revision of Turkish investment regulations to make them more
EU-friendly is welcome.
However, as with a raft of bills passed previously,
tangible results are yet to be seen. Furthermore, given the ongoing
tensions between the current government and the secular state
organisations, the bill may be a means to ensure the investors'
continued support for the ruling justice and Development (AK)
party.
TURKISH CONSTITUTIONAL
COURT CURTAILMENT
OF FOREIGN
COMPANIES' PROPERTY
RIGHTS
In early March, the Turkish Constitutional Court
ruled in favour of the nationalist Republican People's Party that
the law allowing property sales to foreigners and foreigner companies
be rescinded. The decision is to come into force in six months'
time.
Previously, the government had secured a new
law that allowed foreign investors and joint ventures that included
foreign partners to purchase property, as part of its drive to
attract increased foreign direct investment in the hopes of facilitating
economic growth and to offset the huge current-account deficit.
With the government's attempts to open up the
real-estate sector to foreign interests, property values have
soared.
The Constitutional Court has resisted these
changes, the latest ruling coming a year after similar ruling
against the government's proposal to increase the size limit of
land owned by any individual foreigner.
However, a six-month window allows the government
to draft new legislation that might allow real estate sales to
foreigners. The ruling will undoubtedly undermine the government's
attempts to attract foreign direct investment. Until the matter
is settled, foreign investors may be wary of committing to substantial
expansion in Turkey. Even after new legislation is passed, it
may still be difficult to attract investors, who must consider
whether the court might in future overturn any subsequent laws
on foreign property.
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