How to Open a Liaison Office in Turkey

Looking to establish a presence in Turkey without engaging in commercial activities? This guide will show you how to open a liaison office in Turkey. We’ll cover the key steps, legal requirements, and potential challenges. By the end, you’ll know exactly what’s needed for a smooth setup.

Key Takeaways

• To establish a liaison office in Turkey, foreign companies must obtain a permit from the Ministry of Industry and Technology, which is valid for up to three years and requires comprehensive documentation, including financial proofs and operational details.
• After this period, it is possible to re-apply and extend it for up to 5-10 years by being evaluated according to various criteria. The operating periods of offices that receive permission to conduct market research or promote foreign companies’ products or services are not extended.
• Liaison offices can only engage in non-commercial activities such as market research and networking, and are limited to one foreign representative with a work permit.
• These offices enjoy several tax exemptions, including labour income tax, making them a cost-effective means for foreign companies to enter the Turkish market and conduct market intelligence.

Understanding Liaison Offices in Turkey

A liaison office in Turkey serves as a non-commercial representative entity for foreign companies. These offices focus on networking, managing communications, and conducting market research without engaging in income-generating activities. They are an excellent tool for gathering market intelligence and establishing a presence in the Turkish market without the full commitment of incorporating a subsidiary.

Obtaining a permit from the Ministry of Industry and Technology is necessary to establish a liaison office. Foreign parent companies must cover all expenses, ensuring these offices focus solely on representation and coordination without engaging in commercial activities.

A liaison office is restricted to having only one foreign representative with a work permit, emphasizing its non-commercial nature. This representative manages activities and ensures compliance with local laws and regulations. Grasping these foundational elements is critical for any company aiming to establish a liaison office in Turkey.

• Initial Permit Requirements

The procedures and requirements for obtaining permits are outlined in the foreign direct investment law numbered 4875, and its application regulation. To initiate the establishment of a liaison office, obtaining approval from the Ministry of Industry and Technology is mandatory. The General Directorate of Incentive Implementation and Foreign Capital is responsible for issuing permits for these offices. The initial permit is typically valid for a maximum of three years. After preparing all documents, the application process usually takes up to 15 workdays if the submission is complete.

The parent company must have been operational for at least one year to qualify for a liaison office permit. Additionally, a minimum funding of USD 200,000 in the company’s bank account is required for work permit approval.

• Required Documentation for Opening a Liaison Office

Opening a liaison office in Turkey requires comprehensive documentation to ensure compliance with local regulations. The parent company must typically have been operational for at least one year.

Essential documents include:

• Application form
• A declaration describing the scope of the work to be carried out by the liaison office and the commitment that the office will not conduct commercial activities, together with a document confirming the signing authority of the foreign company official who signed the declaration
• A Certificate of Activity of the foreign company, certified by the relevant Turkish Consulate or certified by the abroad notaries and courts (in accordance with the provisions of the Convention on the Abolishing of the Requirement to Legalize Foreign Official Documents prepared within the framework of the Hague Conference on Private International Law).
• An Activity Report or balance sheet and income statement prepared about the foreign company
• Authorization document to be given to the person/persons assigned to carry out the activities of the liaison office (authorization of the director of the liaison office)
• A power of attorney in case the establishment procedures of the liaison office are carried out through another person

Liaison offices that have obtained establishment permits should submit a copy of the tax office registration document and the lease agreement related to the office to the General Directorate within 1 month at the latest.

The General Directorate should be notified of any changes in the address, office officer(s) or title of the foreign company within 1 month at the latest as of the change, together with the lease agreement showing the new address, the authorization document related to the newly appointed person, or the document(s) related to the change in title of the foreign company.

These documents are critical to ensuring that the liaison office adheres to local regulations and can operate legally in Turkey.

It’s important to note that documents issued outside of Turkey need to be apostilled and translated and notarized in Turkey or attested by the Turkish consulate. This step ensures all documents are recognized and accepted by Turkish authorities. Meticulous preparation of these documents helps companies avoid delays and ensures a smooth setup process.

• Compliance with Local Regulations

Liaison offices must register with the local tax office and maintain proper records despite being exempt from corporate tax. They cannot transfer funds abroad except for termination and liquidation purposes. These offices have fewer regulatory requirements and tax obligations compared to full commercial entities.

Liaison offices must submit an annual Data Form detailing their activities to the General Directorate to maintain their permit. Detailed reports about the liaison office’s activities must be submitted every year after registering a liaison office.

Adhering to these compliance requirements ensures smooth and uninterrupted operations for liaison offices and technical support.

• Opening a Bank Account in Turkey

To manage operational expenses, opening a bank account in Turkey is essential for a liaison office. This account will be used to cover daily expenses with funds transferred from the foreign parent company. Required documents for opening a bank account include proof of address and identification of authorized signatories. Identification should include passports of both foreign representatives and local signatories if applicable.

Banks typically request proof of the office address, which can be provided through a rental agreement or utility bill. In some cases, a power of attorney may be necessary to authorize a local representative to manage banking matters if company representatives are not in Turkey.

Salaries for liaison office employees must be paid in foreign currency, further emphasizing the non-commercial nature of these offices. With the correct documentation, companies can efficiently manage their financial operations in Turkey.

• Funding and Financial Management

All operational costs, including salaries, for liaison offices must be funded by the foreign parent company. Since liaison offices do not operate with separate capital, they rely entirely on the financial support of their parent companies. To approve work permits, a minimum funding of USD 200,000 is required in the company’s bank account. Liaison offices are required to submit regular accounting reports to the Ministry of Industry and Technology. These reports must detail their annual activities.

Effective financial management ensures the smooth operation of a liaison office. This includes maintaining accurate financial records and submitting required reports on time. Adhering to these practices ensures compliance with local regulations and sustains operations without legal complications.

• Accounting and Financial Operations, Tax Obligations and Exemptions

While a liaison office in Turkey is not a separate legal entity from its parent company, it must still adhere to specific financial and accounting requirements to ensure compliance with local regulations.

Liaison offices in Turkey enjoy several tax exemptions, making them a financially favorable option for foreign companies. These offices are generally exempt from corporate income tax, meaning they do not incur such taxes on their operations. However, they are responsible for paying VAT on purchases made within Turkey, although they are not required to declare it since they cannot issue invoices. Therefor they are not able to get the VAT on purchases reimbursed.

Salaries for staff hired by liaison offices are exempt from income tax and stamp duty if paid in foreign currency from abroad, providing significant financial advantages for employers. Despite these exemptions, liaison offices must obtain a Taxpayer Identification Number (TIN) from the Turkish Tax Office as there are still some withholding taxes and duties to be paid for them in Turkey.

If a liaison office enters into contracts subject to stamp duty, it must be responsible for paying that tax. Grasping these tax obligations and exemptions is vital for maintaining compliance and optimizing financial operations.

• Hiring Staff for Your Liaison Office

To operate legally, liaison offices must comply with Turkish labor laws, which include specific hiring practices regarding local employees. To employ staff, a liaison office must register with the social security institution and pay premiums. Social security contributions for local employees are mandatory, while foreign employees may be exempt under certain conditions. Hiring staff for a liaison office in Turkey is not subject to any restrictions. This flexibility allows for a broad range of hiring options.

When hiring foreign staff, liaison offices need to consider immigration formalities and residence permits. A liaison office can employ both local and foreign personnel. There are no restrictions on the nationalities of its employees, but it is restricted to have only one foreign employee with a working permit.

Salaries for liaison office employees are exempt from income tax if paid in foreign currency from abroad, making it a financially attractive option for employers. Adhering to these hiring practices ensures the smooth operation of a liaison office.

• Extension of activity period

It is possible to re-apply and extend the activity period for up to 5-10 years by being evaluated according to various criteria. The operating periods of offices that receive permission to conduct market research or promote foreign companies’ products or services are not extended.

Advantages of Establishing a Liaison Office in Turkey

Establishing a liaison office in Turkey provides foreign companies with numerous strategic advantages. Firstly, it enables companies to establish a presence in a rapidly growing market and explore potential for future expansion. The primary roles of a liaison office include conducting market research, networking, and gathering valuable market intelligence to inform business decisions. This can help companies make more informed and strategic decisions about entering the Turkish market.

Another significant advantage is the lower operational costs associated with liaison offices compared to full commercial entities. Since liaison offices focus on non-commercial activities, they benefit from simplified regulatory requirements and tax exemptions, making it a cost-effective way to assess the Turkish market. This allows companies to gather essential market insights without the financial burden of a full-scale operation.

Additionally, liaison offices provide access to Special Investment Zones, which offer numerous benefits for foreign investment. These zones can provide incentives such as tax exemptions and reduced administrative burdens. Leveraging these advantages allows foreign investors and foreign companies to effectively establish a foothold in Turkey and pave the way for future business opportunities.

Working with competent Consultants

Working with competent Consultants (or company formation agents) can significantly streamline the process of establishing a liaison office in Turkey. We provide essential guidance on local requirements and can help foreign entrepreneurs navigate the complex regulatory landscape. We assist in obtaining necessary permits and licenses needed for various business activities, ensuring that the company complies with local laws.

We can also help secure a registered office and represent clients in Turkey, allowing them to complete the incorporation process without needing to travel. This can save time and resources for foreign companies, enabling them to focus on their core business activities.

Partnering with experienced competent consultants ensures a smooth and efficient process of establishing a liaison office in Turkey for foreign entrepreneurs.

Summary

In summary, establishing a liaison office in Turkey offers foreign companies a strategic and cost-effective way to explore the Turkish market. The process involves preparing comprehensive documentation to obtain a permit from the Ministry of Industry and Technology. Liaison offices are funded entirely by their parent companies and enjoy several tax exemptions and simplified regulatory requirements.

By complying with local regulations and leveraging the advantages of liaison offices, foreign companies can gather valuable market insights and establish a presence in Turkey. Working with competent consultants can further streamline the process, ensuring a successful setup. Embracing these steps will enable companies to tap into the potential of the Turkish market and pave the way for future growth and expansion.

Frequently Asked Questions

What is the primary function of a liaison office in Turkey?

The primary function of a liaison office in Turkey is to act as a non-commercial representative for foreign companies, engaging in market research, brand representation, coordination center and communication management. This role facilitates effective operations and interactions in the Turkish market.

What are the tax obligations for a liaison office in Turkey?

Liaison offices in Turkey are generally exempt from corporate income tax and from labor income tax but must pay VAT on purchases and obtain a Taxpayer Identification Number (TIN) from the Turkish Tax Office. It is essential to comply with these obligations to operate legally.

What documents are required to open a bank account for a liaison office in Turkey?

To open a bank account for a liaison office in Turkey, you will need the letter of permit from the Ministry, proof of the address, identification of authorized signatories, and potentially a power of attorney if company representatives are not physically present in the country.

Additional Resources

For more detailed information on establishing a liaison office in Turkey, consider reaching out to professional competent consultants. These experts can provide comprehensive guidance on the requirements and procedures, ensuring a smooth and efficient setup process.

How long does it take to process an application for a liaison office permit?

The processing time for a liaison office permit application is up to 15 workdays, provided that all required documents are submitted.

Can a liaison office hire foreign staff?

A liaison office can hire foreign staff, but it is restricted to have only one foreign employee with a working permit. It must adhere to Turkish labor laws and address immigration requirements, including obtaining residence permits for these employees.