An Investment Alternative For Foreign Companies: Establishing A Liaison Office In Turkey

Investors who want to invest in Turkey have many different options. The most advantageous investment type should be determined by considering many components such as the investor’s special conditions and short and long-term expectations from the investment.

If the investor is planning to invest as a legal entity in Turkey, one of the options is to establish a liaison office. Liaison offices offer investors the experience of meeting a country and a compliance test. Investors who are qualified as foreign companies establish liaison offices for purposes such as researching and collecting information about the Turkish market, providing communication and information transfer, closely following, and managing business relations in Turkey, and promoting their companies.

In this bulletin, we focused on the foreign company opening a liaison office in Turkey. By examining the content of the bulletin, you can learn about attractive reasons for opening a liaison office in Turkey, necessary establishment procedures and activities you can carry out in the country through liaison offices, and employment in the liaison office.

1-) What Are The Conditions For A Foreign Company To Establish A Liaison Office In Turkey?

It is possible for a company based abroad to invest by opening a liaison office in Turkey. Establishing a liaison office for the close control and management of foreign company business relations in Turkey is a rational option. The establishment of a liaison office in Turkey by a foreign company is subject to the conditions that:

  • The company obtaining permission to establish a liaison office from the General Directorate of Incentive Implementation and Foreign Capital under the Ministry of Industry and Technology and
  • Not engaging in commercial activities within the liaison office it will open in Turkey.

In order to obtain the permission of the Ministry, the company must apply with the necessary information and documents and must commit not to engage in commercial activities in this application. If the company to open a liaison office is a bank, it is also necessary to obtain permission from the Banking Regulation and Supervision Agency.

2-) How Many Years Can Liaison Offices Receive An Operating Permit?

In the application for the liaison office, a maximum of 3 years of activity is determined. Offices wishing to continue their activities at the end of 3 years must apply to the Ministry of Industry and Technology, General Directorate of Incentive Practice and Foreign Capital.

3-) What Activities Can A Foreign Company Engage In Turkey By Establishing A Liaison Office?

A foreign company may engage in the following activities through a liaison office to be established in Turkey:

  • Conducting market research in Turkey,
  • Promote the company’s products and services in Turkey,
  • Representing the company in platforms such as sectoral foundations, organizations (fairs, etc.) and commercial attachés,
  • Managing business relations of company officials in Turkey,
  • Inspecting the companies for which production is made on behalf of the company, within the framework of the quality standards of the foreign company,
  • Researching the developments in the market to be forwarded to the company, providing communication and information transfer by collecting information on topics such as consumer trends, sales status of competitors and distributors, and the performance of the distributor company,
  • For the units of the foreign company in other countries; coordinating and carrying out management services activities such as creation of investment and management strategies, planning, promotion, sales, after-sales services, brand management, financial management, technical support, R&D, outsourcing, testing of newly developed products, laboratory services, research and analysis, training of employees.
  • Providing training and technical support for distributors and support services to manufacturers to increase quality standards.

In the application to be made to the Ministry of Industry and Technology, the company should indicate which of the above-mentioned fields of activity it plans to realize through the liaison office to be opened. If it is planned to operate in a field other than these specified areas, the subject of the activity should be reported in detail.

4-) Can A Foreign Company Establish A Liaison Office And Engage In Commercial Activities In Turkey?

Liaison offices, unlike branches, cannot engage in commercial activities in Turkey. Liaison offices are prohibited from engaging in commercial activities within the country. If it is determined that the company is engaged in commercial activities in Turkey through the liaison office established, the company faces the sanctions specified in the Regulation for Implementation of Foreign Direct Investment Law. The main purpose of establishment of liaison offices is not to engage in commercial activities anyway; If this is desired, it is recommended that the foreign company open a branch in Turkey.

5-) Can A Liaison Office Acquire Real Estate In Turkey?

Liaison offices cannot acquire real estate properties such as lands, offices, residences in Turkey. Liaison offices can only purchase movable goods within the scope of their activities and to realize them. They may have the right to use the office where they will work with a rental agreement. An extension application can be made at least 1 month before the 3-year period expires, and the period is extended for 3 years each time.

6-) Necessary Procedures For Establishing A Liaison Office In Turkey

For a foreign company to open a liaison office in Turkey, it must first make the necessary application to the Ministry of Industry and Technology’s General Directorate of Incentive Implementation and Foreign Capital and obtain permission to open a liaison office. In the application to be made, an application form containing information about the company such as the foreign company’s title, address, country of nationality, field of activity, province in which it will operate and the number of personnel to be employed must be filled. The application form should also show which of the printed activity subjects are preferred. If an activity is to be carried out outside the areas of printed activity, it is also expected that this activity will be specified.

During the application, a commitment to not engage in commercial activities in Turkey through the liaison office must be given and signed on behalf of the company official.

All these transactions can be completed through your lawyer located in Turkey, who will be authorized by power of attorney. It is sufficient to issue a power of attorney with an apostille annotation through the official authorities of the country you are in. As Solmaz Law and Consultancy team, we continue to provide qualified and fast legal services to our foreign company clients who want to establish a liaison office in Turkey.

7-) What Are The Necessary Documents For Establishing A Contact Office?

  • Liaison office application form,
  • A legal power of attorney you provide to your lawyer for the establishment of the liaison office,
  • A commitment signed by the company official that the liaison office will not engage in commercial activities,
  • Activity certificate of the foreign company (document must be apostille or consulate approved),
  • Annual report or balance sheet and income statement of the foreign company,
  • Authorization document to be issued to persons who will carry out the activities of the liaison office,

It is obligatory that the application documents have been translated into Turkish by certified translators.

In addition, a copy of the registration document to the tax office and the lease agreement for the rental of the office must be submitted to the General Directorate of Incentive Implementation and Foreign Capital within one month at the latest after the liaison office has been established and started its activities.

😎Employment Rules In Liaison Offices

A work permit must be obtained from the Ministry of Family, Labor, and Social Services for the personnel to be employed in the liaison offices. Apart from this, documents showing that at least 200.000 USD or the equivalent of foreign currency has been brought from abroad in the last year for employment in the liaison office must also be submitted. Documents such as a certificate of authorization for an official and a bank statement related to foreign exchange transfer, a bank letter, a photocopy of a foreign exchange purchase document are accepted. If this requirement is met, 1 person who has a certificate of authorization will be granted a work permit.

It is an important issue to pay the wages of the personnel working in the liaison offices in foreign currency. In order for the investor to benefit from the income tax exemption of the personnel, payments must be made in foreign currency.

The personnel to be employed in the liaison offices must be insured within the framework of the Social Insurance and General Health Insurance Law No. 5510.

You can get detailed information about the employment of key personnel and other personnel in our bulletin titled “Work Permit for Worker and Employer in Foreign Direct Investments”.

9-) What Are The Advantages Of Establishing A Liaison Office?

Liaison offices provide good opportunities for a foreign company planning to invest in a country to get an idea about that country and sector. Determining the risks, making a close and detailed analysis of the sectoral situation and market conditions in the country is an important gain for the company and often a necessary experience in terms of placing the investment on a solid foundation. At the same time, the promotion of the company’s products and services in Turkey can also be done through liaison offices.

Liaison offices benefit from tax exemptions. Income tax and corporate tax are among them. Payments received abroad by the company to which the liaison offices are affiliated and sent to the liaison office in foreign currency are also exempt from income tax.

Liaison offices are not covered by the ban on foreign exchange contracts. Therefore, it is a requirement that they make their transactions in foreign currency, both as a convenience and in the name of being able to benefit from tax advantages.

The cost of establishing a liaison office is relatively low (compared to setting up a company and branch). The most important expenses are the fees and expenses to be paid during the preparation of the application documents, and the expenses of the translator.

Conclusion

Liaison offices make important contributions for foreign companies to research country and sector conditions and promote their products before entering the Turkish market. Contact offices are among the preferred investments by foreign companies due to their low cost of establishment, high efficiency, and tax advantages.

Knowing the conditions necessary to establish a contact office, activities prohibited from contact offices will prevent a foreign company from being subjected to sanctions in Turkey and facing negative situations such as cancellation of an activity permit or rejection of an application for an extension of time. In addition, it is important to obtain professional services in tax law for the foreign company to make the best use of the tax exemptions granted to the liaison offices in Turkish law. Obtaining work permits and insurance of personnel who will work in liaison offices are also legal requirements.

As Solmaz Law and Consultancy, we provide the necessary legal support to our foreign company clients in the transactions of the liaison office they will establish in Turkey with our expert legal staff in the field of Corporate Law and Foreign Law. We are entitled to all the details of the processes of obtaining activity permits, preparing the necessary documents, and employing personnel. To provide our clients with the most qualified service on tax incentives and tax registrations, we also receive supportive services from our business partners who are experts in their fields. We are pleased to assist you with our professional lawyers and business partners for your liaison office setup.

Sincerely.

References

<https://www.sanayi.gov.tr/merkez-birimi/14a09761d390/diger/b81096>

<https://www.ailevecalisma.gov.tr/uigm/belgeler/izin-degerlendirme-sureci/>

Regulation for Implementation of Foreign Direct Investment Law

Foreign Direct Investment Law

Income Tax Law

 

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