Careful navigation of the local legal framework, coupled with appropriate tax structuring, can deliver robust financing structures and help overcome risk considerations that in the past may have acted as a barrier to entry for certain private credit providers.

This guide provides a high-level overview of some of the key considerations for private credit providers looking to deploy capital in Türkiye.

Private credit in Türkiye

Can a foreign fund make a loan to a Turkish borrower without a banking license?

Yes. A banking license is not required so long as (i) the fund does not engage in active marketing, solicitation, or promotional activities within Türkiye or towards Turkish borrowers, (ii) the lending is undertaken on a reverse inquiry basis, and (iii) the fund does not present itself as carrying out licensed banking activities in Türkiye.

Can a Turkish borrower borrow in U.S. dollars or euros?

• Turkish corporate borrowers may utilize foreign currency loans only if they have (i) foreign currency revenues, or (ii) existing foreign currency loans.
• Certain exemptions apply, amongst others, for banks, financial institutions, defense industry contractors, PPP project companies and (most notably) companies, that are incorporated for the sole purpose of acquiring the shares of another company. 

Do taxes or other charges usually present a material issue to a fund lending directly to, or taking credit support from, a Turkish company?

• Careful structuring is required in order to ensure a tax-efficient and viable structure. Absent appropriate structuring, material VAT, stamp duties, and withholding tax may apply, which can render the transaction prohibitively expensive.
• The tax structuring typically involves ensuring that (i) the lending entity satisfies certain criteria in its home jurisdiction, and (ii) at least, a significant portion of the loan is extended to a Turkish entity. Various structuring options are available for satisfying those criteria and, provided these are satisfied, the only applicable tax is the Resource Utilization Support Fund (RUSF). RUSF applies to all cross-border loans to Turkish corporate borrowers (not just loans provided by funds) and is payable on a sliding scale (0.5% to 3%) if the average maturity of the loan is less than three years. The RUSF is typically covered by the borrower and therefore is generally not considered to be a material issue for private credit providers.

Can interest and remuneration be agreed freely between a fund and a Turkish borrower?

Yes, parties are generally free to agree on interest and fees in commercial transactions as they see fit.

Can a fund directly hold security?

Yes.

Can a Turkish company provide credit support for the acquisition of its or its holding companies’ shares?

• No. Turkish financial assistance regulations generally prohibit a joint stock company from providing any advance, loan, or security to third parties for the purpose of acquiring its own shares. This restriction applies unless the company is a credit or financial institution acting in its ordinary course of business, or it is providing such assistance to its employees or the employees of its subsidiaries as part of their stock options, subject to certain additional conditions. This prohibition does not extend to other types of companies in Türkiye, such as limited liability companies.
• However, lenders may gain access to target group-level recourse and security through having the target company or companies merge with the acquiring company post closing. 

Are there corporate benefit or similar issues that potentially impair the security?

No.

How lender friendly is the enforcement regime in Türkiye?

• Relatively robust enforcement processes (including self-help remedies) are available for security over shares, receivables, and bank accounts. It is generally possible to structure transactions with a single point of enforcement that can be triggered swiftly using self-help remedies and without recourse to the local courts.
• Self-help remedies are not available in respect of other types of security interests (including mortgages and pledges), which require involvement of official enforcement authorities. While the official enforcement process may be relatively lengthy, it nonetheless offers lenders a reliable method of enforcement.

Is there a well-developed and sufficiently tested insolvency regime in place?

Yes. Türkiye has a well-developed and thoroughly tested insolvency regime in place. However, it is important to note that the insolvency process can be protracted, particularly in the case of complex financing transactions. While the regime is robust and provides a comprehensive framework for managing insolvency cases, its application in intricate financial arrangements is not as well tested, which may introduce additional uncertainties and delays.