Top 10 challenges of doing business in Turkey

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Since 2001, Turkey has gone from strength to strength thanks to healthy consumption and a strong macroeconomic policy framework, but doing business is still a complex endeavour for overseas companies.

The economic downturn of 2001 in Turkey signalled the requirement for a strategic overhaul of the business environment in the country. In the years since, the banking sector has been reformed, monetary discipline has been enforced and tight fiscal policy, public administration overhauls, and reform packages enacted as part of the EU accession process have contributed to the transformation of the country.

Healthy levels of economic growth have cemented Turkey’s position in the MIST amalgamation of the next tier of large emerging economies along with Mexico, Indonesia and South Korea. The structural reforms have integrated the Turkish economy into the globalised world, while transforming the country into one of the major recipients of foreign direct investment (FDI) in its region. Turkey’s average annual real GDP growth stood at 5% between 2002 and 2012, outstripping that of Brazil, Mexico, South Africa and many other high-growth regions.

However, doing business is still a tricky process for companies unfamiliar with the tax, legal and regulatory environment, which is why having local help on board is crucial to the success of the venture.

Starting a Business
Starting a business in Turkey takes less than a week (six days), but involves several procedures which can be difficult to navigate for overseas firms. After executing and notarising the articles of association, companies must deposit a percentage of capital to the account of the Competition Authority before depositing initial capital into a bank, filing the incorporation notice form, having a notary certify the legal books and following up with the tax office on Commercial Registry’s notification.

Dealing with Construction Permits
The World Bank and International Finance Corporation (IFC) rank Turkey in 142nd place in the world for dealing with construction permits. There are 20 procedures to complete during the process which take an average of 180 days, which is far higher than the OECD average of 143 days. There are steps being taken to simplify the process, which is reflected in the 2013 results, showing an improvement of 12 places on the previous year.

Getting Electricity
Getting an electrical connection requires work from engineers, checks by Boğaziçi Elektrik Dağıtım A.Ş. (BEDAŞ) and permits from the local municipality and Chamber of Electrical Engineers (EMO). This takes around 70 days to complete.

Registering Property
Registering the property is by far the most streamlined task of obtaining a commercial residence in Turkey. It takes less than a week to complete and takes six procedures in total.

Getting Credit and Protecting Investors
Turkey is still underdeveloped from a finance and legal perspective, which is why getting credit and protecting investors can be troublesome tasks. The strength of the legal rights index and credit information index are quite poor compared to other countries in Eastern Europe and Central Asia.

Paying Taxes
Corporate entities are required to make some 15 tax payments per year in Turkey which takes an average of 223 hours of company time. Transaction tax on checks, stamp duty on contracts and advertising tax are examples of levies with which overseas firms may be unfamiliar.

Trading Across Borders
Companies are required to file seven documents for both importing and exporting goods, and it can take up to two weeks for containers to move in either direction. The cost to export, however, is far cheaper than other countries within Eastern Europe and Central Asia.

Enforcing Contracts
It takes 420 days to enforce a contract, most of which is spent in court during trial and judgement procedures and the enforcement of the ruling.

Resolving Insolvency
The World Bank and IFC rank Turkey in 124th place in the world for ease of resolving insolvency, largely because the process takes an average of 3.3 years to complete.

There is a prominent split between the east and the west of the country, with economic development, investment opportunities, infrastructure and skilled staff largely concentrated in the west. There are also no standardised financial reporting standards, which highlights the diverse nature of corporate practices in the country.

TMF Group
We have the local knowledge to help you navigate these minefields. Whether you want to set up in Turkey or just want to streamline your Turkish operations, talk to us.