Turkiye’s Medium-Term Program (MTP) for 2024-2026 serves as a comprehensive roadmap for aligning the nation with global, regional, and domestic economic indicators and trends. This document delineates key policies aimed at bolstering the Turkish economy, with a particular focus on the policies affecting the business and investment landscape. In this article, we have addressed the most significant elements of this policy that impact the M&A ecosystem in Turkiye.
1. Policies Toward Judicial Reform
Defects and deficiencies in a country’s judicial system can significantly impair the business and investment climate, particularly for foreign investors. Resolving these issues is therefore essential for attracting and retaining foreign investment.
In the context of judicial reforms within the scope of MTP, several key measures have been outlined as follows: (1) As part of the effort to enhance specialization within the judiciary, initiatives will be undertaken to improve the qualifications of judges, prosecutors, and mediators, alongside the strengthening of specialized courts. (2) Endeavors are set to increase the effectiveness and prevalence of alternative dispute resolution mechanisms, with a particular focus on activating administrative reconciliation procedures to swiftly and cost-effectively resolve disputes between individuals, legal entities, and the state. (3) Legal proceedings and the reinforcement of alternative dispute resolution mechanisms, especially arbitration, will be accelerated. (4) There will be a promotion of greater utilization of arbitration mechanisms in resolving commercial disputes and the enhancement of the Istanbul Arbitration Center’s structure and global visibility. (5) Measures will be taken to enhance the efficiency of the enforcement and bankruptcy system.
The policy objectives outlined in the MTP for judicial reform are expected to result in a more efficient and internationally recognized legal system in Turkiye, which would have positive implications for the country’s standing in the global legal community and attract global investors.
2. Digital Transformation and Data Protection
Considering trends in the global economy, the MTP includes plans to establish international standards in the digital transformation of the business and investment environment. Permits, registration, trade registry, and licensing processes for investments will be accelerated as part of the digitalization, which will expedite and add dynamism to the new investments.
In order to solve concerns such as security, data protection, inclusiveness, and sustainability, the MTP underlines that work on the EU harmonization process and acquis, especially the Personal Data Protection Law and the European Union General Data Protection Regulation, will be completed in the near future.
Furthermore, considering that it is imperative to encourage the development of new technologies and value-added production and establish a robust system for safeguarding intellectual property rights, the policy addresses enhancing the legal infrastructure that supports the formation and protection of intellectual property rights.
3. Entrepreneurship Ecosystem
In recent years, the entrepreneurship ecosystem has experienced substantial growth in Turkiye with new record-sized company sales being constantly registered. However, as in other developing economies, one of the most problematic issues for start-ups in Turkiye is funding. Alternatives such as angel investing and equity crowdfunding – which can be a lifeline, especially for early-stage start-ups – have been developing in Turkiye in recent years as the interest of angel investors in Turkish start-ups increases. As evidence of this trend, the Turkish Capital Markets Board lists 11 crowdfunding platform companies at present.
One of the most efficient methods that start-ups use in order to keep their qualified employees in the company is so-called “stock option plans.” Especially, with the new Turkish Commercial Code numbered 6102 (TCC), the way for the implementation of share option plans has been paved; however, the use of share option plans remains limited due to reasons such as taxation, shareholders dilution, and the inability to create non-voting shares in companies subject to the TCC. In light of these explanations, the “phantom stock option plan” may be way more accurate considering that no shares will be transferred during the planned period. This specific plan includes a determination of share price at a certain point in time based on the company’s valuation. When the option matures, the difference between the new price of the share and the initial price based on the company’s valuation is paid to the employee. As the MTP portrays, effective groundwork and alternative plans are indispensable to enable future start-ups to attract and retain skilled employees through such incentives.
These planned changes will elevate the M&A momentum in Turkiye and expedite processes, ultimately making Turkiye a more attractive investment environment.
By Ayse Ulku Yalaz, Partner, Nazali Tax & Legal
This article was originally published in Issue 10.9 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.
