Regional Focus

Doing business in Turkey

Published: Apr 2011

Turkey – a bridge between East and West

A dynamic emerging market economy, Turkey sits at a geographical crossroads between southeast Europe and southwest Asia. Among the world’s 20 largest economies, it is experiencing rapid growth, with year-on-year real Gross Domestic Product (GDP) growth from 2009 to 2010 averaging around 5.5% and expecting to have 8% growth rate at 2010.

Key facts

Geography and society
Population growth rate:
Official languages:
Capital city:
Time zone:
EET (UTC +2)
Land boundaries:
Armenia, Azerbaijan, Bulgaria, Georgia, Greece, Iran, Iraq and Syria – a total of 2,648km
Turkish lira (TL)
GDP per capita:
$8.9 billion
Total market cap:
$282.5 billion
FX regime:
free float
Member of:
Fiscal year:
calendar year
History and politics
29th October 1923
Government type:
Parliamentary Democracy – Republic
Abdullah Gül
Prime Minister:
Recep Tayyip Erdogan
Ruling party:
AKP – The Justice and Development Party – centre-right
Universal suffrage:
since 1933
Country credit rating
  • BB+
Trading partners
Top five import sources:
Russian Federation, Germany, China, USA, Italy.
Top five export destinations:
Germany, UK, Italy, Iraq, France.

Turkey has recovered from deep economic crisis by undertaking a series of reforms. Throughout the 1990s, the Turkish economy was characterised by very high inflation and economic instability. The most severe crises were those in 1999 and 2001, the latter almost bringing the country’s banking system to its knees. In the wake of the 2001 crisis, fiscal policy, structural reforms and monetary policies were successfully implemented, supported by a stand-by programme with the International Monetary Fund (IMF).

The country continues to capitalise on these pro-business reform measures. The double-digit inflation that was holding back growth (consumer price index (CPI) stood at 68.5% in 2001) was reduced to single digit inflation by 2004 and the prospects for EU accession began to attract foreign direct investment (FDI).

Despite the global economic crisis, Turkey attracted nearly $9 billion FDI at 2010 and $83 billion of FDI in the past eight years, which shows an excellent indicator of the Turkish economy’s strength today.

Chart 1: FDI inflows 2002 – 2010
Chart 1: FDI inflows 2002 – 2010
Chart 2: Turkey inflation rate

Annual change on consumer price index

Turkey inflation rate

Source: State Institute of Economics

Due to the IMF-backed programme and EU accession aspirations, legal and regulatory regimes in Turkey are broadly comparable with those in Western Europe:

  • The banking sector is overseen by the Banking Regulation and Supervision Agency (BRSA, known locally as BDDK). The BRSA was established in 2000.
  • The Central Bank of the Republic of Turkey (CBRT) is responsible for maintaining price stability. The CBRT also administers exchange controls and regulations together with the Turkish Treasury, though the exchange regime is quite liberal.
  • In compliance with central bank reporting regulations, all transactions between residents and non-residents need to be reported each month, as do overseas FX transactions exceeding $50,000.
  • Generally accepted accounting standards – International Financial Reporting Standards (IFRS) – were introduced for listed Turkish companies on 1st January 2006 and became a legal requirement for all companies from 1st January 2007.

Taxpayers whose legal or business centres are in Turkey, ie ‘residents’, are subject to taxes on their worldwide income. If neither the legal nor business centres are in Turkey, the company is classified as ‘non-resident’ and is therefore subject only to tax on income generated within Turkey.

Taxation framework

  • The standard rate of corporate income tax for the 10/11 year is 20%.
  • Interest on deposits is subject to 15% withholding tax.
  • Withholding Tax: Withholding tax will be applicable when borrowing from offshore non-financial institutions. Under the Corporate Tax law, interest payments arising from loans received from abroad are subjected to withholding tax rate as shown below;
    • Banks and Financial Institutions: 0%
    • Others: 10%
    • Non finance companies and special purpose vehicles established in ‘tax haven’ countries: 30% (withholding tax rate for the others is not applicable).
    • International institutions and governments: 0% Turkish corporate tax law imposes a debt/equity ratio of 3:1 for thin capitalisation.This ratio is increased to 6:1 for related-party financial institutions.
  • On 1st January 2007, the Organisation for Economic Co-operation and Development (OECD) model transfer pricing guidelines came into effect in Turkey. All commercial transactions between related parties must therefore be documented and made at arm’s length.
  • Banking and insurance transactions are subjected to BITT (Banking and Insurance Transaction Tax) and also are exempted from VAT.

Withholding tax rates

Resident Non-resident
Interest 0-15% 0-10%
Dividends N/A 15%
Royalties N/A 20%

Treasury activities

Local banking sector

There are currently 48 banks operating in Turkey, of which 20 are foreign-owned and three are state-owned. The largest of the commercial banks is Garanti Bank as of year end 2010. There are also four participation banks, which are banks using Islamic finance techniques.

There has been some consolidation in the market since 2000, when 79 banks were in operation. Approximately 30% of the country’s total banking assets is owned by the state.

Foreign banks have brought new technologies with them, making the country increasingly attractive to new investors. Internet banking, for example, is now widely used not only for payments but also for balance reporting and account statements.

Chart 3: Banks operating in Turkey
Chart 3: Banks operating in Turkey


The main payment methods in use in Turkey are as follows:

  • Cash.

    Still the preferred choice for retail payments.

  • Credit transfers.

    Mainly used for corporate transactions but also for payment of salaries/pensions.

  • Direct debits.

    Usage is limited but new facilities are being developed to widen adoption.

  • Cheque.

    Still fairly popular. In 2009, 21.5m cheques were processed by the clearing houses.

  • Card payments.

    Usage has increased significantly and Visa and MasterCard are the principal issuers. By the end of 2010, 46.9m credit cards and 69.9m debit cards had been issued.

  • Promissory notes.

    A popular instrument among local Small and Medium Sized Enterprises (SMEs).

Clearing and settlement

The Turkish payments structure is made up of three main systems:


    The Turkish real-time gross settlement system which is operated by the Central Bank and used for all domestic electronic payments. Settlement is same day with immediate finality.

  • Interbank Clearing Houses (ICHs).

    A network of 22 Inter-bank Clearing Houses, which process and settle cheque payments. Cheques are truncated and processed electronically. Clearing is same day but settlement does not take place until the following day.

  • Inter-bank Card Centre (BKM).

    A commercial bank-owned centre which processes and settles all card payments by electronic net settlement.

A giro system run by the post office is also used to process electronic payments not covered by the TIC-RTGS.

Case Study

Vestel Electronics

Portrait of Alp Dayi

Alp Dayi

Deputy General Manager

Vestel Electronics, with 24 companies, is the leading player in Turkey and global markets in consumer electronics, white goods and digital products segments. Vestel ranks among the world’s biggest original equipment manufacturers and original design manufacturers. Vestel is the second largest exporter of Turkey.

The challenge

Vestel operating with nine foreign trade companies across Europe in multiple market segments, ranks among the top three manufacturers of LCD TV and among the top ten manufacturers of home appliances generating a significant revenue stream.

Vestel wanted to centralise cash received from exports in several European countries. As part of the same goal, Vestel needed easier electronic access to account balances to monitor and manage liquidity centrally and to enable more accurate cashflow forecasting. An associated aim was to streamline Vestel’s payables process, minimise costs and automate reconciliation of export proceeds. Vestel’s second objective was to improve working capital cycle by financing open account import transactions.

The solution

Citi offered a number of solutions to increase visibility, to mobilise and optimise liquidity. Firstly, through Citi’s TreasuryVision® cash management platform, Vestel is able to monitor third party bank and Citi accounts and is also able to review its regional working capital positions at a consolidated level.

Secondly, using CitiDirect® online banking Vestel is able to manage its payables smoothly through a single platform, customise payment authorisation levels and access all entity accounts for reporting and payment activities.

Thirdly, using target balancing and account receivables matching, Vestel has automated the centralisation of cash in London for seven countries and consolidated its export receivables. Citi’s integrated account receivable matching tool will enable increased operational efficiency for Vestel.

As a final solution, Citi offered import factoring to provide short-term financing for import transactions. This solution improves the working capital cycle without increasing import costs, while creating operational efficiencies for Vestel.

The result

Vestel has benefited from real-time online global visibility of all its accounts, optimisation of liquidity and improved workflow management as a result of the solutions designed and implemented by Citi. Vestel and Citi, whose business relationship started in 2003, have strengthened their partnership further during this project.

Cash management

Whereas traditional liquidity and investment products are widely available in the Turkish market, few sophisticated products are on offer. However, the changing regulatory landscape and pro-business outlook has allowed local players to develop domestic and cross-border cash concentration solutions. Notional pooling is not permissible in Turkey but single currency and one-country pooling are available.

Local businesses are also focusing on their cash conversion cycles as concerns grow around the tightening credit climate. Optimisation of the supply chain is a particularly popular topic among SMEs as the sector has been playing an ever more important role in the country’s expanding trade volumes. Companies are seeking to decrease processing times and increase efficiency.

While local corporates continue to improve their business acumen through experience and foreign input (both capital and intellectual) there is, however, still ample opportunity to invest and get ahead of the competition.

In terms of short term investment, interest may be earned on current and deposit accounts. Accounts can be held in both Turkish lira and foreign currency domestically and abroad, although currency conversion restrictions apply in rare cases.

Permitted in location
Type of bank account Turkey Abroad
Turkish lira Yes Yes
Foreign currency Yes Yes
Non resident foreign currency Yes
Non resident Turkish lira Yes

Other options for short term investment include Turkish treasury bills, repos and certificates of deposit. Government bills with a maturity of one year or more are available for medium term investments.

Key websites

Government website:
Central Bank of the Republic of Turkey:
Banking Regulation and Supervisory Authority:
Banks Association of Turkey:
Ministry of Finance:
Ministry of Industry and Trade:
Turkish Treasury:
Istanbul Stock Exchange:
General Directorate of Foreign Investment:
Turkish Statistical Institute:

Citi’s capabilities in Turkey

Citi has a strong presence on the ground in Turkey. Along with its 36 year old fully owned franchise, Citi made a $3.1 billion investment in 2006 for a 20% stake in Akbank, one of the country’s major private banks. Citi also has the largest market share of cross border investment in Turkey – circa 55% of equities under custody for foreign investors – and actively participates in developing best practice standards in the country in conjunction with several securities industry committees.

There has been an increase in the number of M&A transactions and project finance deals, as well as an increase in the activities of Private Equity firms in Turkey. Citi Securities and Fund Services unit has established local escrow services to assist investors with their requirements arising from structured deals. Citi has the global expertise and know-how on Agency and Trust Services and is able to assist investors with tailor made structures as per the nature of the transactions.

Citibank A.S. offers a wide range of solutions in trade finance and trade services products, supply chain financing solutions both domestic and cross border and by mediating Export Credit Agency Programmes for medium to long-term financing to its financial institution, corporate and commercial clients.

Looking to the future, Citi Turkey is aiming to pioneer advanced liquidity solutions to its multinational and domestic customers and to continue developing supplier and distributor finance initiatives including cross-border supply chain solutions. Citi retains its edge through strong technology products such as CitiDirect® and CitiConnect® which are making procure-to-pay solutions more popular in Turkey. These are state-of-the-art online platforms offering real-time access to Citi’s global banking capabilities.

Moreover, by having a strong local presence, Citi can identify nascent trends and respond to them quickly with solutions developed not only to support its customers but also to generate competitive advantage.

Contact details:
Baris Tezcan
Global Transaction Services Head, Turkey
+90 (212) 319-4307

Gulru Atak
Cash Management Head, Turkey
+90 (212) 319-4311

Cem Bekdik
Trade Services and Finance Head, Turkey
+90 (212) 319-4305

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