Legal services for United States investors in Turkey cover treaty protection, entity structuring, and the American reporting and compliance obligations that follow the investor across the border.
A United States investor entering Turkey holds the strongest treaty position of any major investor nationality. A bilateral investment treaty has been in force since 1990. An income tax treaty has been in force since 1997. Turkish law imposes no permission requirement, no ownership cap outside regulated sectors, and no residency condition on shareholders or directors. On the Turkish side of the transaction, the position is close to unencumbered.
Which makes the first question worth asking precisely, because the answer sits mostly outside Turkey. What legal obligations attach to a United States investor in Turkey? The most protected and the most burdened investor in the market, at the same time and for unrelated reasons. Turkish law asks comparatively little. United States law follows its nationals and its companies abroad more comprehensively than any other system in this comparison, and the obligations it imposes on a Turkish operation are generally heavier than the ones Turkey imposes.
That produces a second question with an answer that reverses the usual logic of foreign investment. Does Turkey’s tax advantage reach a United States investor? Frequently not in full. Turkish incentives, exemptions and reduced rates lower the Turkish liability. Where the Turkish subsidiary is a controlled foreign corporation of a United States shareholder, income can be taxed currently in the United States whether or not it is distributed, so tax not paid in Turkey may simply become tax paid in Washington. The saving is real for many structures and illusory for others, and which applies is a structuring question rather than a Turkish one.
Structure is where the two systems disagree most sharply, and the disagreement is silent. Which holding vehicle should hold the Turkish subsidiary? Not, by default, the one already in the group. A limited liability company formed in Delaware is commonly treated as fiscally transparent for United States purposes and is a separate legal person under Turkish law. That mismatch raises the question of who the treaty resident is, and treaty benefit claimed by an entity one state does not regard as a taxpayer is a position that has to be built rather than assumed.
The last question concerns what happens when a dispute becomes real. How enforceable is a United States judgment in Turkey? An arbitral award is materially more enforceable than a court judgment. There is no treaty between the two states on the recognition of judgments, so a United States judgment must satisfy Turkish private international law conditions including reciprocity. Both states are parties to the New York Convention, which gives awards a defined route with narrow refusal grounds.
Öznur & Partners advises United States corporates, private equity sponsors and founders on establishing and operating in Turkey. This page addresses what is specific to American capital. The framework applying to all foreign investors is set out on our page on Turkish law for foreign investors.
⚖️ Which Legal Issues Are Specific to US Investment in Turkey?
Four issues arise for United States investors in a form that does not arise for investors from other jurisdictions, and three of the four originate in American law rather than Turkish law.
United States taxation follows the person and the group. The United States taxes its citizens and residents on worldwide income regardless of where they live, and taxes United States shareholders on certain income of foreign subsidiaries before distribution. A Turkish operation therefore generates American tax consequences from the moment it exists.
Reporting obligations attach to Turkish accounts and entities. Foreign bank account reporting, information returns for foreign corporations and partnerships, and account-level reporting by Turkish financial institutions under the intergovernmental framework all apply. These are filing obligations with penalties attached to the failure to file, independent of whether tax is owed.
Anti-corruption and sanctions law reaches the Turkish subsidiary. The Foreign Corrupt Practices Act applies to conduct abroad, and United States sanctions administered by the Office of Foreign Assets Control bind United States persons wherever located. A Turkish entity staffed and directed in part by Americans is inside that perimeter.
Entity classification differs between the two systems. Vehicles that are transparent for United States purposes are opaque for Turkish purposes, which affects treaty entitlement, withholding and the credit position.
None of these prevents a United States investor from doing well in Turkey. Each of them means the Turkish structure is designed with two tax systems in view rather than one.
⚖️ When Should a US Company Engage Turkish Counsel?
Turkish counsel should be engaged alongside United States tax counsel, at the point the holding structure is being chosen, and not after it is chosen. Sequential engagement produces a structure that is correct in one jurisdiction and defective in the other.
Four moments carry most of the weight.
Before the holding vehicle is selected. Whether the Turkish subsidiary sits under a corporation, a limited liability company, a partnership or an intermediate holding company changes the Turkish treaty position, the withholding rate applied at source, and whether foreign tax credits will be available to the ultimate owner. The decision is usually taken for United States reasons; the Turkish consequences should be an input rather than a discovery.
Before the Turkish entity is capitalised. The split between equity and shareholder debt affects Turkish thin capitalisation and transfer pricing analysis and United States interest and inclusion rules simultaneously. Documented and priced before the funds move, the arrangement is defensible on both sides (agreed afterwards, it is a reconstruction, and both revenue authorities read reconstructions the same way).
Before the compliance framework is extended. A group anti-corruption policy written for United States operations requires adaptation to Turkish practice, including local rules on gifts, hospitality and dealings with public officials, and training delivered in Turkish to staff who will actually apply it.
Before contracting with Turkish counterparties. Governing law, forum and currency clauses determine whether an eventual remedy is collectable. The habit of specifying a United States court is efficient at home and weak where the assets are Turkish.
Groups already operating in Turkey are rarely too late for the compliance and contracting items. The holding structure is harder to revisit, though restructuring is possible and is often worth modelling before it becomes urgent.
⚖️ How We Advise US Clients on Turkish Matters
Our work with United States clients is organised around coordination, because the client almost always has American advisers already and needs the Turkish position to fit alongside them rather than to stand alone.
Structuring in parallel with United States counsel. Entity selection, articles of association, capitalisation, and the treaty analysis that determines withholding and credit outcomes. We deliver the Turkish position in writing with statutory and treaty references so that United States tax advisers can model against it directly rather than through summary.
Establishment and operations. Incorporation, permits and licensing, incentive certificate applications, employment documentation, commercial contracting and data protection compliance.
Compliance adaptation. Localisation of group anti-corruption, sanctions screening and internal control frameworks to Turkish law and Turkish operating reality, so that the group can demonstrate the controls were adequate at the time rather than reconstruct them later.
Disputes and enforcement. Turkish litigation and arbitration, enforcement of United States arbitral awards, recognition proceedings for United States judgments, and protective measures over Turkish assets.
Execution is remote by default. Incorporation, corporate bank account opening, permits and contract execution can be completed under a power of attorney notarised in the United States and legalised by Apostille, as both countries are parties to the Apostille Convention. Documents require sworn translation into Turkish for official use, and we prepare translations rather than receiving them, because a term rendered loosely in a power of attorney narrows an authority the client believed had been granted in full.
Choosing the vehicle that will hold your Turkish subsidiary?
The Turkish treaty position, the withholding rate and the credit outcome all follow from that choice. Better established before it is made than after.
⚖️ Is There an Investment Treaty Between the United States and Turkey?
Yes. The Treaty between the United States of America and the Republic of Turkey Concerning the Reciprocal Encouragement and Protection of Investments was signed in Washington on 3 December 1985 and entered into force on 18 May 1990. It remains in force.
The treaty provides the protections characteristic of the United States programme of investment treaties: national treatment or most favoured nation treatment, whichever is more favourable; protection against expropriation without prompt, adequate and effective compensation; freedom to transfer returns; limits on performance requirements; and access to binding international arbitration for investment disputes with the host state.
Three features deserve emphasis because they change how a dispute is handled rather than merely how it is described.
Investor-state arbitration is available. A United States investor whose Turkish investment is affected by state action can bring the claim to international arbitration rather than being confined to Turkish administrative and judicial channels. This is a materially different position from the one occupied by investors whose home states have withdrawn from investment treaties.
The election is generally exclusive. Under the standard architecture of these treaties, an investor who takes a dispute to the host state’s courts may forfeit the arbitration route for that dispute. The forum decision is therefore taken early and deliberately, not after a domestic claim has been filed to preserve a limitation period.
Termination would not be immediate in effect. The treaty provides that its provisions continue to apply to investments made before termination for a further ten years. Investors holding Turkish assets have a defined runway rather than an abrupt loss of protection.
Coverage depends on how the investment is held. Whether a particular entity qualifies as a national or company of the United States for treaty purposes turns on the treaty’s own definitions, and a Turkish investment held through an intermediate holding company in a third jurisdiction may fall outside the treaty and inside another, or outside investment treaty protection altogether. This is decided at formation and is difficult to correct once a dispute is foreseeable.
Where the Turkish counterparty is a public body or the project depends on a concession or licence, treaty protection sits alongside the contract rather than replacing it. Contractual stabilisation, compensation and dispute resolution provisions remain worth drafting properly, through our contract practice and arbitration practice.
⚖️ The United States Turkey Income Tax Treaty
The income tax treaty between the United States and Turkey was signed in Washington on 28 March 1996 and entered into force on 19 December 1997. It was the first income tax convention between the two states and completed the United States treaty network with member countries of the Organisation for Economic Co-operation and Development.
The treaty caps source country taxation across the principal categories of cross-border payment.
| Payment | Maximum source country rate under the treaty |
|---|---|
| Dividends, general | 20 percent |
| Dividends to a corporate holder of at least 10 percent | 15 percent |
| Interest, general | 15 percent, with lower rates for defined classes |
| Royalties | 10 percent |
| Rental of tangible personal property | 5 percent |
Treaty rates are ceilings rather than rates. Where Turkish domestic law imposes a lower rate on a particular payment, the domestic rate applies, so the treaty position and the domestic position both have to be checked rather than assuming the treaty governs.
Three operational points recur.
The treaty contains a limitation on benefits provision. Access to treaty relief is restricted to persons with a genuine connection to one of the two states, which is directly relevant to structures routed through third jurisdictions.
Relief is documentary. A certificate of residence from the United States authority, in the form Turkish authorities accept, is required before a reduced rate is applied at source. Without it the domestic rate is withheld and the difference is recovered afterwards, slowly and not always in full (the certificate costs a fraction of the recovery it prevents).
Permanent establishment arises without incorporation. A United States company serving Turkish customers through a fixed place of business, or through an agent who habitually concludes contracts on its behalf, can create a taxable presence in Turkey without registering an entity. Groups that stay unincorporated to avoid Turkish tax sometimes create the exposure they were avoiding, typically by placing a salesperson in Istanbul with authority to sign.
The general mechanism is set out in our note on the United States Turkey double tax treaty, the underlying concepts in our note on types of double taxation, and the wider framework on our tax practice page.
⚖️ Do Turkish Tax Incentives Actually Benefit a US Owner?
Sometimes fully, sometimes not at all, and the difference is structural rather than commercial. Turkey offers corporate tax reduction under investment incentive certificates, value added tax and customs duty exemptions on qualifying machinery, technology zone regimes and regional incentives. Each of these reduces the Turkish liability. Whether the reduction survives to the United States owner depends on how American law treats the Turkish subsidiary’s income.
Two mechanisms determine the outcome.
Current inclusion of foreign subsidiary income. Where a foreign corporation is controlled by United States shareholders, defined categories of its income are taxed to those shareholders as they arise rather than when distributed. A Turkish subsidiary whose Turkish rate has been reduced by incentives can therefore generate a larger United States inclusion, because there is less foreign tax to credit against it (the incentive is not lost so much as relocated).
Foreign tax credit limitation. Credit for Turkish tax paid is available within limits calculated by category and by source. Turkish tax that has been reduced or eliminated by incentive produces less credit, and the reduction can be recovered on the American side.
The practical implication is that the value of a Turkish incentive to a United States group is not the Turkish saving. It is the Turkish saving net of the American consequence, and modelling that before applying for the certificate is straightforward while modelling it afterwards is an explanation.
This does not mean incentives should be ignored. For groups whose structure defers or avoids current inclusion, for operations with substantial qualifying investment, and for owners whose credit position is not binding, the Turkish benefit is real and material. The framework is set out on our manufacturing incentives page, the machinery exemption in our note on VAT exemption for foreign investors, and regional management structures on our regional headquarters page.
Incentive certificates apply to expenditure incurred after application, so equipment ordered in advance of the certificate does not become exempt retroactively.
⚖️ Entity Choice: Where the Two Systems Disagree
The most common structural defect in United States investment into Turkey is not a Turkish error. It is a mismatch between how the two systems classify the same entity.
A limited liability company formed in a United States state is frequently treated as fiscally transparent for United States federal tax purposes, so its income is taxed to its members rather than to the entity. Turkish law does not apply that analysis. A foreign company is a legal person, and its treatment for Turkish withholding and treaty purposes follows from that.
Three consequences follow.
Treaty entitlement becomes a question rather than a given. Where the entity receiving a Turkish dividend is not regarded as a taxpayer in its own state, the question of who is the resident entitled to treaty benefit has to be answered rather than assumed, and answered with documentation Turkish authorities will accept.
Withholding may be applied at the domestic rate. A Turkish payer unable to satisfy itself of the recipient’s treaty entitlement will withhold at the domestic rate, and the recipient carries the burden of recovery.
Credit timing can separate from inclusion timing. Where Turkish tax is imposed on an entity that United States law does not recognise as the taxpayer, the credit and the income can land in different places or different years.
On the Turkish side the entity question is separate and simpler. The two principal vehicles are the limited liability company and the joint stock company, differing in minimum capital, share transfer mechanics, the tax treatment of a share sale, and whether shareholders can be pursued personally for the company’s unpaid public debts. That last point has no direct American equivalent and often changes the decision. The comparison is set out in our note on limited versus joint stock companies, and the incorporation sequence on our company formation page.
A branch of the United States company is a third option. It is not a separate legal entity, the parent bears liability, and it is taxed on Turkish source income. It appeals mainly where the group needs the Turkish operation to remain legally continuous with the parent (which is occasionally a licensing requirement rather than a preference).
Exit treatment should be settled at entry, since the entity type and the identity of the shareholder determine how a share sale is taxed in Turkey and how the proceeds are treated in the United States. This is addressed on our exit strategies page, with transaction structuring through our mergers and acquisitions practice.
⚖️ Reporting Obligations That Follow a Turkish Operation
United States reporting obligations attach to foreign accounts, foreign entities and foreign transactions independently of whether tax is owed. Penalties attach to the failure to file rather than to underpayment, which means a compliant taxpayer with an unfiled information return is in a worse position than the arithmetic suggests.
The obligations that recur in Turkish operations are these.
Foreign bank account reporting. United States persons with signature authority over or a financial interest in foreign accounts file an annual report once the aggregate threshold is crossed. Signature authority is the trap: a United States executive with signing rights over the Turkish subsidiary’s corporate account has a personal filing obligation, whether or not the money is theirs (and the obligation is personal, so it does not sit with the company that gave the authority).
Information returns for foreign entities. Ownership of a foreign corporation or partnership triggers annual information returns with substantial penalties for non-filing, and the returns require financial data from the Turkish entity prepared to United States specifications rather than Turkish statutory accounts.
Account level reporting by Turkish institutions. Turkish financial institutions report accounts held by United States persons under the intergovernmental framework, which means the account exists in the American system regardless of what the account holder files.
Reporting of specified foreign financial assets. Separate from account reporting, with its own thresholds and its own form, and frequently overlooked because the two obligations are assumed to be one (they overlap heavily in substance and not at all in procedure).
For founders and executives relocating personally rather than only capital, the position compounds. United States citizens and residents are taxed on worldwide income wherever they live. Turkish residence does not end the American filing obligation, and Turkish tax residence can be acquired more easily than expected, addressed in our note on establishing Turkish tax residency. Residence status for immigration purposes is separate again, covered on our residence permit for investors page.
⚖️ Anti-Corruption and Sanctions in a Turkish Operation
United States anti-corruption and sanctions law reaches conduct carried out through a Turkish subsidiary, and the reach is not limited to decisions taken in the United States.
Anti-corruption. The Foreign Corrupt Practices Act prohibits corrupt payments to foreign officials and imposes books and records and internal control requirements on issuers. Liability can arise from the acts of subsidiaries, agents, distributors and consultants. Turkish law contains its own bribery offences, and payments sometimes characterised as facilitation are criminal under Turkish law regardless of how they are treated elsewhere.
The exposure in Turkish operations is rarely a bag of cash. It is a customs agent whose invoice does not match the service, a consultant introduced by a counterparty whose function is undocumented, a licensing intermediary paid by results, or hospitality extended to officials during a permit process (each defensible in isolation, and each a line item a prosecutor reads in sequence). Third party diligence, contractual audit rights and payment controls are the mechanisms that address it, structured through our compliance strategy and regulatory compliance practices.
Sanctions. United States sanctions bind United States persons wherever located, which includes American citizens and permanent residents employed by or seconded to the Turkish entity. Certain programmes reach non-United States persons through secondary measures. Turkey applies United Nations measures and maintains its own foreign policy positions, and its trading relationships include counterparties and jurisdictions that United States programmes restrict.
The practical consequence is that a transaction lawful under Turkish law can be prohibited for the group, and the Turkish operation’s counterparty screening must run against the group’s requirements rather than against Turkish requirements alone. Financial crime obligations on the Turkish side are addressed in our note on MASAK compliance in Turkey.
Employment consequences follow from both. Where a United States person in the Turkish operation must recuse from a transaction the Turkish entity may lawfully perform, the arrangement needs to be documented in advance rather than improvised, and Turkish employment law governs the relationship irrespective of nationality. This is addressed on our employment law and corporate immigration pages.
⚖️ Can a US Court Judgment Be Enforced in Turkey?
Not directly, and not on the same footing as a United States arbitral award. There is no treaty between the United States and Turkey on the recognition and enforcement of judgments, and the difference between the two routes is large enough to determine the dispute resolution clause.
A United States judgment requires a recognition and enforcement action before a Turkish court. The court examines whether reciprocity exists between Turkey and the state of origin, whether the defendant was properly served and able to present a defence, whether the judgment is compatible with Turkish public order, and whether the matter fell within exclusive Turkish jurisdiction. Because judgment recognition in the United States is largely a matter of state law, the reciprocity analysis is directed at the particular state whose court gave the judgment rather than at the United States as a whole (which is one reason the answer for a New York judgment and a judgment from another state need not be identical).
Two features of United States judgments raise public order questions that do not arise with judgments from most other jurisdictions. Punitive damages awards have been treated as incompatible with Turkish public order in comparable civil law systems, and contingency fee arrangements and discovery-derived evidence can attract scrutiny. These points are addressed at the recognition stage, and they are reasons to prefer arbitration rather than reasons to expect failure.
Arbitral awards follow the New York Convention, to which both states are parties. Refusal grounds are narrow and defined by the Convention, and the Turkish court does not review the merits.
The drafting consequence is direct. Where the counterparty’s assets are in Turkey and the remedy sought is monetary, an arbitration clause produces a materially more collectable outcome than a clause selecting a United States court. Where the dispute concerns Turkish immovable property, exclusive Turkish jurisdiction may apply irrespective of the contract. Attachment over Turkish assets through Turkish courts remains available where the merits are determined elsewhere, and is frequently the step that decides collectability.
Enforcement work is handled through our recognition and enforcement practice, and disputes arising from supply and distribution relationships on our commercial contract disputes page.
⚖️ Intellectual Property and Data in the Turkish Market
United States registrations do not extend to Turkey. Turkish industrial property protection is registration-based and territorial, and use of a mark in the United States, however extensive, does not by itself defeat a Turkish registration held by an unrelated party.
Filing should precede market entry. International registration through the Madrid Protocol designating Turkey is available to groups already holding a United States registration and is generally the efficient route. Where a mark is already registered locally by a former distributor or importer, opposition and cancellation proceedings are available and often succeed in bad faith cases, but they cost more and take longer than filing would have. This is handled through our intellectual property practice.
Technology licensed into the Turkish subsidiary raises a characterisation question with tax consequences, since the treaty rate applying to a payment depends on how the payment is classified, and software and know-how arrangements are frequently drafted without that in view.
Personal data processed by the Turkish operation, including employee data, falls under Turkish data protection law, which was restructured in 2024 with a transfer framework requiring specific instruments for data moving abroad. A group privacy programme built for United States requirements will not satisfy it, and retrospective compliance does not cure transfers already made. This is addressed on our information technology law page.
⚖️ Protection on One Side, Obligation on the Other
Of the major investor nationalities in Turkey, the American one arrives with the most complete treaty architecture. Investment protection since 1990. Tax relief since 1997. Access to international arbitration against the host state. A ten year runway even if the investment treaty were ever terminated. Measured by what the host state owes the investor, no other position in this market is stronger.
Measured by what the investor’s own state asks in return, no other position is heavier. The obligations that shape a United States investment in Turkey are largely not Turkish obligations. They are inclusion rules that tax Turkish profits before they are distributed, information returns whose penalties attach to the filing rather than the tax, an anti-corruption statute that follows the group into the Turkish supply chain, and sanctions rules that bind individuals inside a Turkish company.
The work, then, is not persuading Turkish law to accommodate an American investor. Turkish law accommodates readily. It is designing a Turkish structure that two systems will both regard as correct, and doing it before the entity is formed rather than during the first audit.
Schedule a Legal Consultation
Whether you are selecting the vehicle to hold a Turkish subsidiary, adapting a group compliance framework to Turkish operations, or drafting the clause that will decide whether an award is collectable, our Istanbul-based investment lawyers can establish where you stand and work alongside your United States advisers.