Select Committee on Business and Enterprise Written Evidence

Supplementary memorandum submitted by CBI


  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.


  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the nationalist Republican People's Party that the law allowing property sales to foreigners and foreigner companies be rescinded.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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