1. Domestic Legal Foundations for the Protection of Foreign Investments
1.1. Principle of national treatment and freedom of investment
Under Turkey’s foreign investment regime, foreign investors are in principle treated no less favourably than domestic investors. Foreign investors can establish companies, acquire shares, participate in joint ventures and enter into public–private partnership (PPP) structures subject to the same general rules that apply to Turkish nationals, save for limited restrictions in sensitive sectors.
Core domestic principles include:
- Freedom to invest in most sectors of the Turkish economy;
- Equal treatment of foreign and local investors, particularly in company law and commercial law;
- Freedom to transfer funds (such as dividends, sale proceeds, licence fees and loan repayments) abroad through authorised financial institutions, subject to general foreign exchange and anti-money laundering rules;
- Protection of property rights and restrictions on expropriation grounded in the Constitution and civil legislation.
These domestic protections form the first layer of legal security. For many foreign investors, however, the decisive comfort comes from treaty-based guarantees that sit above domestic law and provide direct access to international arbitration.
1.2. Constitutional property guarantees and expropriation standards
The Turkish Constitution protects the right to property and sets conditions under which the state may expropriate property or restrict property rights. Although expropriation is not prohibited, it must:
- serve a legitimate public interest,
- be conducted in accordance with due process of law, and
- be accompanied by compensation.
In parallel, sector-specific expropriation or compulsory acquisition laws regulate procedure and valuation. While these rules are enforced by Turkish courts, the same state measure can also be analysed under international law standards, such as:
- prohibition of unlawful expropriation,
- prohibition of measures equivalent to expropriation (indirect expropriation), and
- obligations to provide fair and equitable treatment and non-discriminatory regulation.
Thus, domestic property guarantees and treaty-based investment protection operate in tandem.
1.3. Sector-specific regulatory environment
Foreign investors in Turkey often operate in highly regulated industries, for example:
- Energy and natural resources,
- Banking and financial services,
- Telecommunications and media,
- Transport and infrastructure,
- Real estate development and construction,
- Health services and pharmaceuticals.
Licensing decisions, administrative fines, tariff changes, environmental obligations, zoning rules or restrictions on foreign ownership can all affect the economic value of an investment. In many disputes, the starting point is a domestic administrative or judicial challenge. Nevertheless, when an investor is protected by a BIT or a multilateral investment treaty, an adverse regulatory measure may also trigger international responsibility and open the door to investment arbitration.
2. Turkey’s Bilateral Investment Treaty Network
2.1. Strategic function of BITs in attracting foreign capital
Bilateral investment treaties (BITs) are treaties between two states designed to protect investments made by investors of one state in the territory of the other. Turkey has concluded a large number of BITs with partner countries across Europe, the Middle East, Asia, Africa and the Americas.
For a foreign investor, a BIT can be just as important as the underlying commercial contract. The treaty:
- sets out minimum standards of treatment that the host state must respect;
- provides for international arbitration against the host state if these standards are violated;
- usually offers direct consent to arbitration in advance, without the need for separate negotiation with the state.
In practice, sophisticated investors often structure their Turkish investments through entities incorporated in jurisdictions that benefit from favourable BITs with Turkey, thereby maximising protection.
2.2. Typical substantive protections in Turkish BITs
Most Turkish BITs follow a broadly similar architecture and include a set of classic substantive protections. Although details vary from treaty to treaty, investors can generally expect the following standards:
- Fair and Equitable Treatment (FET)
- Protection against arbitrary, inconsistent or unreasonable state conduct.
- Requirement that the host state respects the investor’s legitimate expectations, particularly where the investor relied on specific assurances or a stable legal framework.
- Obligation to ensure a transparent and predictable legal environment.
- Full Protection and Security (FPS)
- Duty to ensure physical security of investments and, depending on the treaty wording, sometimes legal security as well.
- Obligation of the state to exercise due diligence in preventing harm to investments by state organs or third parties.
- National Treatment
- Foreign investors must not be treated less favourably than domestic investors in like circumstances.
- Particularly relevant where domestic competitors receive more favourable regulatory treatment, subsidies or access to state resources.
- Most-Favoured-Nation (MFN) Treatment
- Investors from a treaty partner state must not be treated less favourably than investors from any third state.
- In some cases, tribunals have interpreted MFN clauses to extend more favourable procedural treatment, although this remains a debated issue that depends on treaty language and case-law.
- Protection against Direct and Indirect Expropriation
- Direct expropriation: outright seizure or transfer of legal title.
- Indirect expropriation: measures that substantially deprive the investor of the use, enjoyment or value of the investment, even if legal title formally remains with the investor.
- In both scenarios, lawful expropriation generally requires public purpose, non-discrimination, due process and payment of prompt, adequate and effective compensation.
- Free Transfer of Funds
- Right to transfer capital, dividends, loan repayments, licence fees and other returns in freely convertible currency.
- The state may only restrict transfers under narrowly defined conditions, such as insolvency or criminal investigations.
- Umbrella Clauses (in some BITs)
- Clauses that elevate contractual commitments made by the host state or its entities to the level of international treaty obligations.
- Enable investors to argue that breach of a contract (for example, a concession agreement) constitutes a violation of the BIT itself.
These protections give investors powerful tools to challenge state measures that significantly impair the value of their Turkish investments.
2.3. The concepts of “investment” and “investor”
To rely on a BIT, a claimant must qualify both as a covered investor and must own or control a covered investment.
- A covered investor is usually a natural person with the nationality of the treaty partner, or a legal entity incorporated under the laws of that partner state (sometimes with additional requirements such as a registered office or substantial business activity).
- A covered investment typically includes shares, bonds, contractual rights, concession rights, intellectual property, tangible and intangible property, as well as claims to money or performance having an economic value.
The specific definitions in each BIT are crucial for investment structuring. For example:
- Using a special purpose vehicle (SPV) incorporated in a state with a strong BIT may extend treaty protection to the entire investment chain.
- Conversely, if the corporate structure or the timing of the investment falls outside the treaty’s scope, protection may be unavailable.
Careful planning at the entry stage can therefore be decisive for future dispute resolution options.
3. Multilateral Instruments Protecting Foreign Investors in Turkey
3.1. ICSID Convention
Turkey is a contracting state to the Convention on the Settlement of Investment Disputes between States and Nationals of Other States (ICSID Convention). The ICSID system offers a self-contained and highly specialised regime for investment arbitration.
Key features relevant to foreign investors in Turkey include:
- Consent to ICSID arbitration is typically expressed in BITs, the Energy Charter Treaty or individual investment contracts. Once the investor accepts that consent (for example by filing a request for arbitration), a binding arbitration agreement is formed.
- Autonomous procedural framework: ICSID arbitrations are conducted under the ICSID Arbitration Rules, and national courts have a very limited role.
- Enforcement mechanism: ICSID awards are enforceable in each contracting state as if they were final judgments of that state’s courts. Domestic courts are not permitted to review the merits of the award; only the ICSID annulment mechanism applies.
For investors, ICSID arbitration provides a neutral, depoliticised and enforcement-friendly forum for disputes with states, including Turkey.
3.2. Energy Charter Treaty (ECT)
Turkey is also a party to the Energy Charter Treaty (ECT), a multilateral treaty aimed at protecting and liberalising cross-border energy investments and trade. Investments in the energy sector in Turkey—such as electricity generation, transmission networks, oil and gas projects or renewable energy installations—may qualify for protection under the ECT.
Key aspects for energy-sector investors:
- The ECT provides standards of treatment similar to those in BITs (FET, expropriation, non-discrimination, free transfers).
- It allows investors from contracting states to bring arbitration claims against host states, including before ICSID, ad hoc tribunals under UNCITRAL Rules, or other institutions.
- It has been used extensively in Europe in disputes arising out of regulatory changes to feed-in tariffs and renewable energy support schemes.
For foreign investors considering large-scale energy projects in Turkey, the ECT may therefore create an additional layer of protection, alongside any applicable BIT and contractual arrangements.
3.3. New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards
Turkey is a party to the New York Convention, which is the cornerstone of the global regime for recognition and enforcement of foreign arbitral awards. This convention is particularly relevant for:
- commercial arbitration awards involving Turkish parties; and
- investment arbitration awards that are not rendered under ICSID (for example, UNCITRAL or ICC awards).
Under the New York Convention:
- Turkish courts may refuse recognition and enforcement of a foreign award only on limited grounds, such as invalid arbitration agreement, violation of due process, excess of authority, non-arbitrability or conflict with public policy.
- In practice, this creates an enforcement-friendly environment for foreign awards against both private parties and, subject to rules on state immunity, state entities.
3.4. International Arbitration Law and Private International Law
Turkey’s International Arbitration Law applies to arbitrations seated in Turkey that involve a foreign element, while the Private International Law and Procedural Law statute regulates the recognition and enforcement of foreign judgments and arbitral awards.
Taken together, these instruments:
- support the validity and effectiveness of arbitration agreements;
- limit court interference with arbitral proceedings;
- define the grounds and time limits for set-aside applications;
- regulate how foreign awards are recognised and enforced in Turkey.
The overall structure is consistent with modern arbitration practice and reinforces Turkey’s image as an arbitration-friendly jurisdiction.
4. Arbitration Routes Available to Foreign Investors
4.1. Treaty-based investor–state arbitration
Under most BITs and under the ECT, a foreign investor who has suffered damage due to state conduct may commence investor–state arbitration directly against the Republic of Turkey.
Typical preconditions and procedural steps include:
- Notice of dispute and cooling-off period
- The investor sends a written notice setting out the dispute and the alleged treaty breaches.
- A cooling-off period (often 3 to 6 months) follows, during which the parties are required or encouraged to attempt amicable settlement, negotiation or mediation.
- Choice of forum
- Many treaties offer a choice between domestic courts in Turkey and international arbitration.
- Once a choice is made and pursued beyond a certain threshold, a “fork-in-the-road” clause may prevent the investor from switching to another forum for the same dispute.
- Careful forum selection at the outset is essential to avoid procedural traps.
- Arbitration options
- ICSID arbitration (if both Turkey and the home state of the investor are ICSID Contracting States and the treaty allows it);
- ICSID Additional Facility, where ICSID conditions are not fully met but parties agree;
- UNCITRAL Arbitration Rules (ad hoc arbitration) with a designated seat;
- Institutional arbitration such as ICC, SCC or, in some cases, ISTAC, depending on treaty language.
Each route has distinct procedural and strategic consequences, including in relation to transparency, cost, duration, review and enforcement.
4.2. Contract-based arbitration
In addition to treaty-based consent, foreign investors frequently rely on arbitration clauses in their contracts with Turkish public authorities, state-owned enterprises or private counterparties. For example:
- build-operate-transfer (BOT) contracts,
- PPP agreements for infrastructure or healthcare projects,
- concession agreements in utilities and transport,
- long-term energy supply or offtake contracts.
These contracts often provide for arbitration under:
- ICC Rules, with a seat in a major arbitration centre;
- ISTAC Rules, with a seat in Istanbul;
- UNCITRAL Rules for ad hoc arbitration;
- in some cases, other institutional rules selected by the parties.
While these disputes are formally commercial, they may overlap with public law and regulatory issues. Depending on the applicable BIT, certain contractual disputes can be “elevated” to the treaty level through umbrella clauses, giving investors an additional path to pursue claims as treaty breaches in investment arbitration.
4.3. Interplay between jurisdiction clauses and treaty rights
A common complexity arises when an investment contract includes a dispute resolution clause in favour of a particular forum (for example, local administrative courts or a specific arbitral institution), while a BIT simultaneously offers investment arbitration.
Key considerations include:
- Whether the treaty’s dispute resolution clause is exclusive or additional;
- Whether bringing a claim before local courts triggers a fork-in-the-road clause that bars subsequent arbitration;
- Whether the contract expressly reserves the investor’s right to pursue BIT claims independently of contractual disputes.
As a matter of strategy, foreign investors should align their contract drafting, treaty analysis and litigation/arbitration strategy from the beginning of the project, not after a dispute has already escalated.
5. Typical Investment Disputes Involving Turkey
5.1. Regulatory and licence-related disputes
Foreign investors in heavily regulated sectors may face disputes arising from:
- refusal, suspension or revocation of licences;
- non-renewal of concessions or PPP contracts;
- changes in technical or environmental requirements;
- reclassification of activities or facilities resulting in higher compliance costs.
When such measures are alleged to be arbitrary, discriminatory or disproportionate, they may be challenged as:
- violations of fair and equitable treatment;
- indirect expropriation;
- breaches of national treatment or most-favoured-nation clauses.
5.2. Changes in tariff schemes and incentive programmes
Investors in energy, industrial production or export-oriented businesses may rely on tariff schemes, feed-in tariffs, tax incentives or investment support programmes offered by Turkish authorities. When these schemes are substantially amended or withdrawn, the economic viability of the investment may be undermined.
If the investor can show:
- specific assurances or commitments given by the state; or
- a stable regulatory framework that induced the investment,
then abrupt or retroactive changes may be characterised as a breach of FET or, in extreme cases, indirect expropriation.
5.3. Judicial conduct and denial of justice
Investment disputes may also arise from the conduct of courts and tribunals in Turkey, especially where:
- proceedings are excessively delayed;
- judgments are said to be arbitrary or inconsistent;
- the investor is denied a fair opportunity to present its case.
Under international law, denial of justice is a form of wrongful state conduct that may trigger responsibility. However, the threshold is high: normal procedural errors are not enough; there must be serious, systemic or manifestly unjust treatment.
5.4. Tax measures and currency regulations
Taxes and foreign exchange rules are vital tools of public policy, and states enjoy wide discretion in these domains. Nevertheless, tax or currency measures may cross the line into breach of investment protection standards if they are:
- discriminatory and targeted;
- confiscatory in effect;
- manifestly inconsistent with prior assurances or legal framework.
In these situations, foreign investors must demonstrate that the measure goes beyond legitimate taxation or macroeconomic regulation and amounts to abusive or arbitrary interference.
6. Enforcement of Arbitral Awards Against Turkey
6.1. ICSID awards
When a foreign investor prevails in an ICSID arbitration against Turkey, the award is enforceable under the ICSID Convention regime. In practice, this means:
- The award is binding on the parties and not subject to appeal in national courts.
- Only the limited annulment mechanism within ICSID is available.
- After any annulment process, the investor may seek recognition and execution in Turkey or in any other ICSID Contracting State.
The domestic court’s role is typically limited to recognising the award as equivalent to a final domestic judgment. Questions of public policy or arbitrability are not normally examined by national courts in the same way as under the New York Convention.
6.2. Non-ICSID investment awards
For non-ICSID investment arbitration awards (for example, UNCITRAL or ICC awards seated outside Turkey), enforcement follows the New York Convention path:
- The investor applies to the competent Turkish court for recognition and enforcement.
- The court examines whether any of the limited convention grounds for refusal are present.
- If recognition is granted, the award becomes enforceable like a domestic judgment.
In such proceedings, state entities may raise immunity from execution in relation to specific categories of property (for example, assets used for sovereign, non-commercial purposes). Investors therefore need to identify property that is either commercial in nature or situated in jurisdictions with a narrower approach to immunity from execution.
7. Practical Guidance for Structuring and Protecting Investments in Turkey
7.1. Treaty planning and corporate structuring
Before committing capital, investors should:
- map out which BITs and multilateral treaties are potentially available;
- analyse the definitions of “investment” and “investor” in each instrument;
- identify limitations such as temporal application, denial of benefits clauses or requirements of substantial business activity.
Based on this analysis, investors may consider:
- establishing a holding company in a jurisdiction with a robust and favourable BIT with Turkey;
- ensuring that the investment is made through that entity in a transparent and compliant manner;
- keeping adequate documentation on the purpose, financing and structure of the investment.
The objective is to ensure that, if a future dispute arises, the investor can clearly demonstrate that it falls within the personal and material scope of the treaty.
7.2. Contract drafting aligned with treaty protection
Investment contracts with Turkish public authorities or state-owned enterprises should be drafted with dispute resolution and treaty interaction in mind. Recommended elements include:
- a clear and effective arbitration clause (for example ICSID, ICC, UNCITRAL or ISTAC);
- specification of the seat of arbitration, governing law and language;
- consideration of stabilisation mechanisms addressing changes in law, taxation or regulation;
- allocation of risk relating to force majeure, sanctions, currency restrictions and changes in international standards.
Where possible, the contract should make it explicit that:
- the investor retains the right to bring treaty claims; and
- contractual dispute resolution arrangements do not limit or waive the investor’s rights under applicable investment treaties.
7.3. Compliance and risk management
To maximise protection and to avoid jurisdictional objections in arbitration, investors should:
- ensure full compliance with Turkish law at the entry and operational stages (corporate formalities, licences, environmental and competition rules, tax filings, foreign exchange regulations);
- implement strong anti-corruption and sanctions compliance programmes, particularly in sectors involving public procurement or concessions;
- maintain a detailed documentary record of all approvals, licences, correspondence with authorities, regulatory changes and assurances;
- promptly assess the legal implications of adverse measures and seek advice on both domestic remedies and potential treaty claims.
A well-organised documentary record can prove decisive in establishing:
- the scope of the investment;
- the expectations reasonably held by the investor;
- the chronology and impact of state measures.
8. Balancing Investment Protection and the State’s Right to Regulate
International investment law increasingly emphasises the balance between protecting foreign investors and preserving a state’s regulatory autonomy. Turkey, like many states, has an interest in:
- attracting and retaining foreign capital;
- ensuring a stable and predictable investment environment;
- at the same time, retaining the ability to legislate in the public interest (health, environment, energy transition, financial stability, consumer protection).
Modern investment cases involving Turkey tend to revolve around this balance. Tribunals often:
- acknowledge Turkey’s right to regulate;
- examine whether a measure is proportionate, non-discriminatory and consistent with due process;
- assess whether the investor had specific assurances or a reasonable expectation that the legal framework would remain unchanged.
For investors, this means that absolute stability of regulation cannot be assumed. However, sudden, discriminatory or arbitrary changes, or measures that effectively neutralise an investment, may still be found to breach treaty standards and trigger state liability.
9. Conclusion
Foreign investments in Turkey benefit from a sophisticated and multilayered system of protection, combining:
- a generally liberal domestic regime based on national treatment and freedom of investment;
- a wide network of bilateral investment treaties providing substantive safeguards such as fair and equitable treatment, protection against expropriation, free transfers and non-discrimination;
- participation in crucial multilateral instruments such as the ICSID Convention, the Energy Charter Treaty and the New York Convention;
- access to international arbitration through treaty-based consent and contract-based arbitration clauses.
For international investors, the key to effective protection lies in careful planning and structuring:
- selecting an appropriate treaty framework;
- drafting contracts that complement, rather than undermine, treaty rights;
- implementing robust compliance mechanisms;
- monitoring regulatory developments and documenting interactions with authorities.
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