LIAISON OFFICES IN TURKEY
Did you know that most global brands operate in Turkey as Liaison Office? Particularly, the foreign companies that outsource production in Turkey (including textile, finance, agriculture, IT, automotive and many other industries) prefer Liaison Offices for their non-commercial activities in Turkey.
What is a Liaison Office?
Liaison Office can be defined as a contact office or a representative office connected to the main company abroad. These offices are not allowed to engage in any commercial or income-generating activities and sales in any way. The activities they can perform can be summarised as market research, quality control, order tracking, dealer control, promotion, call centre and similar support services.
How to Open a Liaison Office?
Unlike commercial companies, Liaison Offices are not subject to the establishment procedure. They are established with the permission of the Ministry of Economy. Therefore, they are not required to register commercially. A decision of the Board of Directors, as well as a number of documents are to be submitted to the Ministry of Economy. Information as to the activities of the main company is given, and the reason why there is a need for a Liaison Office is explained. The first application is granted a three-year operating permit by the Ministry of Economy. At the end of this period, the renewal request is examined by the Ministry, and if deemed appropriate, it can be renewed for another 3 years. The permit applications are concluded approximately between 7 to 15 days, and then Liaison Offices can officially commence their activities.
What are the Tax Advantages?
As Liaison Offices do not have commercial activities and sales, they are not subject to Corporation Income Tax and VAT; they do not submit a declaration, either.
Furthermore, there is no income tax and stamp duty deduction for the staff employed by the Liaison Offices. So the cost of an employee in a Liaison Office is lower than that of an employee in a commercial company.
In order for their Turkish citizen employees to be able to benefit from social security services, Liaison Offices should pay their social security premiums. Therefore, payroll and social security institution notifications should be made regularly every month.
Some services bought by Liaison Office may be subject to stoppage. Stoppage taxes should be paid every three months both for services bought from some of the self-employed experts (accountants, lawyers) and for offices rented from individuals.
In short, the most important tax advantages of Liaison Offices over commercial companies can be summarised as their lower staff costs, and their exemption from corporation tax and VAT. On the other hand, the bureaucracy for establishment and closure is also less comparing to a company.
Things to Consider About the Liaison Offices:
- They cannot conduct any commercial or income-generating activities.
- They are required to submit annual summary reports and notifications regarding their operations to the General Directorate of Foreign Investments.
- A duly authorized person must be appointed for the activities of Liaison Office in Turkey.
- Liaison Offices can open Turkish Lira or foreign currency bank accounts in Turkey.
- All the expenses of Liaison Office should be transferred by the parent company abroad to the bank account in Turkey so that the payments can be made.
- In particular, salary payments should be linked to foreign currency amounts coming from abroad. Otherwise, income tax exemption on salaries does not apply.
- Liaison Offices can make expenditures in the form of overhead expenses. They can spend money on their operations, such as salary payment, telephone, rent, car rental, etc.
All expenditures and bank transactions of Liaison Office must be clearly recorded and should be available on request.