There exists a liaison office structure in Turkey, which is considered neither as a capital company nor a branch, but preferred by foreign investors as a vehicle to enter into Turkish market. Liaison offices cannot engage in commercial activities, and conduct of any income-generating activity through a liaison office is strictly prohibited in Turkey.
Foreign entities basically prefer liaison office structures in Turkey in order for their representation and to gather information on behalf of the parent company in the related sector and the country. It is not possible for liaison offices, which are exempt from corporate tax, to act for their own profit or to give or accept any offers or issue invoices. All payments as a result of the daily activities are to be covered by their parent companies. Therefore, required payments are transferred from parent companies' accounts to the liaison offices' accounts to be opened in Turkey following the establishment.
Establishment of liaison offices in Turkey is regulated under the Foreign Direct Investment Law numbered 4875 (the "Law") and Regulation on the Implementation of Foreign Direct Investment Law (the " Regulation"). As per such relevant legislation, their establishment is subject to the approval of the Ministry of Economy (the "Ministry").
On July 3, 2012; an amendment has been made on the Regulation and published in the Official Gazette. Together with such amendment, the activities that may be carried out by a liaison office have been specified and those are as follows:
- Market research
- Promotion of the goods and services of the parent company
- Representation and hosting
- Control of the suppliers in Turkey in terms of quality and standard, their supervision and supplier procurement
- Technical support
- Communication and information transfer
- Regional management center
Once the establishment application is made to the Ministry, liaison offices are granted with an approval for a period of 3 years within the scope of their determined activities. Following the termination of this period, in principle, an extension might be granted as well. The Ministry concludes extension requests by evaluating previous years' activities of the liaison office, future business plans and goals of the parent company, actual & estimated expense amounts and number of employed personnel. However, the activity period of the liaison offices, which are established to engage in activities on market research and promotion of parent company products or services, cannot be extended as per the explicit provision, Article 8, under the Regulation.
Liaison offices in Turkey are represented by a liaison office representative who is to be empowered by the parent company through a proxy. It is also required for liaison offices to submit an annual report to the Ministry regarding their previous years' activities until the end of May of each relevant year at the latest.
Along with the new amendment made on the Regulation, foreign investors are also attracted by the field of activity defined as "regional management center". In the new era, regional management centers can be established in the form of liaison office with certain advantages.
Actually, certain foreign entities were already in search of a structure which does not need to be involved in commercial activities but necessary for establishing a center within a specific area such as; Middle East or Eastern Europe in order to enable a coordination among related units of the company with a central operation to be conducted in Turkey. Those type of regional management centers are preferred for the purpose of organizing management and coordination on following exemplified activities of the parent company's various units in different countries within the determined region: forming investment and management strategies, planning, promotion, sales & post-sales services, brand management, technical support, research and development, external supply, testing the newly developed products, laboratory services, research analysis, training & education of the employees.
While carrying out such type of activities, regional management centers may benefit from the corporate tax exemption and salary-income tax exemption for their employees as they are to be established in the form of liaison offices. This is also because all liaison office employees are, in principle, exempt from salary-income tax, which is one of the most crucial points that make liaison offices attractive for foreign investors.
As a conclusion, together with the recent improvements on the Regulation, liaison offices have become an advantageous way to promote parent company's business activities in Turkey. This structure also enables the companies to familiarize with the Turkish market, analyze the business volume and understand the legal requirements. Also, alternatively a coordination center might be formed within the scope of regional management centers under the structure of a liaison office.
We are, for this purpose, here for the new investors and to shed a light on their needs in a most accurate manner.
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