Introduction
In recent years, Dubai (United Arab Emirates – UAE) has become an attractive business hub for Turkish investors due to its tax advantages, strategic location, and investment-friendly policies. However, when setting up a company in Dubai, it is not enough to only consider UAE legislation; Turkish commercial, tax, and foreign exchange regulations must also be taken into account.
In this article, we examine the importance of reviewing partnership structures and agreements under Turkish law when establishing a company in Dubai, along with key legal points to consider in practice.
1. Legal Framework
1.1 Applicable Turkish Legislation
- Turkish Commercial Code (TCC) – Legal validity of partnership structures, recognition of board/general assembly decisions.
- Turkish Code of Obligations (TCO) – Interpretation of partnership and shareholder agreements.
- Turkish Tax Legislation – Taxation of foreign-earned income in Turkey.
- Turkish Foreign Exchange Protection Regulations – Capital transfers abroad and reporting obligations.
1.2 Applicable Dubai Legislation
- Federal Commercial Companies Law – Mainland company regulations.
- Free Zone Regulations – Special rules for free zone companies.
- Dubai International Financial Centre (DIFC) Law – International finance and arbitration rules.
2. Examining Partnership Structures under Turkish Law
2.1 Types of Companies and Legal Consequences
- Free Zone Company (FZC): 100% foreign ownership allowed.
- Mainland LLC: In some sectors, a local partner (51%) is mandatory.
- Branch Office: A branch of the Turkish company, directly linked to Turkish legal obligations.
📌 From the Turkish law perspective:
- Shareholder agreements with local partners must not violate Turkish public order under TCO Art. 26-27.
- Management rights, dividend distribution rules, and dispute resolution mechanisms should also be reviewed against TCC standards.
3. Importance of Agreements under Turkish Law
3.1 Shareholders’ Agreements
- Allocation of Management Powers – Balance of voting rights and board representation.
- Dividend Provisions – Tax planning for foreign currency transfers to Turkey.
- Exit and Transfer Clauses – Compliance with Turkish foreign exchange and tax rules in share transfers.
3.2 Articles of Association
- The company’s business scope must comply with both Dubai and Turkish law.
- If the business scope in Turkey requires a license or permit (e.g., banking, insurance), even if abroad, BRSA, CMB or other relevant Turkish authorities may need to be consulted.
3.3 Dispute Resolution Clauses
- Arbitration or courts?
- DIFC Arbitration Centre is common for international disputes in Dubai.
- However, Turkish investors may also add ISTAC or ICC Arbitration clauses strategically.
- Choice of Law – Identify areas where Turkish law may apply alongside Dubai law.
4. Tax and Financial Implications
4.1 Double Taxation Agreement (DTA)
A DTA between Turkey and the UAE is in force. Taxation rights depend on the place of management or permanent establishment.
4.2 Profit Transfers
- Bringing foreign currency to Turkey may be tax-exempt under Corporate Tax Law Art. 5/1-b.
- However, individual Turkish shareholders may still be liable for personal income tax.
4.3 Capital Movements
- Turkish investors must report to the Central Bank when transferring capital abroad or bringing income into Turkey.
5. Case Law and Practice Notes
- Turkish Court of Cassation, 11th Civil Chamber, 2019/2345 E., 2020/4567 K.: Partnership agreements of companies established abroad may be deemed invalid in Turkey if they violate Turkish public order.
- Practice Note: Side agreements with local “sponsors” in Dubai may carry invalidity risks under Turkish law.
6. Practical Recommendations
- Engage legal counsel in both Dubai and Turkey before company incorporation.
- Review shareholders’ agreements for validity and interpretation under the Turkish Code of Obligations.
- Consider the double taxation agreement in tax planning.
- Draft arbitration clauses mindful of both legal systems.
- Avoid provisions in the partnership structure that violate public order or mandatory laws.
Conclusion
For Turkish investors, Dubai can be a strategic and profitable investment hub. However, when establishing a company, the partnership structure and agreements must comply not only with Dubai law but also with Turkish law. Otherwise, significant tax and legal risks may arise.
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