The Turkish government offers several options for foreigners to choose the right entity type for their business. However, this benefit can confuse them when choosing between an LLC, JSC, liaison office, or representative office.
If a foreign company selects the wrong entity type, this can lead to a waste of time and money. Even worse, the liquidation of some entities is a more difficult and lengthy process.
So, a strategic step for doing business in Türkiye is to understand the characteristics of a liaison office before registering one. Read on to explore all 12 key characteristics of a liaison office.
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The Turkish government offers several options for foreigners to choose the right entity type for their business. However, this benefit can confuse them when choosing between an LLC, JSC, liaison office, or representative office.
If a foreign company selects the wrong entity type, this can lead to a waste of time and money. Even worse, the liquidation of some entities is a more difficult and lengthy process.
So, a strategic step for doing business in Türkiye is to understand the characteristics of a liaison office before registering one. Read on to explore all 12 key characteristics of a liaison office.
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Co-author
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Alp Atasoy
Sales and Business Development Consultant
The liaison office in Türkiye can’t legally perform any commercial activity.
For a commercial intent, it’s strange to listen to for the first time, but if you look at the core purpose of LO, then you’ll know this fact. The liaison office ONLY supports representative activities and market research.
You can register this entity for non-profit tasks. These could be networking with partners, promotion of the parent company, and information gathering.
➤ Foreign companies go to the liaison office mainly for market research.
After registering the liaison office, the company can’t generate any type of revenue using the LIAISON office. That company can still generate revenue by using the name and resources of the parent company.
In simple words, you can sell products or services and scale revenue but with other entity types rather than liaison offices. Therefore the LO cannot sign sales agreements in Türkiye.
➤ Foreign companies generate revenue by registering LLC or JSC or opening branch offices. Liaison office for brand strategy.
The liaison office is not to be registered at the Trade Registry because it is not seen as a trade or commercial entity. Instead you have to apply at the Ministry of Industry and Technology using the documents of your parent company.
These documents could be your parent company registration certificate, board resolution approving liaison office, power of attorney for local representative, fiscal reports and office address in Türkiye. After getting the approval from the ministry, the tax registration and social security registration need to be done.
➤ FMC Group can help you register a liaison office, LLC, or JSC in Türkiye and also guide you with a free 30-minute consultation call.
You might be thinking why go for LLC or JSC while liaison office registrations are simple, fast, with less capital required.
You are right only if you want to do very few activities:
But other than these tasks, even invoice generation is not possible. Activities outside of the permit limits can lead you to fines, penalties, or closure of the LO.
➤ Foreign companies choose LLC or JSC for full business operations in Türkiye and LO for initial steps before expanding the business.
It isn’t surprising that you can’t issue invoices if you have understood the nature of the liaison office. That is, LO can’t perform any revenue-related activity.
Companies can’t get revenue from local clients or generate invoices through local clients. They can’t receive payments locally, and the office is fully funded by the parent company.
The sales can be done through distributors in Türkiye for example and your staff working at the LO can coordinate the communication with the distributors.
As it is clear that the liaison office cannot generate revenue. So, the parent company funds it through foreign accounts. Funding is required for salaries, office rent & utilities, administrative costs, and marketing / promotion expenses.
Here is the point to be careful of: authorities expect proof of parent company funding. They can also review financial transfers for compliance and ensure non-commercial status is maintained. The LOs have to present yearly their incoming and outgoing payments’ report to the ministry, who is reviewing them carefully.
➤ Foreign companies keep records of all funding and payment transfers while operating as a parent company using a liaison office.
LLC and JSC entities do not require renewal because they are registered for long-term business goals. But the liaison office, on the other hand, needs renewal of permits.
Liaison offices usually get the permit to operate for three years. After this period, the permit can be renewed upon request. Operating the business in Türkiye without renewal of the LO is illegal and can result in fines, future restrictions, or penalties.
➤ Foreign companies plan operational timelines by registering the liaison office.
As we have discussed, the liaison office’s activities are limited mainly to market research. But sourcing projects, technical support or coordination purposes can also be permitted.
What does it mean?
It clarifies that companies understand the Türkiye market conditions for their business. For example, there is inflation in Türkiye, but it has decreased significantly compared to 2020.
Türkiye is a great hub for many production factories. So, when a company registers an LO, it performs the following tasks under market research:
➤ Foreign companies’ need for a liaison office ends here because FMC Group offers market research, market visits, supplier search, opportunity screening, distribution search, location search, and lead generation.
Worth mentioning here is that employees of the liaison office can’t sign any revenue-generating contracts. The parent company will be used for such purposes. Even employees cannot negotiate or finalize contracts.
Turkish authorities monitor for compliance with non-commercial rules. Compliance is necessary to retain liaison office permits for non-commercial activities.
➤ Foreign companies don’t jump into sales or contracts until they have researched the market using an LO.
Companies sometimes try to get an unfair advantage from the liaison office by doing commercial activities. So, the government is very strict in monitoring LO and reporting.
The liaison office must submit regular reports to Turkish authorities. Reporting requirements include:
➤ With FMC Group foreign companies submit these reports as per deadlines and keep records safe for renewal of temporary operating permits.
When you register at the liaison office in Türkiye, you can hire employees. But note that these employees are hired to perform non-commercial activities and cannot do other duties that generate sales.
A big advantage of the LO is that the employees’ wages are exempt from labour income tax!
Sometimes, people misguide companies to register an LO and hire employees for sales activities or technical services. This is strictly forbidden. As soon as it is recognized the LO gets closed.
➤ FMC Group offers employer of record services for foreigners. We hire employees on your behalf, and you don’t need to register any legal entity in Türkiye.
You may need to close the liaison office if certain conditions are met. Conditions triggering closure:
Legal enforcement after such conditions are found:
➤ Foreign companies must strictly comply with regulations. They keep liaison offices low-risk, and for representation & research only.
Here you have it:
12 characteristics of the liaison office in Türkiye for foreigners.
If you like this post, you would love to read:
12 Characteristics of a Limited Liability Company (LLC) in Türkiye
OR
30 Characteristics of a Joint Stock Company (JSC) in Türkiye
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