Foreign Investor Considerations When Establishing an Energy Company in Turkey

⚖️ Introduction

Turkey has become a key energy investment hub for global players due to its strategic geographical position, liberalized market structure, and a government policy that strongly encourages foreign direct investment (FDI). In particular, the renewable energy sector, supported by generous feed-in tariffs and state-backed incentives, presents a golden opportunity for international investors.

However, entering Turkey’s regulated energy market is not as simple as registering a company. Foreign investors must understand the legal, regulatory, and practical implications of establishing a business under Turkish law—especially in energy, which is governed by a strict licensing regime administered by EMRA (Energy Market Regulatory Authority / EPDK).

This article outlines the key considerations, procedures, and legal issues foreign investors must navigate when forming and operating an energy company in Turkey.

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1️⃣ Corporate Form: Choosing the Right Structure

The first and most essential decision is selecting the appropriate company type. Under the Turkish Commercial Code (Law No. 6102), foreign investors can establish:

• Joint Stock Company (A.Ş.)

• Limited Liability Company (Ltd. Şti.)

Why A.Ş. is Preferred (and Often Mandatory)

For most licensed energy activities, including electricity generation, distribution, and natural gas trade, the only eligible corporate form is the Joint Stock Company (A.Ş.). EMRA explicitly rejects applications from other forms (e.g., Ltd. Şti.) for high-capacity or grid-connected projects.

Benefits of A.Ş. for Foreign Investors:

• Public offering eligibility

• Share transfer flexibility

• Access to institutional financing

• Stronger governance mechanisms

• Compliance with international audit standards

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2️⃣ Shareholding and Ownership Limits

Turkey does not impose ownership restrictions based on nationality. Foreigners can hold 100% of the shares of a Turkish energy company.

However, when acquiring shares in existing energy companies, certain thresholds trigger additional regulatory reviews:

• Competition Board approval if the transaction exceeds market concentration thresholds

• Ministry of Energy notification if foreign control is acquired in strategic infrastructure

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3️⃣ Licensing and EMRA Requirements

Even after forming the company, foreign investors must apply for relevant EMRA licenses, depending on their activity:

Each license application requires:

• Turkish-incorporated A.Ş.

• Technical feasibility reports

• Grid connection pre-approval

• Environmental permits

• Financial capacity documentation

Licenses are issued only in the name of the Turkish legal entity, not its foreign shareholders.

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4️⃣ Opening a Bank Account and Capital Transfer

Foreign investors can transfer capital freely into Turkey under the Foreign Direct Investment Law No. 4875. Once the company is incorporated, they may open corporate accounts in Turkish banks.

Key Points:

• Capital must be declared and transferred via the Central Bank of Turkey registration system (İBKS)

• Foreign capital inflow is reported to the Ministry of Treasury and Finance

• Investors should retain foreign currency transfer receipts for compliance audits

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5️⃣ Tax Identification and Local Representation

Before formal operations, foreign shareholders and directors must:

• Obtain a Turkish Tax Identification Number (TIN)

• Appoint a resident legal representative (especially if no Turkish citizen is on the board)

• Register for e-notifications, social security (SGK), and VAT if applicable

All corporate correspondence with EMRA and tax authorities is done via electronic signature (e-imza) and Kayıtlı Elektronik Posta (KEP) accounts.

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6️⃣ Land Acquisition Restrictions

While there is no ban on foreigners owning land in Turkey, energy projects often require access to rural, forest, or state-owned land. In such cases:

• Projects may require Treasury or municipal land allocation

• Long-term leases or usufruct rights (irtifak hakkı) are granted

• Military and national security zones require Ministry of Defense clearance

Foreign-controlled companies may be subject to additional reviews for projects near sensitive areas or border zones.

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7️⃣ Renewable Energy Incentives

Turkey offers robust incentives for renewable energy investors:

Under Renewable Energy Law No. 5346:

• YEKDEM (Feed-in Tariff Mechanism): USD-based tariffs guaranteed for 10 years

• Domestic equipment bonus if using locally manufactured components

• VAT exemption, customs duty exemption, and corporate tax reductions

Foreign-owned companies are fully eligible for these incentives if their project is licensed under Turkish law.

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8️⃣ Bilateral Investment Treaties (BITs)

Turkey has signed over 100 BITs with countries worldwide, offering:

• Protection from expropriation

• National treatment and Most-Favored Nation (MFN) status

• Right to repatriate profits

• Access to international arbitration (ICSID/UNCITRAL) in case of disputes

Foreign energy investors are strongly advised to check their home country’s BIT with Turkey before committing capital.

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9️⃣ Risks and Dispute Resolution

While Turkey offers rule-of-law protections and access to courts, energy disputes may arise concerning:

• License revocation or suspension

• Tariff changes or retrospective taxes

• Expropriation of land or transmission rights

To mitigate risk, investors should:

• Include arbitration clauses in all contracts (preferably ICC or ISTAC)

• Keep documentation of government correspondence

• Ensure shareholder agreements include foreign exit options and dispute mechanisms

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🔟 Strategic Recommendations

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✅ Conclusion

Turkey is an attractive market for foreign investors in the energy sector — especially those interested in renewables, grid infrastructure, and licensed generation projects. However, it is a heavily regulated space, and compliance with corporate structure, licensing, land law, and foreign capital rules is not optional.

By choosing the correct legal form, adhering to EMRA’s licensing standards, and leveraging international investment protections, foreign investors can thrive in Turkey’s dynamic and expanding energy landscape.

                                                                                                                             INTERN LAW FACULTY STUDENT

                                                                                                                                    YAĞMUR YORULMAZ