Trade volume between Turkey and the Gulf states is on track to reach the 15 billion dollar target announced in October 2025. Alongside this growth, the number of Arab-capital firms opening branches or subsidiaries in Turkey continues to rise quickly. For these companies, compliance with Turkish law under Law No. 4875 on Foreign Direct Investment calls for coordinated planning across several areas at once, from company formation to staffing, from contract drafting to tax filings.
Company Formation and Compliance with the Investment Regime
For an Arab-capital group looking to set up a company in Turkey, the first question is usually whether prior approval is required. The answer today is no. Law No. 4875 on Foreign Direct Investment did away with the old prior-approval system in favour of a notification-based regime. In practice, this means a foreign-capital company can be incorporated through the same procedure and in the same timeframe as a domestic one.
The law’s guiding principle is equal treatment. A company based in Dubai or Riyadh investing in Turkey is, as a rule, subject to the same rights and the same limitations as a domestic investor. Take, for example, a Qatar-based construction materials supplier wishing to set up a sales company in Istanbul. It does not need to wait for a separate “foreign investment approval”; it can proceed directly to trade registry formalities.
Compliance, however, does not end at incorporation. Afterward, the company and, where applicable, its liaison office must update their activity information annually through the E-TUYS system (the online foreign direct investment reporting platform). As of 2026, this filing must be submitted every year by the end of May, and late filings can disrupt administrative processes.
Choosing the Right Company Type
Why does the choice of company type matter so much? Because the Turkish Commercial Code No. 6102 (TTK) sets out significant differences between a limited liability company and a joint stock company when it comes to liability, share transfer, and management flexibility. For a small Arab company planning to open a regional office, a limited liability company is generally the faster and less costly option. For a structure with multiple partners and an expectation of formal corporate governance, a joint stock company offers a more suitable framework.
A common mistake here is assuming that the parent company’s structure back home can simply be replicated in Turkey. For instance, the “sponsor partner” model common in some Gulf jurisdictions has no equivalent under Turkish law. The Turkish company’s share allocation, management authority, and capital commitments must be structured entirely in line with the provisions of the TTK.
Choosing a company type may look like a one-off decision, but changing it later can be costly. For that reason, it is advisable to clearly assess the intended ownership structure and profit distribution preferences before incorporation.
Staffing and Work Permit Procedures
When an Arab company wants to bring in managers or technical staff from its home country for its Turkish office, a different set of rules comes into play. Employing foreign nationals is governed by a separate permit process under the Regulation on the Employment of Foreign Personnel in Foreign Direct Investments, and this process is repeated for each employee regardless of the company’s general investment status.
Consider a concrete example. A logistics company wants to send a finance manager from its head office to run operations in Turkey. That person’s work permit application is assessed against criteria such as the company’s capital structure, the number of Turkish employees it employs, and its field of activity. Not knowing these criteria in advance can make the application process take longer than expected.
Local hiring is another area that should not be overlooked. Turkish labour law has its own rules on severance pay and notice periods that differ from those in many Gulf jurisdictions. Drafting employment contracts with these differences in mind helps prevent disputes down the line.
Differences in Legal Systems Affecting Commercial Contracts
One of the most common issues Arab companies run into in their commercial dealings in Turkey is a failure to clearly establish which law governs the contract. There are notable differences between commercial contracting practice in some Gulf countries and the contract culture built around the Turkish Code of Obligations, particularly regarding default, penalty clauses, and termination conditions.
Imagine a Saudi-based manufacturer that signs an agreement with a distributor in Turkey using its standard contract template translated into Turkish without modification. That template may well contain penalty clause rates or unilateral termination provisions that would be invalid under Turkish law. Using a contract that has not been adapted to Turkish law leaves the company without the protection it expects if a dispute arises.
A similar risk arises when contracts leave the governing law and competent court clauses incomplete or contradictory. Designating a court in another country as competent for a contract to be performed in Turkey can, in practice, significantly prolong enforcement and collection proceedings.
Tax and Reporting Obligations
Every company established in Turkey is subject to the same tax obligations as domestic companies, regardless of whether its capital is foreign. Corporate tax returns, VAT filings, and withholding tax returns must be submitted regularly, irrespective of whether the company has Arab capital.
Law No. 7582, which entered into force in June 2026, added a new provision titled “Qualified Service Centre” to Law No. 4875. This amendment creates an additional framework specifically for foreign-capital companies looking to establish a regional office or operations hub. A company planning such a structure would do well to assess whether this framework fits its line of business at the incorporation stage.
For example, an electronics importer planning to open a regional after-sales support centre should weigh this new framework alongside its standard tax obligations. Otherwise, it risks missing out on available incentives.
A Local Support Model for Dispute Management
When a dispute arises in the commercial relationships of an Arab-capital company operating in Turkey, it is usually not enough for the legal team at the head office to manage the process alone. Turkish enforcement and litigation procedure involves its own specific deadlines and formalities, which can lead to delays in a case followed only from abroad.
A model companies frequently turn to is establishing ongoing coordination with local legal counsel in Turkey. Under this arrangement, the legal team at head office makes the strategic decisions, while day-to-day follow-up of proceedings in Turkey, service of notices, and communication with courts or enforcement offices is handled by a local legal team. This dual structure allows head office to retain control while ensuring compliance with local procedural rules.
For companies that proceed without this kind of coordination, a technical slip, such as a missed notice or a missed deadline, can cause them to lose a dispute they would otherwise have won on the merits. Dispute management is therefore a matter that should be built into a company’s planning for its Turkish operations from the outset, not addressed only after a problem arises.
Frequently Asked Questions
Does an Arab-capital company need prior approval to set up a company in Turkey?
No. Law No. 4875 abolished the prior-approval system. Incorporation follows the same trade registry procedure as for domestic companies, and no separate investment approval is required.
How long does it take to bring staff from the home office to a company in Turkey?
The timeframe depends on the company’s capital structure, the number of Turkish employees it has, and whether the application is complete. Preparing the required documents in advance speeds up the process.
Can a contract template used in the home country be used as-is in Turkey?
This is not advisable. Templates using penalty clause, termination, or competent court provisions that have not been adapted to the Turkish Code of Obligations may fail to provide the expected protection in the event of a dispute.
Which companies are required to file E-TUYS notifications?
Foreign-capital companies and liaison offices falling under Law No. 4875 must update their activity information through the E-TUYS system every year by the end of May.
For an Arab-capital company operating in Turkey, compliance is not something a single document can resolve. Company formation, staffing, contract drafting, tax filings, and dispute management should be treated as five distinct but complementary areas. Planning these together at the incorporation stage prevents delays and costs that might otherwise arise later.
In the process of company formation in Turkey, choosing the right company type matters just as much as understanding, further down the line, the differences between a limited liability company and a joint stock company. Likewise, adapting commercial contracts to Turkish law should be seen as an integral part of the contract drafting and review process.
Legal Disclaimer
