FINANCIAL LEASING, FACTORING AND FINANCING COMPANIES IN TURKEY
Financial leasing, factoring and financing companies in Turkey are regulated by Banking Regulation and Supervision Agency (BRSA). Any legal entity willing to provide any of the services falling under the scope of financial leasing, factoring or financing in Turkey is required to obtain a permission to operate.
Law on Financial Leasing, Factoring and Financing Companies Nr 6361 published in the Official Gazette on 13th December 2012. This law was enacted to regulate the establishment and operating principles of financial leasing, factoring and financing companies operating as financial institutions besides the principles and procedures relation to financial leasing, factoring and financing contracts.
What is financial leasing under Turkish Law?
Financial leasing is a mid or long-term investment loan granted by a financial leasing company (‘Lessor’) to an investor (‘Lessee’) to be used for the acquisition of goods including but not limited to land, premises, production plants, manufacturing machinery, construction machinery vessels or aircrafts. The ownership of the good stays with the Lessor whereas any risks and benefit of the good belong to the Lessee during the term of the financial leasing.
Pursuant to Article 3 (1) ‘ç’ of the Law on Financial Leasing, Factoring and Financing Companies, financial leasing must enable one of the following conditions to qualify as a financial leasing contract;
- transferring the ownership of an asset by the Lessor to the Lessee at the end of lease term,
- giving the lessee the right to purchase the asset at a sum less than its current market value at the end of the lease term,
- lease term shall cover more than eighty percent of the asset’s economic life,
- the sum of current value of lease payments to be made pursuant to the financial leasing contract shall constitute more than ninety percent of the current market value of the asset.
What is factoring under Turkish Law?
Factoring is the transfer of receivables by a Seller arising from the sales of its goods and/or services to a factoring company authorised under the Law on Financial Leasing, Factoring and Financing Companies Nr 6361. The factoring transaction is carried out between the factoring company, buyer (who is debtor) and the Seller. Factoring companies provide services by signing a factoring contract with their customers (seller) in factoring transactions. In accordance with the applicable laws and regulations in Turkey, a factoring contract is an atypical contact with a mixture of different elements.
Pursuant to Article 38 of Law Nr 6361, factoring contract is a contract including collection which the factoring company provide to its customer, besides recording debtor or customer accounts, any of or the whole factoring or finance guarantee functions by taking over the receivables depending on goods or service sale which can be promoted within the scope of principles and procedures determined by the BRSA and the receivables promoted with the invoice emanated from goods or service sale.
As can be seen in the relevant provision, factoring companies acts in the three main fields: i) financing, ii) guarantees and iii) collection.
Turkish Law allows factoring companies to act both in domestic factoring and international factoring. In the domestic factoring transactions, the Factoring Company, Seller (customer) and the debtor (buyer) are all residents of Turkey. Whereas; in international factoring the seller and buyer are from different countries. A factoring company provides international factoring services either itself or through its correspondent network channel. The most known international organisations being the factoring chains are the Factors Chain International (FCI) and IFG (International Factors Group)
In parallel to global applications, Turkish law allows the following types of factoring i) full-service factoring, ii) wholesale factoring, iii) maturity factoring, iv) receivables discount.
What is financing companies do under Turkish Law?
Financing companies under Turkish law qualifies as credit institutions providing finance to for the purchase of all kinds of goods and/or services to their customers on the basis of financing contract for the purpose of Law on Financial Leasing, Factoring and Financing Companies Nr 6361.
Under Article 39 of Law on Financial Leasing, Factoring and Financing Companies, financing contract enables the provision of loan for any types of goods and service to a buyer by the financing company in which the payments are made directly to the seller by the financing company whereas loan repayments are made to financing companies by the customer (buyer). It is obligatory for the financing companies to make a general contract in writing in
advance by the seller who will be providing goods or services which they shall extend credit.
How can financial leasing, factoring and financing companies obtain authorisation from Banking Regulation and Supervision Agency in Turkey?
OBTAINING PERMISSION TO OPERATE AS A FINANCIAL LEASING COMPANY; FACTORING COMPANY OR FINANCING COMPANY IN TURKEY
Firstly, in order for a company to be able to provide services under the scope of financial leasing, factoring or financing must obtain an establishment permission from the BRSA. The establishment of a company in Turkey shall be permitted upon affirmative votes of at least five members of the Banking Regulation and Supervision Board provided that the establishment conditions laid down in Law of Law on Financial Leasing, Factoring and Financing Companies Nr 6361 are fulfilled.
Pursuant to Article 4 of the Law Nr. 6361, in order to get the establishment permission, the applicant company to be established in Turkey shall fulfil the following requirements;
- It should be established as a joint stock company and number of founding partners shall not be less than five,
- Its shares should be issued against cash and to name
- Its trade name shall have one of the expressions of “Financial Leasing Company”, “Factoring Company” or “Financing Company”,
- The founders should meet the requirements indicated in the Law Nr. 6361
- Its members of board of directors shall bear the qualifications set out in the corporate governance provisions in the Law Nr 6361 and shall have the professional experience required for carrying out the planned activities
- Its paid-up capital, consisting of cash and free of all kinds of fictitious transactions, should not be less than 30 million Turkish Liras,
- Its articles of association shall not be in conflict with the provisions of the Law Nr. 6361,
- There should be a transparent and open shareholding structure that will not constitute an obstacle for the efficient supervision of the Banking Regulation and Supervision Agency,
- The business plans for the intended fields of activity, the projections regarding the financial structure of the institution, the budgetary plan for the first three years and an activity program showing the establishment of corporate structure must be submitted.
The companies that obtained the permission to establish within the frame of the above Article 4 shall be obligated to obtain permission for operation from the Banking Regulation and Supervision Board. The permissions granted by the Board shall be issued in the Official Gazette.