There are multiple laws governing the issuance of securities and the establishment of special purpose vehicles (SPVs) in Turkey. They were all issued in 2013 and 2014. Our consultants for company registration in Turkey can offer more information on how to open an SPV in Turkey based on the regulatory framework in the country.
What is the purpose of the Turkish SPV?
The special purpose vehicle is a subsidiary used by foreign companies in order to secure their assets in case of bankruptcy. In other words, if the mother company goes bankrupt, its assets will be held securely in the SPV. In Turkey, SPVs can only be established using certain types of structures and are subject to very strict requirements imposed by the Capital Markets Board (CMB). These requirements are enforced by the Turkish Company Law which has enabled capital thresholds in order to prevent bankruptcy.
The main laws that govern the SPVs in Turkey are:
- the Act on Asset-Backed and Mortgage-Backed Securities;
- the Principles of Mortgage Financial Institutions;
- the Act on Lease Certificates.
Until recently, only Turkish banks were allowed to issue securities. Nowadays more and more financial institutions are allowed to enter the capital markets and trade their securities.
How to open an SPV in Turkey
Turkish special purpose vehicles can take the form of investment funds financed through certain types of assets, such as mortgages or other types of credits. These funds will have no legal personality, their management is based on the principles of fiduciary ownership. Turkish SPVs can only be registered as financial companies, banks or even brokerage firms.
Our company incorporation agents in Turkey can assist foreign investors who want to establish SPVs in this country.
Requirements to open an SPV in Turkey
The CMB requires a Turkish SPV to have a management board formed of a minimum of 3 members. The SPV must also have an internal controller and its assets must be protected by a custodian. The SPV must be managed by a local service provider. It is important to know that Turkey does not recognize the concept of trust company, therefore fiduciary ownership is the only relation between the shareholders and the service provider admitted by the CMB.
SPVs in corporate mergers
An SPV in Turkey can be used as a strategic tool to finance acquisitions and manage tax benefits. After acquiring a target company, the SPV in Turkey can merge with the company in a tax-free transaction under Article 19 of the Turkish Corporate Tax Law. This allows the debt to be transferred to the target company that can deduct the interest expenses on this debt from its taxable income, reducing the tax burden. Our specialists in company incorporation in Turkeycan assist with mergers and acquisitions.
This method is used because SPVs in Turkey are generally set up solely for a specific transaction and don’t engage in other business activities. Since SPVs don’t generate substantial profits in the short term, they don’t have enough taxable income to use the interest expense deductions. By merging with the target company (which has ongoing operations and taxable income), the SPV in Turkey can transfer the debt to the company. This way, the target company can use its profits to deduct the interest expenses, maximizing the tax benefits from the acquisition.
Investors can use an SPV in Turkey for corporate mergers for various reasons:
- The SPV protects the parent company’s assets and liabilities by isolating financial risks within its structure;
- If the SPV in Turkey encounters financial difficulties, such as insolvency or bankruptcy, these do not directly impact the parent company;
- SPVs can attract investors directly for specific projects;
- SPVs in Turkey face fewer regulations than parent companies, giving them more flexibility in their operations.
Our specialists in company formation in Turkeycan explain more about the benefits of an SPV.
Issuance of sukuks through SPVs in Turkey
A sukuk is an Islamic financial instrument that serves as a certificate representing ownership in an underlying asset or project, aligning with Islamic law (Sharia).
According to the Sukuk Regulation, the establishment of an SPV in Turkey that can issue sukuk is restricted to specific corporate structures. These include: banks, financial intermediaries, mortgage lenders, listed real estate investment companies, publiccorporations(under certain conditions), and corporations with long-term investment-grade ratings.
Additionally, the SPV in Turkey must seek CMB approval in plenty of circumstances involving share transfers. Our specialists in company incorporation in Turkey can detail these situations if you are interested.
In cases when the approval is not necessary, the transfer still needs to be reported to the CMB within 15 days of the transaction.
It is also important to note that the SPV in Turkey cannot engage in any commercial activities beyond those explicitly outlined in its approved articles of association. It is also prohibited from using its assets as collateral for loans or offering any rights over its assets to third parties.
Our team can explain more about SPVs and the issuance of sukuks when you open a company in Turkey.
The banking sector in Turkey
SPVs in Turkey are often used in the financial environment. In this context, our team has gathered some interesting statistics about the banking sector in the country:
- In 2024, Turkey’s banking sector is expected to generate a net interest income of USD 13.21 billion;
- Traditional banks are projected to account for a market volume of 11.21 billion USD in 2024;
- There is a noted increase in digital banking services, particularly mobile banking apps.
Local and foreign investors interested in the banking sector and setting up a Turkish SPV should also know that we can provide payroll services in Turkey. Additionally, we can recommend our partner accountants in Turkeyfor efficient tax compliance.
For assistance in opening an SPV in this country, please contact our company registration representatives in Turkey.