Establishing a liaison office in Turkey is one of the options for conducting a business in Turkey for foreign-based companies. Liaison offices are regulated in the Direct Foreign Investment Law numbered 4875 (the "Direct Foreign Investment Law") and the Regulation for the Implementation of the Direct Foreign Investment Law (the "Regulation").
Liaison offices are prohibited from engaging in any commercial activity and they may only carry out liaising activities that are explicitly permitted under the Regulation. Therefore, liaison offices may neither issue invoices for goods sold or services provided to their clients nor generate any income in any way from their activities in Turkey.
The activities which liaison offices are permitted to carry out according to the Regulation are categorized as follows:
- Representation and
(Representation before sectorial establishments and related organizations, coordination and organization of the foreign company officials' business dealings in Turkey and providing the office needs of such officials.)
- Quality and Standard Control
and Audit of the Suppliers and Providing
Quality control services for the firms which manufacture on behalf of the foreign company according to foreign company standards, providing foreign company's product and producer demands.
Education or technical support for distributors and support services for supplier manufacturers in order to increase quality standards.
- Communication and
Gathering information in order to report to the foreign company which is in business relations with Turkey, in the fields of development in the market, consumer trends, purchase positions of the competitors and distributors, performance of the distributors, etc.
- Regional Management
Coordination and management services intended for foreign companies' divisions/departments in other countries, in relation to activities including development of investment and management strategies, planning, introduction/marketing, sales, after-sales services, brand management, financial management, technical support, research and development, outsourcing, laboratory services, research and analysis, training of the employees.
Establishing a liaison office is subject to a license that will be granted by the Ministry of Economy ("Ministry"); therefore, during the application mentioned in detail below, the Ministry must be convinced with supporting documents that the operations of the prospective liaison office actually fall under the above-mentioned categories.
According to Article 3/h of the Direct Foreign Investment Law, a liaison office cannot engage in commercial activities or in any activity other those which the liaison office is expressly authorized to perform in its license. The license will be revoked if the liaison office violates such rule.
The Ministry is entitled to audit anytime whether the actual business of the liaison office falls within the scope of the permitted activities. If its determined that the liaison office is performing activities that fall outside the scope of its license, a 30-day grace period will be given to the liaison office to apply for a new license which covers the actual business. Such period may be extended for additional 30 days. If the liaison office fails to obtain a new license for the actual business, the existing license may be revoked.
Establishing a liaison office in Turkey requires the prior permission of the Ministry and is reviewed and granted by the General Directorate of Incentive Implementation and Foreign Investment (the "General Directorate") through an application filed before the Ministry in Ankara together with the following documents:
- Application Form;
- A document indicating the scope of the activities which will be performed by the liaison office and the declaration that the liaison office will not perform any commercial activity, together with the documents evidencing authorization powers of the signatory(ies) of the said documents (in a notarized and apostilled format);
- A notarized and apostilled copy1 of the Certificate of Activity of the parent company, obtained from the relevant trade registry (or chamber of commerce) to which the parent company is registered;
- A copy of the previous year's annual report, including the balance sheet and profit and loss statements of the parent company;
- A notarized and apostilled copy of a certificate of authority granted to representative of the liaison office with authority and power to carry out the activities of the liaison office; and
- A notarized and apostilled copy of a power of attorney authorizing the attorneys to act for and on behalf of the parent company to initiate and finalize the necessary procedures for establishment of the liaison office in Turkey.
According to Article 6 of the Regulation, the General Directorate is required to finalize the review the application within 15 (fifteen) business days from the date of application, provided that all of the required documents are duly submitted to the Ministry. However, the Ministry may always request, at its own discretion, additional documentation or information while evaluating an application, which may eventually prolong this period.
The representatives of the liaison offices are not required to be Turkish nationals or residents in Turkey.
1.2. Duration of the License and Extension
The maximum initial term for the license granted to liaison offices is 3 years. Liaison offices may apply for extensions. The Ministry may, upon application, extend the term of the permit for an additional term, by evaluating current and future business plan and targets, current and predicted amount of the expenses, number of employees, etc.
Please note that, according to the Regulation, the license for the activities under Regional Management Division category may only be extended for additional 10 years. However, Ministry usually grants extension for shorter periods in practice. Licenses granted for market research and marketing & promotion of services of the foreign parent company cannot be renewed after the initial term.
1.3. Post-Establishment Procedures
According to Article 8 of the Regulation, following steps must be taken by the liaison office subsequent to the issuance of the license.
- Registry with the Tax Office: The liaison office is required register with the relevant tax office2 and to submit to the Ministry a copy of the tax office registration certificate and the lease contract of the office, within 1 month following the date of the license.
- Work Place Opening Registry with the Relevant Municipality: A Work Place Opening Permit must be obtained from the relevant municipality for the workplace where the operations of the liaison office will be conducted, and the employees will be located.
- Submission of the Information Form: The liaison office is required to file an activity report to the Ministry until the end of May of each year. Along with the said report, the liaison office is also required to file copies of the documents (such as bank statements) evidencing the transfer of the expenditures of the liaison office in Turkey in foreign currency by its parent. The application for extension of the license term will not be taken into consideration by the Ministry unless such information form is duly submitted.
- Notification of Changes: The liaison office is required to notify the Ministry regarding any change of address, trade name changes of the parent company or the foreign company officials within 1 month at the latest. Tax offices and other relevant authorities (i.e. the relevant social security authority) must also be notified.
1.4. Financial Aspects and Tax Advantages of Establishing a Liaison Office
- Expenses and Payments: All expenses of the liaison office must be covered in foreign currency that is transferred by the parent company abroad to the bank account of the liaison office in Turkey.
- Profit Transfer: According to Article 8/e of the Regulation, liaison offices cannot make any transfer request (since they cannot generate profit), except for the balance resulting from the closing and liquidation of the liaison office.
- Tax Exemptions and
Status: Since liaison offices cannot engage in a
commercial activity and they cannot generate profit, they are not
regarded as corporate tax and value added tax payers (although they
may be required to make deductions (and be subject to tax penalty
and interest accordingly) in certain transactions). As mentioned
above, the liaison offices are required to register to a tax
office. They are not required however to keep the corporate books
(prepared on a balance sheet basis) required under Tax Procedural
Law. However, it is advised to keep records for all payments,
expenditures and other transactions for audit purposes.
The employees of the liaison offices are exempt from mandatory income tax and stamp tax deduction applied by the employers, provided that their salaries are paid by the parent company from abroad in foreign currency. However, payments made to third parties such as lawyers, accountants against self-employed invoices or payments such as rentals paid by the employees are not exempt from mandatory income tax deductions.
It is always advised to keep all documents (bank receipts, etc.) to evidence fulfilment of requirements for the aforesaid tax exemptions (e.g. payments in foreign currency from abroad) in case of an audit by the regulatory authorities.
- Employment: Liaison
offices can employ Turkish and foreign employees (provided that a
work permit3 is obtained from the relevant authorities
and other legal requirements4 are met). All employees
must be registered to the Social Security Institution in Turkey
(except for foreign employees who are registered to another social
security authority in a foreign country that has signed a bilateral
social security treaty with Turkey, or employees in a foreign
country (that has not signed such agreement), who are temporarily
employed in Turkey for not more than 3 months and who prove before
the Social Security Institution in Turkey that they registered to a
social security authority in their country). The liaison offices
can benefit from the social security premium incentives like
Unlike income tax deduction, employees working in liaison offices are not exempt from social security premium deductions that must be paid to the Social Security Institution.
- Incentives and Government Support: Liaison offices are not eligible for the incentives applied by the Ministry of Economy under the New Investment Incentive System of Turkey, which was introduced in April 2012. Also, liaison offices are not eligible for the incentive and support programs at the Technology Development Areas (mentioned in detail below).
According to Article 8 (d) of the Regulation, in order to close down a liaison office, a notification must be made to the General Directorate. During the closing process, in general, the following procedures must be followed:
- The Board of Directors (or the equivalent corporate body) of the parent company must take a resolution on the closing of the liaison office (in a notarized and apostilled format).
- The Social Security Institution and the relevant authorities, with which subscription agreements have been executed for such as electricity, water and gas, telecommunication, must be notified.
- The balance amount (if any) resulting from the closing must be sent abroad to the parent company.
- A clearance certificate (iş bırakma-yoklama fişi) must be obtained from the tax office with which the liaison office is registered.
- A notification must be made to the General Directorate. The above-mentioned Board of Directors resolution of the parent company and the clearance certificate must also be attached to this notification.
1. All notarized and apostilled documents issued abroad for establishing a liaison office in Turkey must be translated to Turkish and notarized by a Turkish notary public in Turkey.
2. With the necessary documents such as copy of the license, lease contract, workplace operating form, etc.
3. Work permits are required for all foreign employees regardless of the type of the entity that they are working.
4. For example, 5 Turkish employees must be working at the workplace to employ 1 foreigner, although this requirement is not applicable for the employment of first foreigner.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.