Business Models to start with in Turkey

CRS-header
CRS: Exchange of Fiscal and Financial Information between Countries
January 12, 2018
Liaison Offices in Turkey
January 12, 2018

SRM BUSINESS CONSULTING LIMITED

Anil.Surmeli@srmconsulting.com

There are various models of doing business in terms of foreign companies wanting to expand their business to Turkey. Choosing the right formation or model may change depending on the sector of the firm, volume of the company, budget and especially business expectations in Turkey. A wrong choice of formation will come back as a waste of time and cost. I have experienced many foreign companies had to change their structure later or had to terminate their investments in Turkey because of the wrong choices they made during the first establishment phase in Turkey. In order to avoid this situation, it is necessary to conduct very accurate research, analysis and comparison of the formations before starting the business. The right choice at the end of this process will help your business grow on a healthy structure.

Most common models that foreign investors start doing business in TR are as below. Please also find the right questions that you should ask before you decide.

INCORPORATE YOUR OWN ENTITY IN TURKEY

This model is the most common business model that companies in many sectors prefer. As of the end of 2016, there are approximately 35000 companies established in Turkey. The two most preferred corporate structures are; Limited Liability Company and Joint Stock Company. In Turkish literature they are called Limited Sirket and Anonim Sirket. There are some very key differences between these two formations. It is very important that you choose what is right for you, according to your long term goals and strategies in Turkey. Otherwise, you may encounter unexpected high taxes in the future.

Questions to be asked

  • A Limited Company or Joint Venture Company? What are the differences of these 2 company formations?
  • What are the responsibilities/duties of the shareholders and directors for each company formation?
  • What are the key important points while writing the Articles of Association of the company?
  • What should be the starting Capital amount of the business?
  • The tax details for the Dividends?

ACQUISITION OR BUYING SOME SHARES OF A LOCAL COMPANY IN TURKEY

The most important feature of this method is, to invest in an ongoing business with experience in doing business in Turkey, to be a partner and to take over management. The most important issue here is; are risks posed by the company that is purchased or partnered with. It must be done in a versatile "due diligence". At the same time, it is very important that the procurement or partnership period is managed very accurately and a secure agreement is reached with the contracts.

Questions to be asked

  • What are the risks and responsibilities of buying a local company shares?
  • What will be the taxation of selling these shares in the future?
  • How can we be sure of the Financial Statements are showing the correct figures?
  • What if we face some liabilities of the company which we were not aware of during the Acquisition?

ESTABLISH A NEW ENTITY WITH A LOCAL PARTNER

It is similar to the previous model and can be considered a safer model by not exploiting the risks I mentioned, but taking advantage of a local partner's market and business experience. Actually, with a complete mix of the 1st and 2nd models and it can be a sustainable model with a very accurate system and control.

Questions to be asked

  • What are our risks and responsibilities of having only shares of a company?
  • Does it change depending on the formation of the company?
  • Which company formation would be better for this kind of Partnership?
  • What are the differences of being in the Board of Directors or only being Shareholder?
  • How to manage the Authorization(s) of the Company?
  • How to set-up an efficient Operational and Tax Audit?

START WITH A LIAISON OFFICE OR OPEN UP A BRANCH

We need to evaluate the Liaison office separately. The Liaison Office is not a trading company model. It is subject to approval and is only intended to provide market research, job tracking or business support services. They can not engage in commercial activity in any way. Therefore, there is no tax liability.

Questions to be asked

  • Is our business suitable for a Liaison Office?
  • What are the differences between a Company and a Liaison Office?
  • What are the differences between a Company and a Branch?
  • Which documentation or Reports must be provided to the Ministry of Economics?

FIND A DISTRIBUTOR OR A DEALER FOR YOUR PRODUCTS OR SERVICES

Instead of doing business directly in Turkey, you may be able to invest in Turkey through reliable and good companies, who know and know Turkey well and have an existing distribution network. It absolutely requires establishing a healthy system and supervision. Contracts are very important.

Questions to be asked

  • How to find the right Distributor or Dealer?
  • How can we get independent information about their Financial Statements?
  • What key points should be on the Agreement?
  • How to organize an efficient Operational Audit?

GET YOUR ORDERS MANUFACTURED IN TURKEY

Perhaps the most important feature of Turkey is its production infrastructure. Without the need for direct investment, you can overcome your productions with the most suitable producers. It is important to choose the right manufacturer. You need to know that your products are produced in the right place, both for capacity and for financial reasons. Audit and setting contract management must be established.

Questions to be asked

  • How to find the right and reliable Manufacturer?
  • How to check the Financial Statements?
  • What is the best way to have Inspection on the orders?
  • Would Liaison Office work for the Inspection?

...

All the above mentioned models are the most preferred methods of foreign investors. Each model has its own unique advantages and risks. It is necessary to know the features of all these models in order to determine the most suitable model for the structure of the firm and the strategies of Turkey. Asking the right questions is the basic principle of doing the right analysis.