How to Open a Subsidiary in Turkey

To learn how to open a subsidiary in Turkey, you must understand the specific legal steps and documentation required. Turkey is an attractive destination for foreign investment, offering numerous benefits for establishing a subsidiary. This guide will walk you through the types of subsidiaries available, the document preparation process, and the essential steps for registration. We’ll also cover the key legal requirements and potential benefits of establishing a subsidiary in Turkey.

Key Takeaways

• There are various types of subsidiaries in Turkey, including Joint Stock Companies and Limited Liability Companies, each offering distinct advantages and compliance requirements for foreign investors.
• Establishing a subsidiary in Turkey involves specific steps such as document preparation, registration, and adherence to legal requirements, typically taking around two months to complete.
• Financial planning is crucial, as subsidiaries must budget for initial setup costs, ongoing operational expenses, and comply with corporate tax and VAT regulations, labor and social security laws while also considering available incentives.

Understanding Subsidiary Types in Turkey

Recognizing the different types of subsidiaries in Turkey helps in making informed business decisions. The Turkish Commercial Code recognizes different company types, including joint stock companies and limited liability companies. These distinctions assist in selecting the appropriate business structure and ensuring compliance with local regulations.

• Joint Stock Companies

Joint stock companies (JSC) in Turkey offer several advantages for foreign investors. They can have up to 50 founding members with no nationality restrictions, making them an attractive option for foreign companies seeking full ownership rights. These companies can issue both registered and bearer shares, and their shares can be publicly traded, providing additional flexibility. In JSC’s the shareholders can but do not have to be active parts of the management or daily business. International investors prefer to invest in JSC’s as their structures fits better for capital investments.

• Limited Liability Companies

Limited liability companies (LLCs) are the most common business form among entrepreneurs in Turkey. They require at least one shareholder and can have up to 50 shareholders, providing flexibility in ownership structure. LLCs can be either public or private legal entities, allowing businesses to choose the model that best suits their needs. Its simplicity and lower minimum capital requirements make this structure particularly appealing compared to joint stock companies.

One of the shareholders must be also a member of the managing board. In this way LLC is quite perfect for organizations in which the shareholder(s) are actively part of the management and the daily business. LLCs offer limited liability protection for shareholders and are suitable for small and medium-sized businesses. However, shareholders and managing directors are partly or fully liable for debts towards the Turkish government intuitions.

Comparison with Branch Offices and Liaison Offices

Unlike subsidiaries, branch offices and liaison offices in Turkey are not independent legal identities. Subsidiaries are taxed on their global income, while branches are only taxed on the income generated within Turkey. A branch office directly relies on the parent company for its obligations and is not considered a separate legal entity.

On the other hand, liaison offices are restricted from engaging in any commercial activities and serve purely as representative offices for foreign companies. Recognizing these differences helps in choosing the right business structure for expansion.

Steps to Establish a Subsidiary in Turkey

Setting up a subsidiary in Turkey involves crucial steps like document preparation, registration, and post-incorporation activities. Each step requires meticulous attention to detail and compliance with Turkish Commercial Code and Turkish Company Law. It is also necessary to interact with the local tax office for obtaining a tax registration certificate and ensuring compliance with local regulations. Typically, the entire process takes around two months.

Following these steps diligently ensures a smooth and successful subsidiary establishment.

• Document Preparation

Preparing the necessary documents is the first step in setting up a subsidiary in Turkey. A parent company establishing a subsidiary in Turkey can benefit strategically from the favorable legal framework and operational advantages, such as optimized tax obligations and streamlined compliance processes. Key documents include the Articles of Association, notarized signatures, and tax identification numbers. Foreign companies can partially open a subsidiary remotely through a power of attorney, making the process more convenient.

Having all documents in order and compliant with Turkish requirements ensures a smooth registration process.

• Registration Process

The registration process for a subsidiary in Turkey typically takes around 10 days. The Trade Registry Directorate plays a crucial role in managing the incorporation of subsidiaries and handling necessary formalities, which can be completed within a day. All transactions must be completed at the Trade Registry Directorates, and the central registry system, MERSIS, facilitates this process. Companies must also register for VAT if they are selling taxable goods or services.

After document validation, companies receive a certificate of incorporation, officially recognizing their subsidiary.

Post-Incorporation Steps

Once the subsidiary is incorporated, compliance with Turkish labor laws becomes essential. Employers must provide annual paid vacation ranging from 14 to 26 days, depending on the length of employment. Additionally, employees have the right to severance pay after one year of continuous employment under certain conditions.

Compliance with these regulations ensures smooth operations and avoids legal issues.

• Legal Requirements and Compliance

Subsidiaries in Turkey must adhere to the Turkish Commercial Code and relevant tax regulations. Foreign investors looking to establish a subsidiary company in Turkey should understand the legal and operational framework, which includes benefits, tax implications, and detailed processes. This includes fulfilling specific financial obligations, such as corporate tax and VAT payments. Navigating these legal requirements can be challenging for foreign companies unfamiliar with Turkish law. Thorough preparation and local expertise are essential for ensuring compliance and successful business operations.

• Turkish Company Law

Under Turkish Company Law, a subsidiary is liable for its own debts. Key documents needed for establishment include the Articles of Association, notarized signatures, and tax identification numbers of the shareholders and management members. Shareholders’ and management members’ identity declarations must also be notarized.

As of 2024, the corporate tax rate for companies operating in Turkey is set at 25%. Compliance with these requirements ensures legal and financial stability.

• Corporate Governance and Reporting

Subsidiaries in Turkey must prepare and submit annual financial statements to the Trade Registry Office. They also pay provisional tax quarterly based on estimated profits. These statements must comply with the Turkish Financial Reporting Standards. Additionally, under certain conditions subsidiaries must appoint an auditor to ensure adherence to local regulations and financial accuracy.

Obtaining a tax identification number and social security number is also required for operational or labor law compliance.

• Financial Considerations and Taxation

Financial planning is a critical aspect of establishing a subsidiary in Turkey. This involves budgeting for initial setup expenses, ongoing operational costs, and potential tariffs and local taxes. Proper financial management ensures that the subsidiary remains financially viable and compliant with local tax regulations.

Setting aside a contingency fund can help address unexpected expenses and ensure smooth operations.

• Minimum Share Capital

The minimum share capital required to establish a joint stock company in Turkey is 250,000 TL, while for a limited liability company, it is 50,000 TL. Meeting these capital requirements is essential for legal compliance and financial stability.

This initial investment provides a foundation for the subsidiary’s operations and potential growth. However, the investment capital should be calculated and planned based on the first years’ cost and profit expectations. The company capital should ensure a proper financing for the first years so that the company can grow and develop in a healthy financial structure.

• Corporate Tax and VAT

Subsidiaries in Turkey are subject to corporate income tax, VAT, and other applicable taxes. The corporate tax rate is set at 25%, and subsidiaries are taxed on their global income. VAT is also a significant component of the tax obligations, applied to goods and services.

Knowing these tax requirements is essential for financial planning and compliance.

• Tax Incentives and Investment Benefits

The Turkish government offers various tax incentives to encourage foreign investments, research and developments and exports. These incentives include reduced corporate tax rates and exemptions, making it financially appealing for foreign investors to establish subsidiaries in Turkey.

Leveraging these incentives can boost the subsidiary companies’ profitability and competitiveness.

Operational Benefits of a Turkish Subsidiary

Establishing a subsidiary in Turkey offers significant operational benefits. Compared to a branch in Turkey, a subsidiary provides greater legal independence and operational control, while a branch remains dependent on the parent company and must adhere to specific registration steps under the Turkish Commercial Code. It simplifies access to the local market, allowing foreign companies to navigate trade regulations effectively. Subsidiaries also benefit from investment incentives, such as VAT exemptions and customs duty relief.

Additionally, foreign companies enjoy similar rights as local firms under Turkish company law, enhancing local control and decision-making.

• Market Access and Expansion

Subsidiaries provide foreign companies with a direct foothold in Turkey’s growing domestic market. This access is further enhanced by Turkey’s customs union with the EU, which opens additional trade opportunities. Establishing a subsidiary can facilitate entry into the Turkish market and provide a foundation for further regional expansion.

• Local Presence and Control

Having a subsidiary allows foreign investors to exert complete control over operations and management. This enables quicker decision-making tailored to local market needs. Direct oversight of local operations supports better alignment with market demands and enhances responsiveness to changes.

Potential Challenges

Foreign companies often face cultural and language barriers when integrating into the Turkish market. Grasping local market dynamics is vital, as misinterpretations can lead to business failures. Compliance with Turkish Commercial Code and other legal requirements can be complex, necessitating thorough preparation and local expertise for a foreign company.

Comprehensive market research and engagement with local experts can mitigate these challenges.

• Banking and Financial Management

Setting up a local bank account is essential for managing the financial operations of a subsidiary in Turkey. This involves presenting registration documents, such as the Articles of Association and a tax identification number, to the bank. Adhering to specific banking regulations, including opening a corporate account, ensures smooth financial transactions and compliance with local laws.

The Banking Regulatory and Supervisory Authority oversees both banks and non-bank financial entities, ensuring a stable financial environment for business operations.

• Opening a Local Bank Account

To open a corporate bank account in Turkey, subsidiaries must present legal documents such as their incorporation certificate and tax identification number. This process typically requires submitting the subsidiary’s registration documents to the bank.

A local bank account is essential for managing finances and conducting business operations effectively in Turkey.

• Financial Reporting and Audits

Subsidiaries in Turkey must file annual financial statements and submit their financial reports periodically to the Central Bank. Larger subsidiaries may face mandatory audits based on specific criteria such as their size, revenue, and workforce.

Compliance with financial reporting and audit requirements maintains transparency and legal adherence.

• Hiring and Workforce Management

Understanding and complying with local labor laws is crucial for effective workforce management in Turkey. The standard working week is set at 45 hours, with a limit of 11 hours per working day. Employers must also adhere to equality and non-discrimination laws, ensuring fair treatment across various demographics.

Managing these aspects properly ensures a harmonious and productive work environment.

• Work Permits and Residence Permits

In Turkey, work permits and residence permits for foreign employees follow distinct processes. The application for a work visa involves submitting a signed employment contract and various personal documents to the Turkish authorities. Obtaining the appropriate permits is crucial for the legal employment of foreign staff within Turkey.

Knowing these processes ensures compliance and smooth onboarding of international employees.

• Labor Laws and Employee Rights

Employees in Turkey are entitled to various rights under local labor laws, including reasonable working hours, fair wages, and time off for national holidays. Employers must also provide annual paid vacation and adhere to non-discrimination laws.

Non-compliance with labor laws can lead to significant legal repercussions, emphasizing the importance of adhering to local regulations.

Strategic Tips for Successful Setup

For a successful setup of a subsidiary in Turkey, engaging with local consultants and experts is crucial. These professionals can help navigate bureaucratic challenges, regulatory requirements, and cultural nuances. Thorough market research is essential for understanding consumer preferences and competitive dynamics, leading to informed decision-making.

Additionally, effective budgeting and cost management ensure financial stability and readiness to address unforeseen expenses.

• Partnering with Local Experts

Collaborating with local professionals is vital for navigating legal, financial, and administrative complexities in Turkey. Local consultants can provide valuable insights into the regulatory landscape and cultural nuances, enhancing the chances of a successful subsidiary establishment.

Local expertise ensures compliance and smooth operations in the Turkish market.

• Conducting Market Research

Thorough market research is crucial for understanding consumer preferences and competitive dynamics before launching a subsidiary. Effective data collection techniques, such as surveys and focus groups, help gather insights into the market. Analyzing market data enables companies to identify potential risks and opportunities, leading to strategic advantages for subsidiary operations.

• Budgeting and Cost Management

Budgeting and cost management are essential for setting up a subsidiary in Turkey. Allocating funds for initial setup expenses, ongoing operational costs, and unforeseen expenses ensures financial stability.

Coordinating payments with the accounting staff helps manage finances efficiently and avoid potential financial pitfalls.

Summary

Establishing a subsidiary in Turkey offers numerous benefits, including market access, investment incentives, and local control. By understanding the different subsidiary types, following the necessary steps, and adhering to legal requirements, foreign investors can successfully expand their business into Turkey. Partnering with local experts, conducting thorough market research, and effective budgeting are crucial for a smooth setup. With the right approach and preparation, your business can thrive in the vibrant Turkish market.

Frequently Asked Questions

What types of subsidiaries can be established in Turkey?

You can establish joint stock companies and limited liability companies in Turkey, each providing unique advantages and requirements for business operations.

How long does it take to establish a subsidiary in Turkey?

Establishing a subsidiary in Turkey generally takes approximately two months, encompassing document preparation, registration, and subsequent incorporation steps.

What are the minimum share capital requirements for subsidiaries in Turkey?

The minimum share capital requirements for subsidiaries in Turkey are 250,000 TL for joint stock companies and 50,000 TL for limited liability companies. It’s essential to ensure compliance with these requirements when establishing a subsidiary.

What tax obligations do subsidiaries in Turkey face?

Subsidiaries in Turkey are obligated to pay corporate income tax, generally at a rate of 25%, along with VAT and other applicable taxes. It is essential to comply with these tax regulations to ensure legal and financial stability.

Why is partnering with local experts important for setting up a subsidiary in Turkey?

Partnering with local experts is crucial for navigating the legal, financial, and cultural complexities of establishing a subsidiary in Turkey, which ensures a smoother and more successful setup. Their knowledge contributes significantly to overcoming potential challenges.