How to Open a Branch Office in Turkey

Wondering how to open a branch office in Turkey? This guide walks you through the essential steps: from getting the required authorizations and submitting documents via MERSİS, to complying with local regulations. Learn how to streamline the process and avoid common pitfalls.

Key Takeaways

• A branch Office in Turkey is a direct extension of a foreign parent company and not a separate legal entity. The parent company is fully responsible for the branch’s debts and obligations. It can conduct commercial activities but must operate under the parent company’s name and responsibility. The profits and losses of the branch are directly linked to the parent company, which also covers all costs associated with the branch’s formation and operations in Turkey. This arrangement lets the parent company control the branch’s activities and maintain consistency across various locations.
• According to Article 40 of the Turkish Commercial Code (TTK), “Branches of commercial enterprises headquartered outside of Turkey shall be registered in the same manner as domestic commercial enterprises, provided that the provisions of the laws of their own countries regarding trade names are reserved.”
• Foreign companies need a fully authorized representative to open a branch in Turkey and carry out their activities effectively. The residence of this representative must be in Turkey.
• Establishing a branch office requires specific legal compliance and documentation, including notarized and translated documents from the foreign country, securing authorization from the Ministry of Industry and Technology, and adhering to local tax obligations.
• Moreover, a Turkish branch can only conduct activities specified in the parent company’s plans, limiting its scope of operations to what has been predefined. Aligning with the parent company’s strategy and objectives ensures the branch office operates within defined parameters, maintaining coherence with the parent company’s overall business goals.

Registration Process

The registration process for a branch office in Turkey involves several critical steps. Here’s a breakdown of the process:

From the Parent Company:

• Identification details for the parent company
• Identification details for the appointed authorized representative of the Turkish branch
• Power of attorney that empowers the appointed representative to take any legal action in Turkey on behalf of the branch.
• A resolution from the parent company’s shareholders or directors.
• Parent company’s registration certificate from its home country.

From the Branch Office in Turkey:

• Branch Establishment Form
• Branch Manager’s passport copy (Then, in order for the authorized person to sign on behalf of the company, you need to issue a notary approved signature declaration and signature circular in your name.)
• After trade registration a potential tax identity number must be taken for the branch either through MERSİS or the online tax office. This potential tax identity number is also needed for opening a bank account to deposit the capital of the branch.

By following these steps, you can successfully navigate the registration process for a branch office in Turkey. The process is facilitated through the MERSİS electronic system, which streamlines the submission and registration.

Electronic Application Submission

The first step in establishing a branch office is submitting an electronic application via the Central Registry System (MERSİS). This online platform simplifies the registration process, allowing you to enter the necessary company details and upload scanned versions of the required documents. Using this system ensures that foreign companies have their applications processed efficiently and accurately.

Providing all necessary information and supporting documents in the electronic application is essential. This includes the parent company’s registration details and a formal resolution authorizing the establishment of the branch. Completing this step thoroughly will set a solid foundation for the subsequent phases of the registration process.

Required Documents, Notarizing and Translating Documents

Once the electronic application, all the documents must be notarized, translated into Turkish, and apostilled (or legalized at a Turkish Consulate) submitted to the Trade Registry Office. They include: an application form, notarized and legalized copies of the power of attorney for the branch representative, and other letters and declaration forms. Notarizing corporate books is a critical compliance requirement, ensuring that the branch office operates within the legal framework of Turkey. This process involves getting the documents authenticated by a notary public, which verifies their legitimacy.

Additionally, the documents intended for use in Turkey often require notarization and translation. It’s important to register the branch in the commercial register and follow specific naming conventions, which include the main company’s title. The branch operates under the authority of the parent company and does not possess a separate legal identity, meaning all rights, liabilities, and obligations of the branch are directly linked to the parent companies. Having all necessary documents in order streamlines the registration process and helps avoid delays or complications

Before starting accounting transactions for the branch office, a Power of Attorney must be issued for an independent accountant. This ensures that financial operations are conducted in accordance with Turkish law. Proper notarization and translation, especially of foreign language documents, are vital to meet legal standards and facilitate smooth branch office operations.

Opening a Local Bank Account

Opening a local bank account is a vital step for any branch office in Turkey. This account will be used to manage the branch’s financial transactions and must be opened in the name of the branch itself. The process requires specific documentation and capital contributions, which must be deposited into the designated bank account.

The bank account serves as a financial hub for the branch office, where capital contributions from the parent company will be deposited. Setting up the bank account correctly is vital for the branch’s financial operations and compliance with local regulations.

Tax Obligations for Branch Offices

One of the most important aspects related to setting up a branch in Turkey is taxation. Branch offices in Turkey are subject to local tax liabilities on their earnings, including corporate tax, VAT, provisional tax, income tax, and withholding tax. Branches in Turkey must comply with these tax obligations to avoid penalties and ensure smooth operations.

Proper tax planning and compliance services can help foreign businesses navigate the complex tax landscape in Turkey.

Corporate Tax

The corporate tax rate for branch offices in Turkey is set at 25% for the year 2025. This rate applies to the profits earned by the branch office, ensuring that they are taxed at the same rate as subsidiaries in Turkey. However, profits earned from goods not sold in Turkey can be exempt from corporate tax.

Understanding corporate tax obligations is essential for effective financial planning and compliance. Foreign companies in foreign countries must ensure that their branch offices adhere to these tax regulations to avoid any legal complications.

Value Added Tax (VAT)

Branch offices in Turkey must comply with VAT regulations and are subject to value added tax on their taxable transactions. However, there are exemptions available under specific conditions, such as providing services to foreign customers and issuing invoices for foreign customers.

These exemptions reduce the tax burden on branch offices and improve financial efficiency.

Income Tax

Income tax and withholding tax apply when transferring profits from a branch office to the parent company. The income tax rate for these earnings shall be 10% normally but can vary depending on the countries. These rates are determined by the double tax treatment agreements (DBA) between countries, ensuring that tax obligations are met without double taxation.

Employee Regulations and Taxation

Employee regulations in Turkey are governed by the Labor Law, which provides specific rules regarding employment termination, notice periods, and just causes for termination. Employers must provide a healthy and safe workplace in compliance with the Work Health and Safety Law. This includes providing annual paid vacation ranging from 14 to 26 days, depending on the duration of employment.

Employers are required to pay salaries promptly and in full. Failure to do so invalidates the employment contract. Additionally, severance pay is mandatory for employees who have been continuously employed for at least one year unless termination is for just cause. Non-competition agreements can also be established, remaining in effect even after employment ends.

Tax obligations for employees include income tax, which must be deducted and remitted to the tax office regularly. Additionally monthly social security contributions must be paid by the branch office. Following these regulations ensures smooth and lawful branch office operations.

Financial Transfers and Capital Requirements

In Turkey, there is no explicit minimum capital requirement for branch offices; however, they must maintain some form of separate capital. The parent company can support the branch’s capital through a formal resolution. We recommend to contribute at least the capital required for limited companies in Turkey. Cash contributions for the capital must be deposited into a special bank account in the branch’s name.

Capital that is transferred to the branch office does not qualify as profit. As a result, it is not liable for taxation. This allows the parent company to provide financial support without incurring additional tax liabilities. Any amounts exceeding the resolved capital must be noted in a capital advance account.

Comparison: Branch Office vs. Subsidiary

Establishing a branch office in Turkey is considered foreign direct investment under the Foreign Direct Investment Law. A subsidiary, on the other hand, operates as a distinct legal entity from its parent company, allowing it to engage in contracts and own assets independently. While branches are seen as extensions of the parent company, potentially exposing the parent to legal and financial risks, subsidiaries offer a layer of protection by being separate legal entities. Many investors prefer establishing a limited liability company (LLC) in Turkey due to its simpler incorporation process, lower capital requirements, and operational flexibility. Foreign investment through a branch office can present unique challenges and opportunities.

The process to establish a subsidiary is generally more structured and involves higher compliance and reporting requirements compared to setting up a branch office. However, subsidiaries can access various local tax incentives in Turkey, particularly when situated in free or technology development zones. Foreign investors can maintain complete ownership of a subsidiary, unlike branches, which may have more restrictions.

Branches are preferred often for Turn-Key construction projects, where the whole project should be taken under the responsibility of the company abroad. For such projects the Main Contractor abroad needs a branch office to handle the local supplies and services in Turkey. Opening a branch office, the contractor can handle the VAT and other tax obligations as well as social security and work safety obligations through this office comprehensively.

The financial reports of the branch office are officially integrated, consolidated parts of the main company abroad. Whereas by founding a separate subsidiary, the results can be consolidated within the international group results but it is not obligatory.

Choosing the right structure is essential for making informed decisions regarding investments in Turkey. Each option has its advantages and drawbacks, and the choice depends on the specific needs and goals of the foreign company.

Setting Up a Liaison Office as an Alternative

Liaison offices in Turkey are designated as representative entities and are restricted from any commercial functions. Their primary purpose is to conduct market research and promote the parent company’s products. This makes them an ideal option for companies not wishing to earn a profit in Turkey.

To establish a liaison office, approval from the Ministry of Trade is necessary, with an initial validity of three years. The operating costs of a liaison office must be fully borne by the parent company abroad. Engaging in commercial activities and generating revenue is prohibited for a liaison office, ensuring its role remains strictly representative.

Practical Tips for Foreign Investors

Understanding local customs and etiquette is essential for foreign investors looking to establish a presence in Turkey. Building trustworthy relationships is crucial, as Turkish business culture values long-term connections and personal trust over quick negotiations. Demonstrating respect for cultural values can significantly enhance business negotiations and relationships in Turkey.

Avoiding discussions about sensitive historical topics and being aware of physical gestures that may be considered offensive can prevent misunderstandings and foster better communication. These practical tips will help foreign investors navigate the Turkish business environment more effectively.

Summary

Establishing a branch office in Turkey involves a series of meticulous steps, from obtaining the necessary documents and securing ministry permissions to complying with tax obligations and employee regulations. Each step is crucial for ensuring that the branch office operates smoothly and within the legal framework of Turkey. By understanding the characteristics of a Turkish branch office and the specific requirements for its formation, foreign companies can make informed decisions and avoid common pitfalls.

In summary, setting up a branch office in Turkey can offer significant opportunities for business expansion. However, it requires careful planning and adherence to local regulations. Engaging legal assistance and professional services can greatly facilitate the process, ensuring compliance and efficiency. With the right approach and resources, foreign companies can successfully establish and operate branch offices in Turkey, tapping into the country’s dynamic market and strategic location.

Frequently Asked Questions

What is the first step in establishing a branch office in Turkey?

The first step in establishing a branch office in Turkey is to authorize competent consultants or lawyers for the formation process, then submit an electronic application via the Central Registry System (MERSİS).

Are there any specific naming conventions for branch offices in Turkey?

Branches in Turkey must include the main company’s title in their names and must register in the commercial register, adhering to specific naming conventions.

What are the tax obligations for branch offices in Turkey?

Branch offices in Turkey must comply with various local tax obligations, including corporate tax, VAT, provisional tax, income tax, and withholding tax. It is essential to understand these responsibilities to ensure compliance with Turkish tax regulations.

Can a branch office in Turkey engage in activities not authorized by the parent company?

A branch office in Turkey cannot engage in activities not authorized by the parent company; it is limited to the activities specified in the parent company’s plans. This ensures compliance with regulations and alignment with the parent company’s objectives.

Is there a minimum capital requirement for branch offices in Turkey?

There is no explicit minimum capital requirement for branch offices in Turkey, but they are required to maintain some form of separate capital.