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Establishing a Liaison Office in Turkey: A Comprehensive Guide
This article will provide a comprehensive guide to help you understand the process of setting up a liaison office in Turkey, including all the necessary steps, requirements, and benefits.
Turkey is a vibrant and rapidly growing economy that offers many opportunities for businesses looking to expand their operations. As such, establishing a liaison office in Turkey can be smart for companies looking to tap into the country’s dynamic business environment.
In accordance with Foreign Direct Investment Law No. 4875 dated 05.06.2003 (“Law“) and Implementing Regulation on Foreign Direct Investment Law No. 25202 dated 20.08.2003 (“Regulation“) of the Republic of Turkey, companies established pursuant to the laws of foreign countries (“Foreign Company“) are authorized to open a liaison office in Turkey, provided that they do not engage in commercial activities within the territories of Turkey. Foreign companies must apply and get permission from official institutions to establish a liaison office in Turkey. Institutions to render authorization in Turkey are as follows:
- Ministry of Industry and Technology (“Ministry“) and,
- General Directorate of Incentive Implementation and Foreign Capital (“General Directorate“).
Understanding The Concept of Liaison Office
A liaison office, also known as a representative office, is a type of business presence that allows a company to maintain a presence in a foreign country without conducting commercial activities. The main purpose of a liaison office is to act as a bridge between the parent company and its clients, suppliers, and partners in the host country. It is not permitted to generate income or engage in commercial activities in the host country.
Establishing a Liaison Office in Turkey
Doing business in Turkey can be a lucrative opportunity for companies looking to expand their operations into new markets. Establishing a liaison office in Turkey is a popular choice for businesses seeking to establish a presence in the country without incurring the costs and legal obligations associated with setting up a full-fledged branch or subsidiary. This article will provide a detailed guide on establishing a liaison office in Turkey, from the initial steps to the practical considerations.
The Ministry is the authorized body that permits foreign companies to open liaison offices in Turkey and extends these permissions. The liaison offices to be established cannot engage in any commercial activity to generate any income in Turkey. According to the Regulation, the Ministry can issue a liaison office opening certificate to any Foreign Company, provided that service is provided in at least one of the five areas. These fields are as follows;
- Representation of the parent company and corporate hospitality,
- Control and inspection of suppliers in Turkey in terms of quality, standards, and finding suppliers,
- Technical support,
- Communications, and,
- Regional Management Centers.
The Ministry evaluates the requests of newly established foreign companies to open liaison offices in Turkey within the framework of factors such as the company’s field of activity, capital, and the number of personnel employed. It may be stipulated that a period of at least one year has elapsed since the establishment of the foreign company for the issuance of an operating permit.
The Foreign Company must appoint one or more representatives to conduct the liaison office’s business in the permitted field of activity. This appointment is made by a Power of Attorney (PoA) given to the representative or representatives by the Foreign Company.
It is possible to employ local and foreign personnel in the liaison office apart from the authorized representative(s). In case of employment of foreign personnel, it will be necessary to obtain a work permit and residence permit in Turkey from the relevant Turkish authorities in order to work in the liaison office.
What Are The Requirements For Setting up a Liaison Office in Turkey?
In order to set up a liaison office in Turkey, the following requirements must be met:
- The parent company must be registered and in good standing in its home country.
- The parent company must provide proof of financial stability and a positive business track record.
- The liaison office must appoint a representative to oversee its operations in Turkey.
- The liaison office must have a registered address in Turkey and provide proof of office rental or lease agreement.
- The liaison office must provide a copy of its articles of incorporation and a certificate of good standing from its home country.
- The liaison office must provide a detailed business plan outlining its activities and objectives in Turkey.
What Are The Initial Steps For Setting up a Liaison Office in Turkey?
- Choose a Legal Structure: The first step in establishing a liaison office in Turkey is to decide on the legal structure. You can choose to set up a branch office or a liaison office. Liaison offices are typically preferred as they have fewer legal obligations and are easier to set up.
- Determine The Purpose of The Liaison Office: It is important to determine the liaison office’s purpose before setting it up. The liaison office can conduct market research, represent the parent company, or serve as a communication and coordination center between the parent company and its partners in Turkey.
- Select a Location: Choosing a location for the liaison office is an important consideration. The location should be accessible to your target audience, convenient for your employees, and in a safe and secure area.
What Are The Steps Involved in Setting up a Liaison Office in Turkey?
Setting up a liaison office in Turkey can be complex, and it is important to understand all the steps involved. Here is a general outline of the steps involved:
- Conduct Market Research: Before setting up a liaison office in Turkey, it is important to conduct thorough market research to ensure that the market is suitable for your company’s products or services.
- Choose a Location: Once you have determined that Turkey is the right market for your company, you need to choose a location for your liaison office.
- Register The Parent Company: The next step is registering your parent company in its home country and providing all necessary documentation, including proof of financial stability and a positive business track record.
- Appoint a Representative: You must appoint a representative responsible for overseeing the operations of your liaison office in Turkey.
- Rent an Office: You must rent an office in Turkey and provide proof of rental or lease agreement.
- Apply for Approval: You must apply for approval from the Turkish Ministry of Economy to establish a liaison office in Turkey.
- Obtain Necessary Licenses: Once your application has been approved, you must obtain the necessary licenses to operate a liaison office in Turkey.
- Register With The Trade Registry: The next step is to register your liaison office with the Trade Registry.
- Open a Bank Account: You must open a bank account for your liaison office in Turkey.
- Commence Operations: Once you have completed all the necessary steps, you can commence operations of your liaison office in Turkey.
Practical Considerations For Operating a Liaison Office in Turkey
- Hiring Employees: If you plan to hire employees in Turkey, it is important to consider the local labor laws and regulations. You must also ensure that all employees have the necessary permits and visas.
- Renting Office Space: Renting office space is critical to operating a liaison office in Turkey. You should consider the office space’s location, size, and cost.
- Setting up a Bank Account: You must set up a bank account for the liaison office in Turkey. This is necessary to pay salaries, taxes, and other expenses.
- Establishing Relationships with Local Partners: Establishing relationships with local partners is important in doing business in Turkey. It would be best if you considered partnering with local companies, government agencies, and other organizations to build strong and effective business relationships.
Obtaining The Necessary Permits and Licenses
- Register The Liaison Office With The Trade Registry: In order to establish a liaison office in Turkey, you must first register the office with the Trade Registry. This is a mandatory requirement for all liaison offices operating in Turkey.
- Obtain a Work Permit: All foreign nationals working in Turkey must obtain a work permit. This can be obtained from the Turkish Ministry of Labor and Social Security.
- Obtain a Tax ID Number: The liaison office must obtain a Tax ID from the Turkish Tax Authorities. This number is used for all tax-related matters, including the payment of taxes.
Obtaining a Tax Identification Number For The Liaison Office in Turkey
After the liaison office has been registered with the Turkish Trade Registry, the next step is to obtain a Tax Identification Number (TIN) from the Turkish Revenue Administration. The TIN is a unique identifier used to track the tax obligations of the liaison office in Turkey.
Securing Business Premises For The Liaison Office in Turkey
Once the liaison office has been registered and when a TIN has been obtained, securing business premises is the next step. The business premises must be commercial and comply with all local zoning and building regulations.
Appointing a Local Representative For The Liaison Office in Turkey
The final step in establishing a liaison office in Turkey is to appoint a local representative. A local representative is an individual who is authorized to represent a foreign company in Turkey and to handle any legal or administrative matters on its behalf.
Advantages of Establishing a Liaison Office in Turkey
There are several key benefits to setting up a liaison office in Turkey. Firstly, the country offers a large and growing consumer market, with a population of over 80 million people. Secondly, Turkey has a well-developed infrastructure and a well-educated workforce, making it an attractive destination for businesses. Thirdly, the country has a strategic location, acting as a bridge between Europe and Asia, which can help companies to reach new markets and customers.
The Activities of a Liaison Office in Turkey
The main activities of a liaison office in Turkey include market research, promotion, and representation of the company. This may involve gathering information about the local market, establishing relationships with local businesses and government agencies, and promoting the company’s products and services to potential customers. A liaison office can also provide support and advice to the company’s head office on matters related to the local market, including regulations, taxes, and business practices.
Regulations for Liaison Offices in Turkey
Liaison offices in Turkey are subject to the following regulations:
- The liaison office must be registered with the Trade Register Office,
- The liaison office must have a valid tax number,
The liaison office must have a physical office space in Turkey.
What is The Required Documentation For Establishing a Liaison Office in Turkey?
In order to establish a liaison office in Turkey, the following required documents must be submitted to the General Directorate with a petition;
- Application form (must be signed by a Foreign Company official),
- A declaration containing the scope of the work to be carried out by the liaison office and the commitment that the office will not carry out commercial activities (must be signed by a Foreign Company official),
- Document showing the signing authority of the Foreign Company official who signed the declaration (apostilled and translated),
- Foreign Company’s activity certificate (apostilled and translated),
- Foreign Company’s activity report or balance sheet and income statement,
- Power of Attorney (PoA, apostilled and translated version) to be given to the person(s) appointed to carry out the activities of the liaison office,
- Power of Attorney (PoA, apostilled and translated version) in case another person carries out the establishment procedures of the liaison office.
- A copy of the company’s Articles of Association (AoA),
- A certificate of tax registration.
In addition to the documents mentioned above, it is seen that a letter of intent, including the business and investment plans of the Foreign Company in Turkey, is requested for the liaison offices that will operate as “Regional Management Centers“.
In addition, if the activity document shows the signing authority of the Foreign Company official, there is no need to submit a separate document. This situation differs according to the country where the activity certificate is obtained.
Applications for establishment and extension of time are concluded within fifteen days from the date of application, provided that the requested information and documents are complete.
Transactions of Liaison Offices in Turkey
In their first application for opening a liaison office in Turkey, a maximum of three (3) years of operating permit is given. In order to extend the permit, liaison offices must apply to the General Directorate before the permit expires.
The General Directorate takes into account the office’s activities in the past year, the future business plan and targets of the Foreign Company in Turkey, the current and projected expenditure amount, and the number of personnel employed in the extension requests; however, permission is required to conduct market research or to promote the products or services of the Foreign Company. The operating periods of the offices are not extended.
Liaison offices in Turkey should start to perform tax opening procedures after establishment. Following the submission of the necessary documents to the tax office, the officer from the tax office comes to the liaison office address and makes the necessary inspection. However, the liaison office, which has obtained the establishment permit, must submit a copy of the tax office registration document and the lease agreement to the General Directorate within one month at the latest.
In case of a change in the address, office official(s) must notify the General Directorate within one month at the latest. In addition, liaison offices must notify the Ministry of the past year’s activities of the office by the end of May at the latest every year. If this notification is not made properly, the liaison offices’ time extension requests are not considered. In addition, it may be possible to cancel the activity permits ex officio.
The Ministry is authorized to audit whether the activities of the liaison offices are carried out per the legislation and the field of activity specified in the permits, ex officio, or upon written notifications of the relevant institutions and organizations. As a result of the inspection, the Ministry gives thirty days to the offices operating outside the permit’s scope to enable them to apply for a permit for the actual activity. This period may be extended for another thirty days in the presence of justifiable reasons.
The Ministry will cancel the offices’ operating license that does not apply at the end of the given period. Suppose the Ministry determines that the liaison offices are engaged in commercial activities due to the audit. In that case, it also cancels the activity permits of these offices and notifies the relevant authorities.
In order for the liaison office to carry out the accounting and financial management operations, it is necessary to open a bank account in foreign currency, and the expenses of the liaison office affiliated with the Foreign Company must be brought to Turkey in foreign currency. All transactions and activities of the liaison office must be financed directly by the Foreign Company. Accordingly, the salaries and social security payments of the representative(s) and other personnel must be paid from the amounts transferred by the Foreign Company to the bank account of the liaison office.
Since liaison offices in Turkey cannot generate income, they are not subject to corporate tax and value-added tax. However, the employer is obliged to cover the social security costs of its employees in Turkey.
Closing of Liaison Offices in Turkey
In the event that the liaison office in Turkey terminates its activities, it is required to obtain a “work stop-attendance slip” from the relevant tax office and submit it to the General Directorate for the closing process. Liaison offices are not allowed to request money transfers except for the balance resulting from closing and liquidation.
Conclusion
Establishing a liaison office in Turkey can be a complex and challenging process. However, with the right preparation and a solid understanding of the local business environment, it can also be a highly rewarding experience. Following the steps outlined in this guide, you can ensure that your liaison office in Turkey is set up correctly, compliant with all relevant laws and regulations, and poised for success.
With access to a large and growing market, a strategic location, and a favorable business environment, Turkey is an attractive destination for many companies looking to expand their operations into this thriving market. By carefully planning and preparing for the process, you can ensure that your liaison office in Turkey is set up efficiently and effectively, providing you with a strong foundation for your future operations in Turkey.
Related Article: Establishing a Company in Turkey.
