Foreign-Based Companies Establishing Liaison Offices and Branches in Turkey: Differences and Similarities
Establishing liaison offices and branches in Turkey has become an essential step for foreign-based companies looking to establish commercial connections with Turkish entrepreneurs.
Contact offices offer a practical and streamlined approach to establishing a presence in Turkey. They provide an efficient application process, allowing companies to explore and strengthen their business connections in the Turkish market. However, it’s important to note that contact offices are not authorized to engage in commercial activities within Turkey.
In contrast, branches serve as fully-fledged entities that can actively conduct commercial operations. While the establishment and authorization process for branches may be more involved, they enable companies to engage in profit-generating activities and benefit from Turkey’s business environment.
Selecting between a contact office and a branch involves carefully considering business objectives, desired level of involvement, and the preferred scale of operations in Turkey. Each option carries distinct advantages and considerations.
Contact offices offer a low-risk entry point, ideal for market research and establishing initial connections. On the other hand, branches provide a comprehensive business presence, facilitating direct commercial engagement.
Ultimately, companies must assess their specific requirements and long-term business strategy when choosing between these two options. By aligning the choice with their unique goals, companies can effectively navigate the Turkish market and optimize their success
In recent years, numerous international firms have decided to open liaison offices in Turkey after forging substantial connections worth millions of dollars.
These companies leverage Turkey’s advanced network to expand their businesses, initiate partnerships, or invest in joint ventures and production facilities.
A-)Advantages of Opening Liaison Offices in Turkey:
- Strengthening Established Connections: Liaison offices in Turkey can reinforce existing partnerships and enhance interactions between companies.
- Access to Advanced Infrastructure: Turkey’s physical solid infrastructure and increasing strategic importance offer significant advantages to companies.
- Cost Reduction: Opening a liaison office in Turkey can lead to reduced production costs for firms.
Procedure for Opening Liaison Offices:
- Obtaining permission from the Ministry of Industry and Technology.
- Necessary establishment and extension procedures at the General Directorate of Incentive Implementation and Foreign Capital.
- The foreign-based company intending to open a liaison office in Turkey must have been operational in its home country for at least one year. After evaluating factors such as the company’s activities, capital, turnover, and personnel, the necessary permission is granted.
Initial Application Requirements:
- Application Form
- Information Form
- Declaration and Commitment (stating that the liaison office will not conduct commercial activities)
- Activity Certificate (with apostille) from the foreign company
- Income statements and balance sheets of the foreign company
- An activity report prepared by the foreign company
- Document proving the signatory’s authorization (with apostille)
- Power of attorney if the establishment procedures are conducted by another person
Extension Requests after Opening Liaison Offices:
- Initially, a maximum of 3 years of permission is granted.
- To extend the permission, a request should be made to the General Directorate of Incentive Implementation and Foreign Capital before the expiration of the current period.
- The extension request should include past year activities, future business plans, expenditure details, and personnel information, depending on the nature of the activities.
Duration of Extensions and Permissible Years:
- Representation and hosting activities: 5 years
- Technical support: 5 years
- Information and communication transfer: 5 years
- Regional management center: 10 years
- Quality control and supplier sourcing: 5 years
Responsibilities of Liaison Offices:
- Liaison offices are not required to keep accounting records, but they should maintain banking records, and all expenses should be paid from foreign funds.
- They are not subject to income tax, corporate tax, or value-added tax (VAT).
- They are not required to register with the Chamber of Commerce or be subject to the Turkish Commercial Code (TCC).
- They are liable for withholding taxes on rental payments and taxes for employing an accounting consultant..
B-)Establishing Foreign-Based Branches in Turkey:
- Having a branch in Turkey offers numerous advantages for international companies. Turkey provides favorable commercial and economic conditions for both small and large-scale businesses.
- Opening branches in Turkey allows foreign-based companies to benefit from tax advantages, including lower corporate tax rates and customs duty discounts.
- The legal norms and regulations in Turkey facilitate the process of establishing branches.
Procedures for Opening Branches:
- Registration and establishment documents of the branch must be submitted to the Chamber of Commerce where the branch will operate.
- Branches are deemed limited taxpayers and are only taxed on income generated in Turkey.
After Opening Branches:
- Branches follow similar procedures as liaison offices and report their activities to the General Directorate of Incentive Implementation and Foreign Capital.
Both liaison offices and foreign-based branches offer unique opportunities for international companies seeking to connect with the Turkish market. Understanding the differences and similarities between these two options is crucial for making informed decisions and establishing a successful presence in Turkey.
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