Legal Protection of International Investors and Investment Disputes in Turkey

Introduction

Türkiye has developed a legal framework intended to facilitate and protect foreign direct investment. Foreign investors may establish companies, acquire assets, enter into commercial relationships, participate in infrastructure projects, and conduct various business activities in Türkiye, subject to the applicable legislation.

For international investors, however, entering the Turkish market is only one part of the investment process. Understanding investment protection, corporate law, contractual rights, regulatory requirements, expropriation risks, dispute resolution mechanisms, and international investment treaties is equally important.

The Foreign Direct Investment Law No. 4875 establishes important principles concerning foreign investment in Türkiye. Among other things, the framework provides for freedom to invest and national treatment, subject to applicable laws and international agreements. It also addresses expropriation, transfers, and dispute settlement. (Türkiye Yatırım Ofisi)

Cosmos Legal Law Firm provides legal consultancy and representation to international investors concerning investment structures, regulatory matters, commercial agreements, investment disputes, arbitration, and related legal proceedings in Türkiye.

Legal Framework for Foreign Investment in Türkiye

Türkiye's foreign investment regime is based on domestic legislation as well as applicable international agreements.

Under the Foreign Direct Investment Law, foreign investors are generally free to make foreign direct investments in Türkiye and are subject to equal treatment with domestic investors, unless international agreements or special legislation provide otherwise. (Türkiye Yatırım Ofisi)

The Turkish Investment Office's current Legal Guide also identifies several areas relevant to investors, including foreign investment protection, Turkish business structures, labor law, property rights, financing and insurance, environmental law, competition law, public procurement, and personal data protection. (Türkiye Yatırım Ofisi)

This means that international investment projects frequently require legal advice covering several different areas of Turkish law rather than investment law alone.

Protection of Foreign Investors

One of the fundamental concerns of an international investor is whether the investment will receive adequate legal protection.

The Turkish foreign direct investment framework includes provisions concerning national treatment, expropriation and nationalisation, transfer of investment-related funds, and dispute settlement. The Foreign Direct Investment Law states that foreign direct investments shall not be expropriated or nationalised except for public interest and upon compensation in accordance with due process of law. (Türkiye Yatırım Ofisi)

International investors may therefore need to consider both Turkish domestic legislation and the international agreements applicable to their nationality and investment.

Cosmos Legal Law Firm assists foreign investors in analysing these legal protections before and during their investment activities in Türkiye.

Bilateral Investment Treaties and International Protection

Türkiye has concluded numerous Bilateral Investment Treaties (BITs), referred to in Turkish legislation and government materials as Agreements on the Reciprocal Promotion and Protection of Investments.

These agreements can establish protections relating to matters such as:

• National treatment;
• Most-favoured-nation treatment;
• Fair and equitable treatment;
• Full protection and security;
• Transfer of investment-related proceeds;
• Protection against certain forms of expropriation;
• Compensation for qualifying losses;
• Investor-State dispute settlement.

The Turkish Ministry of Trade explains that such agreements establish obligations concerning the treatment and protection of investors and may include mechanisms for international arbitration in the event of an investment dispute. (https://ticaret.gov.tr)

The specific protection available to an investor depends on the applicable treaty, its definitions, exceptions, procedural requirements, and the facts of the investment.

Investment Disputes Between Investors and the State

An investment dispute can arise when an investor alleges that governmental measures have adversely affected a protected investment.

Potential disputes may concern matters such as:

• Alleged unlawful expropriation;
• Regulatory measures affecting an investment;
• Public service concession agreements;
• Government contracts;
• Restrictions affecting the transfer of investment proceeds;
• Discriminatory treatment;
• Contractual disputes involving public authorities;
• Measures affecting licences, permits, or investment operations.

The existence of an adverse governmental measure does not automatically mean that an investor has a successful investment claim. The relevant legislation, contractual provisions, applicable treaty, jurisdictional requirements, and factual circumstances must all be examined.

Cosmos Legal Law Firm can analyse the legal basis of an investment dispute and evaluate whether domestic litigation, arbitration, negotiation, or another dispute-resolution mechanism may be applicable.

International Arbitration for Investment Disputes

International arbitration can play an important role in investment dispute resolution.

The Turkish Ministry of Trade notes that bilateral investment agreements may contain provisions allowing investor-State disputes to be submitted to international arbitration. (https://ticaret.gov.tr)

The Turkish Investment Office's Legal Guide also explains that foreign investors may benefit from domestic or international arbitration where an arbitration clause exists in the relevant investment agreement, with international arbitration governed by the applicable legal framework and selected institutional rules. (Türkiye Yatırım Ofisi)

Depending on the applicable agreement and circumstances, international investment arbitration may involve institutions or rules such as ICSID or UNCITRAL.

However, an investor cannot automatically commence international arbitration merely because a dispute exists. Jurisdiction may depend on the relevant treaty, contract, consent to arbitration, nationality of the investor, definition of investment, procedural prerequisites, and other applicable requirements.

Commercial Contracts and Investment Protection

International investments in Türkiye frequently involve complex commercial agreements.

Examples include:

• Share purchase agreements;
• Joint venture agreements;
• Construction contracts;
• Infrastructure agreements;
• Distribution agreements;
• Financing agreements;
• Shareholders' agreements;
• Management agreements;
• Public-private partnership arrangements.

Careful drafting of these agreements can be important for defining the parties' rights and obligations and establishing appropriate dispute-resolution mechanisms.

Cosmos Legal Law Firm provides legal assistance with the preparation, review, negotiation, and implementation of commercial agreements connected with international investments in Türkiye.

Expropriation and Nationalisation

Expropriation is one of the principal issues considered in international investment protection.

Turkish foreign direct investment legislation provides that foreign direct investments shall not be expropriated or nationalised except for public interest and upon compensation in accordance with due process of law. (Türkiye Yatırım Ofisi)

Investment treaties may also contain provisions concerning expropriation and compensation. However, the precise protection varies from treaty to treaty.

In disputes involving governmental measures, lawyers may therefore need to examine whether the measure constitutes direct expropriation, indirect expropriation, a legitimate regulatory measure, or another form of governmental action under the applicable legal framework.

Cosmos Legal Law Firm can assist international investors with the legal analysis of such measures and the preparation of appropriate legal strategies.

Protection of Investment Transfers and Profits

International investors may also need legal advice concerning the transfer of profits, dividends, sale proceeds, compensation payments, and other investment-related funds.

The Foreign Direct Investment Law provides for the free transfer abroad through banks or financial institutions of certain investment-related amounts, including net profits, dividends, proceeds from the sale or liquidation of investments, compensation payments, and certain contractual and financing-related payments. (Türkiye Yatırım Ofisi)

Tax, banking, corporate, foreign-exchange, and contractual considerations may nevertheless need to be examined depending on the transaction.

Cosmos Legal Law Firm can assist foreign investors with the legal aspects of investment transfers and related corporate and commercial procedures.

Preventing Investment Disputes

Legal assistance should not necessarily begin after a dispute has already emerged. Investors can also take preventive measures before entering into an investment transaction.

A comprehensive legal review may include:

1. Corporate structure;
2. Ownership arrangements;
3. Regulatory permissions;
4. Property rights;
5. Commercial contracts;
6. Financing arrangements;
7. Tax considerations;
8. Employment relationships;
9. Competition-law requirements;
10. Data-protection obligations;
11. Dispute-resolution clauses;
12. Applicable bilateral investment treaties.

The Turkish Foreign Direct Investment Strategy for 2024–2028 also identifies the development of alternative mechanisms for resolving investment disputes between investors and public institutions through reconciliation as an area of policy action. (Türkiye Yatırım Ofisi)

Cosmos Legal Law Firm can assist investors with preventive legal planning as well as dispute management.

Legal Services Provided by Cosmos Legal Law Firm

Cosmos Legal Law Firm provides legal services to foreign companies, entrepreneurs, investment funds, shareholders, and international investors conducting or planning investments in Türkiye.

Depending on the circumstances, services may include:

• Foreign investment legal consultancy;
• Investment structure analysis;
• Company establishment and corporate structuring;
• Due diligence;
• Review and drafting of investment agreements;
• Share purchase and shareholders' agreements;
• Joint venture agreements;
• Regulatory compliance;
• Property and real estate investment matters;
• Public procurement and concession-related legal matters;
• Investment dispute assessment;
• Domestic litigation;
• International arbitration;
• Contractual dispute resolution;
• Negotiation and settlement assistance;
• Enforcement-related legal procedures.

Through these services, Cosmos Legal Law Firm supports investors both before an investment is made and when a legal dispute subsequently arises.

International Investors and Due Diligence

Before acquiring a company, property, business, or other investment asset in Türkiye, international investors may benefit from comprehensive legal due diligence.

Due diligence can identify potential issues involving:

• Ownership;
• Existing debts and liabilities;
• Litigation;
• Administrative penalties;
• Licences and permits;
• Employment obligations;
• Intellectual property;
• Real estate title records;
• Commercial contracts;
• Tax matters;
• Regulatory compliance.

A properly structured due diligence process can help investors understand the legal circumstances of the proposed transaction before committing capital.

Cosmos Legal Law Firm provides legal due diligence and transaction-related consultancy for international investors seeking to operate or invest in Türkiye.

Conclusion

International investors in Türkiye operate within a legal environment shaped by Turkish domestic legislation, commercial agreements, investment treaties, and international dispute-resolution mechanisms. The Foreign Direct Investment Law provides important principles concerning investment freedom, equal treatment, expropriation, transfers, and dispute settlement, while bilateral investment treaties may provide additional protections and arbitration mechanisms. (Türkiye Yatırım Ofisi)

Investment disputes can involve complex questions of jurisdiction, treaty protection, contractual rights, administrative law, and arbitration. For this reason, legal analysis should be undertaken according to the specific investment, applicable agreements, and circumstances of the dispute.

Cosmos Legal Law Firm provides legal consultancy and representation for international investors in Türkiye, including foreign investment protection, corporate structuring, commercial contracts, due diligence, regulatory compliance, investment disputes, negotiation, litigation, and international arbitration.