International

In today’s competitive business environment, companies are increasingly displaying the courage to operate outside their home country. Whether in the field of technology or industry, firms are making investments in other countries, establishing companies in foreign lands, and sustaining their operations by opening subsidiaries, branches, and liaison offices.

Some of the reasons they make these decisions can be seen as the advantages offered by countries in the fields of tax benefits, minimal bureaucracy, and cost differentials.

At SRM, precisely at this point, we specialise in assisting British and Turkish companies in their international expansion efforts, whether it involves establishing new companies, opening branches, forming subsidiaries, or setting up liaison offices.

We can help you with the following

Advisory with the Structure: establishing a new company, subsidiary, branch or liaison office.
All accountancy processes you will need.
Tax knowledge, tax planning
Cross-border transactions and tax obligations.
Double tax treaties and effects on international companies.

Liaison Offices in Turkey.

How to invest in Turkey? Find the right business model to start

Liaison Office in Turkey? (Article)

If you are an overseas company unsure about starting a business in Turkey, need some time to understand the market and conduct feasibility research, or already have suppliers requiring inspection and orders to follow up, opening a Liaison Office as a first step could be the perfect solution. This is how many international companies start their business journey in Turkey.

Let’s look closer at Liaison Offices in Turkey, benefits and how to apply.

Read the full article

What is a Liaison Office?

The Liaison Office is a contact or representative office connected to the main company abroad. Liaison Offices are not permitted to engage in commercial or income-generating activities. However, they can perform market research, quality inspection, order tracking, supplier chain management, technical support, and similar representative services.

How to Open a Liaison Office?

Unlike commercial companies, Liaison Offices do not follow the procedures for registering a company. Instead, they need to apply to the Ministry of Industry and Technology for permission to open a Liaison Office by following the summarised process below:

Submit an application to the relevant department of the Ministry of Industry and Technology.
The application should include documents from the parent company, such as a board resolution, financial statements, company documents, and a letter explaining the activities.
Apart from the parent company documents, some additional forms will be required to provide details about the purpose of the Liaison Office.
A representative must be appointed to manage the Liaison Office. This individual will be responsible for ensuring compliance with local laws and regulations.
Open a bank account to pay the running expenses of the Liaison Office. A liaison office does not engage in revenue-generating activities, but it must still open a bank account in Turkey to pay salaries and expenses.

Duration and Extension

The Ministry normally grants an initial three-year permit for the first application. After this period, the Ministry reviews the renewal request, and if it meets the criteria, it can be extended for another three years. The permit applications typically take between 7 and 15 working days to process, following which liaison offices are allowed to start their operations officially.

Benefits of a Liaison Office?

There are several key advantages of starting with a Liaison Office. These are:

- Cost-effective entry: Setting up a liaison office is a cost-effective option compared to registering a company, a subsidiary, or a branch office.
- Simplified procedures: The processes for starting and closing a liaison office are less bureaucratic than those for a traditional company.
- Risk Mitigation: With no commercial activities or tax obligations, companies can assess the Turkish market while minimizing financial and legal risks.

Tax Benefits: Liaison offices are not subject to corporation tax as they do not engage in commercial activities.

Lower employee costs: Employees in liaison offices are only required to pay social security contributions, not income tax, reducing the overall cost compared to employees in standard companies.

Regulatory Requirements & Compliance

Here are some key points to consider for Liaison Offices:

Liaison offices cannot engage in any profit-generating activities. They must strictly adhere to the activities outlined in their application documents.
Liaison offices are required to submit annual reports to the Ministry of Industry and Technology, outlining their annual activities and demonstrating compliance with regulations.
While liaison offices are not subject to corporate tax as they do not generate revenue, they must still comply with social security regulations for their employees.
All expenses incurred by the liaison office must be transacted through its bank accounts in Turkey. These financial details are essential components of the annual reports to prove compliance.

Conclusion

A liaison office in Turkey helps foreign businesses explore growth opportunities and enter the market effectively. Understanding the rules, setup process, and benefits enables companies to make smart decisions and succeed in the Turkish market.

How to invest in Turkey? Find the right business model to start

Choosing the wrong business structure can result in wasted time and costs.

There are various models for foreign companies looking to expand their businesses into Turkey. The right structure may change depending on the firm’s sector, company size, budget, and business expectations in Turkey. Selecting the wrong structure can lead to wasted time and financial loss. We’ve seen many foreign companies have to change their structure later or terminate their investments in Turkey due to poor initial decisions. To avoid this, it’s necessary to conduct thorough research, analysis, and comparisons of available structures before starting the business. The right choice will help your business grow on a solid foundation.

Below are the most common structures that foreign investors use to start doing business in Turkey, along with the essential questions you should ask before deciding:

“Asking the right questions is the fundamental principle of conducting proper analysis.”

Choosing the right Company type

This model is the most common for companies in many sectors. As of the end of 2020, approximately 35,000 companies were established in Turkey. The two most preferred corporate structures are the Limited Company and the Joint Stock Company, known in Turkish as “Limited Şirket” and “Anonim Şirket”.

There are significant differences between these two forms. It is crucial to choose the right one based on your long-term goals and strategies in Turkey. Otherwise, you may face unexpectedly high taxes in the future.

Considering points:

Should we establish a Limited Sirket or Anonim Sirket? What are the differences between these two structures?
What are the responsibilities and liabilities of shareholders and directors in each structure?
What are the key points to consider when drafting the Articles of Association?
What should be the initial capital amount?
What are the tax implications for dividends and share transfers?

Acquisition or purchasing shares of a local company?

This method involves investing in an existing business with experience in Turkey and taking over management as a partner. The key issue here is the risks associated with the company you are purchasing or partnering with. A comprehensive due diligence is necessary. Additionally, the procurement or partnership process must be managed accurately, and secure agreements must be reached through contracts.

Considering points:

What are the risks and responsibilities of purchasing shares in a local company?
What will be the tax implications when selling these shares in the future?
How can we ensure the financial statements are accurate?
What if we discover liabilities after the acquisition that we were unaware of?

Start a new business with a local partner

This option is similar to the previous model but potentially safer because it involves leveraging a local partner’s market and business experience without the associated risks.

It is essentially a combination of the first two models and can be sustainable with a well-crafted system and control.

Considering points:

What are the risks and responsibilities of owning shares in a company?
Does this change depend on the company structure?
Which company structure is better for this type of partnership?
What are the differences between being on the Board of Directors and being a shareholder only?
How should we manage the company’s authorisations?
How to establish an effective audit and reporting?

Why not start with a Liaison Office?

A Liaison Office needs separate consideration. It is not a trading company model and requires permission from the Ministry. It is only intended for market research, supplier management, or some business support services and cannot engage in commercial activity. Therefore, it has no tax liability.

Considering points:

Is our business suitable for a Liaison Office?
What are the differences between a Liaison Office and a trading company?
What are the differences between a liaison office and a branch?
What documentation or reports must be submitted to the Ministry for permission?

You can read our article about Liaison Offices in Turkey.

Distributor or dealer for your products or services

Instead of direct investment, you might invest in Turkey through reliable and established companies with existing distribution networks. Establishing a robust system and supervision is essential.

Contracts are crucial.

Considering points:

How to find the right distributor or dealer?
How can we obtain independent information about their financial statements?
What key points should be included in the agreement?
How do you organise an effective operational audit?

Get your orders manufactured in Turkey

One of Turkey’s notable strengths is its production infrastructure. Without direct investment, you can manage your production with suitable manufacturers. Choosing the right manufacturer is critical, ensuring your products are produced in the appropriate facility for capacity and financial reasons.

Inspection and contract management are essential.

Considering points:

How to find the right and reliable manufacturer?
How to verify financial statements?
What is the best way to inspect orders?
Would a Liaison Office be suitable for inspection?

All these models are the most preferred methods for foreign investors. Each has its unique advantages and risks. It is crucial to understand these models’ features to determine the best fit for your company’s structure and strategy in Turkey.

I hope this helps! If you need further revisions or have any questions, feel free to ask.