Establishing A Representative Office In Turkiye

By Selin Aksoy, Kulat & Co, Istanbul  

Turkiye offers great opportunities for investors with its strategic location, proximity to major markets, young and dynamic population, large workforce potential, and government incentives. Being an active and important member of the G-20 and the OECD, Turkiye plays an important strategic and political role in the region as a member of NATO and the Council of Europe at the same time. In addition, Turkiye, which is a party to many international agreements in order to protect and develop bilateral relations, facilitates the movement of expatriates between countries with double taxation avoidance and social security agreements. Turkiye has signed reciprocal double taxation agreements with approximately 170 countries.

This success has been achieved thanks to reforms in the fields of starting a business, obtaining construction permits, obtaining loans, foreign trade, execution of contracts, land registry, company liquidation, electricity supply, protection of small investors and tax payment. In addition, for the first time this year, Turkiye was among the 10 countries that showed the most improvement by making the most reforms. To this end, establishing a company is now only carried out at Trade Registry Directorates located in Chambers of Commerce and designed to be a ‘one-stop shop’. The process is completed within the same day.

Company Types under Turkish Commercial Code

Turkish law allows international investors to have the same rights and obligations as local investors. Business establishment and share transfer requirements are the same as those applied to local investors. International investors, that provide a corporate governance approach that meets international standards, encourages private equity and public offering activities, creates transparency in the management of operations, and aligns the business environment in Turkey with EU legislation and the EU accession process, can set up the company.

General provisions regarding commercial companies and company types are regulated in the Turkish Commercial Code No. 6102.

According to this Code, trading companies can be established as an Incorporated company, a Limited company, an Unlimited company, a Limited Partnership or a Limited Partnership divided into shares.

These companies are subject to the Turkish Commercial Code and its secondary regulations and are divided into two as capital companies and sole proprietorships:

•  Capital Companies: They are joint stock companies and limited companies. There is limited liability for partners.
• Sole Proprietorships: They are Collective and Limited Partnerships. There is unlimited liability for partners.

Joint stock and limited companies are the most common types of companies in Turkiye. Since LLC and Joint Stock companies are now bureaucratically closer to each other (subject to new TCC in effect since 2012); it may be advised to foreign investors to incorporate Joint Stock companies instead of LLC due to flexibilities of corporate transactions and minimum shareholder liability for corporate related debts.

Difference Between Representative Office and LLC/JSC and Branches

Representative (Liaison) Offices 

A liaison office is a socio-cultural and non-commercial institution that researches the market conditions in a country, aims to contact individuals and organizations, examines the market and legal order of the country to be invested, provides information to the central institution by following business opportunities.

In order to establish a liaison office in Turkiye, an application must be made to the Ministry of Industry and Technology. If approved, permits are issued for a period of three years and can then be extended for another three years. Liaison offices are required to fill out a form regarding their activities in the last year and submit it to the Ministry of Industry and Technology by the end of May every year. The principles regarding liaison offices in Turkiye continue their activities within the framework of some laws and regulations.

Liaison offices are closely followed in Turkiye, especially because of they are banned from economic purposes and activities. However, this follow-up is, of course, not a tedious control. As we will discuss below, there are many advantages of establishing a liaison office.

Branches 

All companies can establish branches in Turkiye, but it is not possible to operate through branches in certain sectors (such as energy). Except in regulated markets, incorporation does not require permission from a government authority, so a simple decision from the company’s governing body (ie, the board of directors for joint stock companies) is sufficient. Branches are established under the parent company and limited to its field of activity and duration. In order for a foreign company to open a branch in Turkiye, the capital of the company must be divided into shares. Branches do not have an independent personality from the center. It is not necessary to put a minimum capital to establish a branch.

A branch may only be established for the same purposes as those of the parent company. Branch profit repatriation is permitted. Branch profits remitted to headquarters are subject to dividend withholding tax at a rate of 15%, which can be reduced through double tax treaties.

On the other hand, Joint Stock and Limited Companies are allowed to carry out unlimited commercial activities, issue invoices, apply for grants, request profit transfers from abroad and finance their own activities.

We are grateful to Selin Aksoy of Kulat & Co for this article. For assistance with establishing Representative Offices in Turkiye, please email turkey@dezshira.com  

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