Introduction to Due Diligence in Turkey

Definition and Importance

Due diligence is a comprehensive appraisal process used to assess risks, validate information, and ensure compliance in financial, legal, and regulatory contexts. It serves as a critical foundation for informed decision-making in mergers & acquisitions (M&A), investments, partnerships, and regulatory audits.

Purpose of Due Diligence

The primary objectives of due diligence include:

• Risk Mitigation: Identify potential financial, legal, or operational liabilities before committing to a transaction.
• Informed Decision-Making: Provide stakeholders with verified data to assess the viability and value of a deal.
• Regulatory Compliance: Ensure adherence to local and international laws (e.g., anti-corruption, tax, ESG regulations).
• Value Preservation: Uncover hidden opportunities (e.g., synergies) or red flags (e.g., overstated assets) that impact valuation.
• Reputation Protection: Avoid association with unethical practices (e.g., ESG violations, cybersecurity breaches).

Types of Due Diligence Worldwide

Financial Due Diligence

• Evaluation of financial statements, cash flows, liabilities, and revenue sustainability.
• Identifies discrepancies, hidden risks, and valuation accuracy.

Legal & Regulatory Due Diligence

• Review of contracts, litigation risks, intellectual property, and compliance with laws.
• Ensures adherence to local and international regulations.

Operational Due Diligence

• Assessment of business processes, supply chains, and operational efficiencies.
• Highlights inefficiencies or scalability challenges.

Tax Due Diligence

• Analysis of tax liabilities, filings, and potential exposures (e.g., transfer pricing).
• Mitigates risks of audits or penalties.

ESG Due Diligence (Environmental, Social, and Governance)

• Examines sustainability practices, social impact, and corporate governance standards.
• Increasingly critical for regulatory compliance and investor confidence.

Cybersecurity Due Diligence

• Audits IT infrastructure, data protection policies, and vulnerability risks.
• Essential for safeguarding sensitive data and preventing breaches.

Types of Due Diligence (With Turkish Legal Context)

Financial Due Diligence

• Focus: Examination of financial health (balance sheets, P&L, debt obligations).
• Turkey-Specific: Compliance with Turkish Accounting Standards (TMS/TFRS) and Tax Procedure Law (VUK). Review of potential liabilities under Turkish transfer pricing rules (Corporate Tax Law Art. 13).

Legal & Regulatory Due Diligence

• Focus: Contracts, litigation, permits, corporate governance.
• Turkey-Specific:
  • Verification of compliance with Turkish Commercial Code (TCC) (e.g., share transfers, board resolutions).
  • Checks for sector-specific licenses (e.g., energy, banking under BRSA regulations).
  • Data privacy alignment with Turkish Personal Data Protection Law (KVKK).

Operational Due Diligence

• Focus: Efficiency of processes, supply chain risks.
• Turkey-Specific:
  • Labor law adherence (Turkish Labor Law No. 4857 – overtime, severance).
  • OSHA-equivalent checks (Occupational Health & Safety Law No. 6331).

Tax Due Diligence

• Focus: Tax liabilities, audits, incentives.
• Turkey-Specific:
  • Review of VAT (KDV), Corporate Tax (KVK), and Stamp Tax exposures.
  • Investment incentives (e.g., Regional Incentives under Decree No. 2012/3305).

ESG Due Diligence (Environmental, Social, Governance)

• Focus: Sustainability, social responsibility.
• Turkey-Specific:
  • Environmental: Compliance with Environmental Law No. 2872 (permits, waste management).
  • Social: Alignment with Turkish CSR expectations (e.g., employer contributions to İŞKUR).

Cybersecurity Due Diligence

• Focus: IT security, data protection.
• Turkey-Specific:
  • KVKK (data localization, consent requirements).
  • Critical Infrastructure checks (Law No. 6698, Cybersecurity Regulation 2023).

Real Estate Due Diligence (Turkey-Specific Add-On)

• Focus: Title deeds (tapu), zoning (imar) status.
• Key Laws:
  • Zoning Law No. 3194 (permit verification).
  • Condominium Law No. 634 (for shared properties).

Download Due Diligence Guide (Turkey)