Legal Procedures, Permits, and Risk Management
Turkey offers an attractive investment environment for foreign construction companies due to its strategic location, growing infrastructure needs, and dynamic real estate market. However, foreign investors must comply with various legal procedures under Turkish investment, zoning, and construction laws. This article outlines the key legal aspects for foreign construction companies seeking to develop projects in Turkey.
1. Legal Framework for Operating in Turkey: Company or Branch Establishment
Foreign construction companies generally have two options for legally operating in Turkey:
- Establishing a Turkish joint-stock (A.Ş.) or limited liability (Ltd. Şti.) company under the Turkish Commercial Code, or
- Opening a branch of their foreign company in Turkey.
Both options require registration with the Trade Registry, tax office, and Social Security Institution (SGK). If a branch is established, the scope of activities must comply with Turkish regulations.
2. Contractor License and Construction Permit
To legally engage in construction activities, a company must obtain:
- A contractor license from the Ministry of Environment, Urbanization and Climate Change,
- A construction permit from the relevant municipality.
Foreign companies can apply for a contractor license directly, though they may be required to appoint a local technical officer or authorized representative. The project must comply with the zoning plan and be approved by relevant authorities to obtain the construction permit.
3. Land Acquisition and Construction Contracts
Before project development, foreign companies must secure suitable land through:
- Direct acquisition of real estate, or
- Construction contracts based on revenue or flat sharing with landowners.
Under Article 35 of the Land Registry Law, foreign legal and natural persons are subject to restrictions on real estate ownership, especially in military and special security zones.
Construction contracts, particularly in “build-and-share” projects, must be carefully drafted in line with Turkish contract, zoning, and real estate laws. Clauses on guarantees, delay penalties, and termination rights are highly recommended to mitigate risks.
4. Tax and Financial Obligations
Foreign companies earning income in Turkey are subject to taxation, including:
- Corporate Income Tax (currently 20%),
- Value Added Tax (VAT) (rates may be 1%, 8%, or 20%),
- Stamp Duty,
- Advance Tax and Withholding Tax obligations.
For profit repatriation, foreign shareholders must comply with dividend declaration, tax payments, and any applicable Double Taxation Avoidance Agreements (DTAAs) between Turkey and their home country.
5. Employment of Foreign Staff and Work Permits
To employ foreign personnel, companies must obtain work permits from the Ministry of Labor and Social Securityand Directorate General of Migration Management. Key personnel often benefit from simplified procedures, but engineers and technical staff may be subject to diploma equivalency and professional certification requirements.
6. Legal Risk Management in Construction Contracts
When entering into construction contracts with Turkish partners, foreign companies should pay close attention to:
- Applicable law and jurisdiction,
- Language of the contract and translation discrepancies,
- Performance terms, penalty clauses, and guarantees,
- Force majeure and non-performance clauses,
- Termination conditions and arbitration provisions.
A well-drafted contract in compliance with Turkish Code of Obligations and ICC standards helps minimize potential disputes.
Conclusion
Foreign construction companies can successfully develop projects in Turkey, but they must navigate a complex legal, technical, and administrative framework. Every stage of project development requires expert guidance in Turkish commercial, construction, tax, and contract law.
With proper structuring and legal protections, foreign firms can operate effectively and confidently across various sectors, from urban transformation to large-scale infrastructure.
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