Franchise in Turkey: Legal Framework for Foreign Investors

Introduction

Franchise in Turkey has become an attractive business model for foreign investors seeking to enter the dynamic Turkish market. With a young population, strategic location, and strong retail growth, franchising offers significant opportunities. However, investors must first understand the legal framework regulating franchise agreements in Turkey.

For foreign investors considering franchising in Turkey, it is crucial to understand the legal framework, contractual structure, and regulatory environment before entering into agreements. This article provides a comprehensive overview of the applicable legal framework and outlines key steps foreign investors should follow.

Legal Framework

Unlike some jurisdictions, Turkey does not have a specific franchise law. Instead, franchising is regulated indirectly through a combination of general contract law, competition law, commercial code provisions, and intellectual property legislation.

1. Turkish Code of Obligations (TCO)
   • The franchise agreement is recognized as a type of “innominate contract” (sui generis), meaning it is not separately regulated but governed by general principles of the TCO.
   • Provisions on agency, sales, and lease contracts may apply by analogy.
   • Key principles include freedom of contract, good faith, liability for breach, and termination rules.
2. Turkish Commercial Code (TCC)
   • Regulates commercial enterprises, agency, and unfair competition provisions, which may be relevant for franchise relationships.
   • Disclosure obligations and restrictions on unfair business practices may be interpreted to protect franchisees.
3. Competition Law (Law No. 4054 on the Protection of Competition)
   • Franchising agreements must comply with competition rules, particularly regarding exclusive territories, non-compete clauses, and pricing policies.
   • The Turkish Competition Authority follows EU law principles and has issued guidelines on vertical agreements.
4. Intellectual Property Law (Industrial Property Code No. 6769)
   • Protection of trademarks, patents, designs, and know-how is central to franchising.
   • Registration of trademarks with the Turkish Patent and Trademark Office is highly recommended before licensing to franchisees.
5. Foreign Direct Investment Law (Law No. 4875)
   • Foreign investors are generally treated equally with domestic investors.
   • No prior government approval is required for foreigners to enter into franchise agreements.

Key Issues for Franchise Agreements

When drafting or negotiating a franchise agreement in Turkey, foreign investors should pay attention to the following:

1. Disclosure and Pre-Contractual Information
   • Although Turkey does not have a statutory disclosure regime like the U.S. or EU, the principle of good faith under the TCO requires the franchisor to provide accurate and sufficient information before contract signing.
2. Intellectual Property Rights
   • Trademark registration is vital. Without proper protection, enforcement against unauthorized use may be challenging.
   • Licensing of trademarks and know-how should be clearly defined.
3. Competition Restrictions
   • Non-compete clauses must be limited in time, scope, and territory to comply with Turkish competition law.
   • Clauses on resale price maintenance (fixing the resale price of franchisees) may be considered anti-competitive.
4. Termination and Renewal
   • Parties should regulate termination rights carefully, including just cause, notice periods, and compensation obligations.
   • Turkish law favors fair balance; unreasonable unilateral termination clauses may be invalid.
5. Dispute Resolution
   • Arbitration is commonly chosen in international franchise agreements.
   • Turkey is a party to the New York Convention (1958), meaning foreign arbitral awards are enforceable.
   • Alternatively, Turkish courts may be designated, but proceedings can take longer.

What Should Foreign Investors Do?

Foreign investors planning to expand into Turkey via franchising should take the following steps:

1. Conduct Market Research
   • Evaluate the local demand, cultural factors, and competition.
   • Adapt the business model to Turkish consumer habits.
2. Register Intellectual Property
   • Secure trademark registration with the Turkish Patent and Trademark Office.
   • Consider additional protection for designs, patents, or copyrights if applicable.
3. Choose the Franchise Model
   • Options include master franchise agreements, area development agreements, or direct franchising.
   • The choice depends on the scale of investment and desired level of control.
4. Draft a Comprehensive Agreement
   • Work with experienced Turkish legal counsel to ensure compliance with TCO, TCC, and competition law.
   • Clearly regulate rights, obligations, fees, royalties, training, support, and termination rules.
5. Tax and Corporate Structuring
   • Consider establishing a Turkish subsidiary or branch for easier operations.
   • Royalties and franchise fees paid abroad may be subject to withholding tax; double taxation treaties should be reviewed.
6. Dispute Resolution Strategy
   • Decide between Turkish courts or international arbitration.
   • Draft enforceable dispute resolution clauses.

Conclusion

Franchising in Turkey presents a significant opportunity for foreign investors due to the country’s strong economic growth, youthful consumer base, and strategic location. However, the absence of a specific franchise law means that investors must carefully navigate the general provisions of contract law, commercial code, competition law, and IP law.

To succeed, foreign investors should:

• Protect their intellectual property,
• Draft detailed franchise agreements,
• Ensure compliance with competition law,
• Structure their tax and corporate presence properly, and
• Plan dispute resolution mechanisms in advance.

With the right legal and business strategy, foreign investors can leverage Turkey’s dynamic market and establish a strong franchise network.

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