Turkey: A Tax Exempt Start Up For Multınatıonal Companıes: Lıasıon Offıces In Free Trade Zones Of Turkey

Last Updated: 2 January 2014
Article by Safak Herdem

Today, in global cash flow around the world made multinational companies to think more on tax benefits and cost effectiveness before they invest in a country. Industrial zone, free trade zone, off-shore or whatever the legal name is "tax-exempt" areas of a business facility to fulfill the expectations in this regard.

Turkey as an emerging market offers further for those whom are looking for the tax efficiency before they penetrate to the market or running Turkey related businesses through their headquarters in abroad: Liaison Offices in Free Trade Zones

Turkish free trade zones are defined as the areas which are exempted from the laws regarding foreign trade regime. In general, all kind of activities can be performed such as: Research and development, storing, manufacturing, packing, software, general trading. Moreover, it is allowed to run business through branches. As it is applied for establishment of a regular company in Turkey, the leasing, banking, insurance, factoring companies and special financial institutions also require permission for establishment in free trade zones.

On the other side, the liaison office are alike representation offices having no legal entity, subject to permission to be established, can only be used for the purpose of coordinating a business and restricted to conduct commercial income generating transactions within the country. However such establishments have wider allowances in Turkey depending on field of activities and shown as the "best-fit" for multinational companies in start up, short and midterm processes since the employees and the liaison office are exempt from income taxes under Turkish Law.

As of 03 July 2012 the liaison offices have been subject to new regulations both in permission and operation proceedings. Accordingly, the foreign companies running business in money and capital markets, insurance-based financial areas that have special rules and requirements for opening liaison office are subject to permissions of relevant authorities supervising those sectors in Turkey.

The time period for operating as a liaison office depends on validity of permission. The first period of operating liaison office is limited for a period of three years. The permits of foreign companies for market research or to promote the products or services are not allowed to extend. However five years extension for representation and hosting activities, control, inspection and provision of local suppliers, technical support, communication and transfer of information and ten years extension for regional management headquarters are applicable.

Especially the activities related to the "regional management headquarter" is considerable as it is subject to ten years extension which is a reasonable period of time to realize the potential in the country by having the form of distance-controlling structure and tax exempts for the first thirteen years. Such activities are deemed as coordination and management of some operations such as management and investment strategies, sales, promotion, financial management, training that are particularly oriented to other units of the foreign company in foreign countries and as obviously shown the "whole pack" for multinationals operated from headquarters.

Therefore the "control, inspection and provision of local suppliers" and "communication and transfer of information" as a fields of activity are satisfactory as the regulation defines what it means. Accordingly, the provision of local producers and products for the foreign company and inspection of those suppliers in terms of the quality standards of a foreign company are deemed as the "control, inspection and provision of local suppliers".

Communication and transfer of information means the collection and transmission of information to the foreign company having business contacts in Turkey such as the market conditions, consumption trends, sales of competitors and distributors, performance of distributors.

As clearly shown the liaison offices in free trade zones offer more than one advantage for multinational companies especially in taxation and operation side. Today there are many multinational companies operated in free trade zones in form of liaison offices benefiting such advantages.

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.

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Safak Herdem
 
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