What You Need to Know

Financial Environment

Turkey is a vibrant emerging market with a network of developed infrastructure and an internationally competitive work force. Its unique position at the crossroads of the world trade routes and its proximity to the energy producing regions in Central Asia are factors that further raise its potential for the coming years.

Turkey's dynamic economy is a complex mix of modern industry and commerce along with a traditional but developing agriculture sector that still accounts for about 25,8% of employment. Therefore, the country is still facing a transition from an agriculture-based economy to a service oriented economy.

Privatization of state economic enterprises has been and still is the major goal of the Turkish Government in an effort to increase efficiency and productivity in the economy. Except for the defense industry, all sectors are under consideration for privatization.

Foreign investment in Turkey accelerated since 2003 and continued well into the end 2008 with major privatizations in telecommunications, energy and a number of industries and services.

Foreign investors find Turkey attractive for a number of reasons:

The government maintains a liberal policy towards all forms of foreign investment.
The market is large and continuously growing.
The location is unique: between Asia and Europe.
There is Customs Union with the EU since 1 January 1996, and since 3 October 2005 Turkey is in the accession process to become a full member of the EU.
Turkey has Free Trade Agreements with EFTA and 14 countries; Free Trade Agreements with 9 more countries are planned and on the way.
Turkey is a member of the Black Sea Economic Cooperation (BSEC), the Economic Cooperation Organization (ECO), the Organization for Islamic Conference (OIC) and the Islamic Development Bank (IDB), the UN, NATO, and the OECD1

Banking

Turkey's financial system and its banking sector are virtually synonymous as a consequence of the country's economic and historical development. Banks carry out many of the transactions and activities in both money and capital markets, as the banking sector constitutes the major part of the Turkish financial system.

As of December 2007, there were 50 banks operating in Turkey. Thirteen of these banks are investment and development banks, and the rest are commercial banks. Three of the commercial banks (excluding one SDIF bridge bank) and four of the investment banks are state owned. The total number of foreign banks is 23. There are four participation banks as well.

There are no community banks, and most of the banks are multi-branched. The total number of branches in the system rose to 8,117 as of December 2007.

All banks in Turkey are subject to the Banking Act and to the provisions of other laws pertaining to banks.

Prior to the changes in Banks Act No. 4389, which went into effect on June 23, 1999, the Treasury Undersecretary and the Central Bank had been the two main regulatory and supervisory bodies in the banking sector. With this Act, the Banking Regulation and Supervision Agency (BRSA), with financial and administrative autonomy, were formed. The mission of the agency is to safeguard the rights and benefits of depositors and create the proper environment in which banks and financial institutions can operate with market discipline, in a healthy, efficient and globally competitive manner, thus contributing to the achievement of the country's long-term economic growth and stability.

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Foreign Exchange

Turkey's open economy and sophisticated financial services sector have provided the momentum for the expansion of Turkey's foreign exchange market activity over the past decade. A strong base of international investors, intermediaries, investment banks, fund managers and subsidiary service providers forms a rich market with an appetite for bonds and stocks that proved it to be highly rewarding.

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Securities

The ISE (Istanbul Stock Exchange) is the only securities exchange in Turkey. ISE is a dynamic and growing emerging market with an increasing number of publicly traded companies, state-of-the-art technology and strong foreign participation. The ISE provides a transparent and fair trading environment not only for domestic participants, but also for foreign issuers and investors.

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Unit Trusts

Turkey's attractive location, young population and growth opportunities in areas such as private banking have attracted global financial institutions since the 1990s. As a result of a visionary thinking and incentives for foreign investors, Turkey's investment fund asset pool has attracted investors from all corners of the world. The pool's growth offers international financial groups substantial business opportunities, while its size, together with the strength of the local economy, offers a hedge against global volatility. Overseas companies manage the greater percentage of Turkey's total investment funds either directly or in joint ventures with local companies.

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Tax- About Turkey's Taxation System

Turkish direct taxation system consists of two main taxes; income tax and corporate tax. An individual is subject to the income tax on his income and earnings, in contrast to a company, which is subject to corporate tax on its income and earnings. The rules of taxation for individual income and earnings are provided in the Income Tax Law 1960 (ITL). Likewise, the rules concerning the taxation of corporations are contained in the Corporation Tax Law 1949 (CTL). Despite the fact that each is governed by a different legislation, many rules and provisions of the Income Tax Law also apply to corporations, especially, in terms of income elements and determination of net income.

Corporate income tax is applied at 20 % rate on the corporate earnings.
Taxpayers (only for income from commercial activities and agriculture in limited tax liability cases) pay provisional tax at the rate of corporate tax; these payments are deducted from corporate tax of current period.
In Turkey, there are several indirect taxes as well. But most important indirect tax is V.A.T.

(The standard rate of VAT on taxable transactions is 18 %.)
The other indirect taxes are; Stamp tax, motor vehicle tax, banking and insurance transactions tax (BITT), inheritance and gift tax, property taxes, communication tax and special Consumption Tax.

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