Challenges for foreign businesses in Turkey

Before I get into the difficulties promised by the title let me give a short caveat:  there are some wonderful opportunities for foreigners doing business here!   I really enjoy working in Turkey and I think there are business opportunities that can be very profitable while still being transformational.  Honestly, I am a booster!

Now that I’ve got that out of my system, let me whine a bit.  For all the joys I believe really are here, it is a very difficult and frustrating place to work.  Foreigners struggle with an incomprehensible legal and tax system, competition that routinely evades taxes and breaks labor laws with apparent impunity, nationalistic bureaucrats biased against them and an alarming host of issues that spring naturally upon anyone working in a foreign culture and language.  I’ll work through more of these in coming discussions because several deserve an entry of their own, but let me start with an overview issue.

One of the history lessons I was given by an older engineer who worked for me and mentored me (no mean feat on his part!) deals with attitudes of the bureaucracy that linger on from the days of the Ottoman Empire.  In those days society was divided into three groups: 

1. Ottomans were at the top and served as administrators and military officers;
2. Türks were at the bottom, working as peasants, Anatolian counterparts of the Russian serfs (being called a Türk in those days was not considered a compliment, one of the reasons Atatürk coined his famous phrase “How happy is he who says ‘I am a Türk’;”) and
3. Minorities, primarily the Greeks, Armenians and Jews. 

Ottomans dealt with administration and Türks did manual labor.  Industry, trade and finance were all in the hands of minorities.  Most manufacturers and craftsmen were Armenians, most traders were Greeks and finance, according to my friend, was generally managed by Jews.  It was a tidy system that worked fairly well for hundreds of years.  One unfortunate consequence of this was that the Ottomans tended to look on anything dealing with commerce as a dirty business handled by infidels.  And it’s this attitude that seems to have carried over to the bureaucracy of the Republic.

My friend and mentor assured me this had nothing to do with modern bias against foreigners (another topic for another entry) and swore that as a Turkish businessman he suffered just as much as I did.  The problem is that government officers such as tax inspectors and municipal authorities assume that all business is corrupt.  They believe business people routinely steal from the government and that it is their moral obligation as representatives of the state to take the money back. 

This attitude comes out at unpleasant times, generally when you’ve applied for a new work permit for a foreign employee or when you are being audited by the tax office.  The recent Doğan Publishing  story is a tidy example of a case where a company was fined a large fortune based on assumption the tax officials have made about what they think the company’s income really should have been – assuming that the reported figures are lies.  And of course it’s likely that there were a lot of lies in the reported figure; that’s part of the local process and tradition.  But where there are only lies then there is nothing firm to stand on and life becomes quite precarious!

What does one do about this?  I found a few things very helpful.  One was to conduct my business in a way that made it clear I was not cheating.  That turned out to be expensive, but it was effective.  My accountant was able to argue during a tax audit that since I had declared such high salaries for my engineers (my competitors declared minimum wage routinely) and had therefore paid such a high Social Security tax it was clear I was an honest man.  It worked and I got away with no penalties and a clear audit.  Maintaining a respectful attitude when working with bureaucrats is also invaluable.  They tend to like it when foreigners show them respect.  But the other thing that’s prudent to do is to include some extra contingency in your operating budget for problems from officials – unfair penalties and fines.  As hard as you work and as honest as you are you will likely be blindsided once in a while.

Just to close on a positive note, things are getting better.  There does appear to be a greater effort on the part of the government to prosecute real offenders and to differentiate between inadvertent errors and intentional fraud.  So make your record clear and make sure you have good resources to help you argue your case.  But also be prepared for the occasional hit from a backward thinking official.  And then enjoy some baklava and Turkish coffee and put it all in perspective!