1. ESTABLISHMENT OF A LIAISON OFFICE
Foreign entities may establish a non-trading, unincorporated liaison offices which have a special status in Turkey. They are not allowed to carry on any commercial activity. Their activities in Turkey are limited mainly to accumulate information about investment opportunities in Turkey, and to conduct market research and feasibility studies.
The formalities are simple in that only the Treasury need be directly approached by the applicant for a permit. The application should be in writing and should give sufficient information on the applicant's identity and nature of the business operations to demonstrate the need for a Turkish office. A detailed description of the intended activities of the office is also necessary, as is a statement that the office will not trade in its own name. A description of the benefits expected to accrue to the Turkish economy is also essential. At present the permits are issued for up to three years, which may be extended at the expiration for another three years.
2. APPLICATION DOCUMENTS
The following documents have to be submitted to the Under-Secretariat for establishing a liaison office in Turkey:
- The original copy of "Certificate of Activity" of the parent company approved by the related Turkish Consulate or approved in accordance with the provisions of the Convention on the Abolishing the Requirement of Legalization for Foreign Official Documents Approval Obligation, prepared on the basis of the Hague Conference on International Private Law,
- Operational report or balance sheet and income statement of the mother company,
- The original copy of the certificate of authority issued to the name of the person who is appointed to carry out the operations of the liaison office,
- The original copy of the power of attorney in case that another person will carry out the establishment transactions of the liaison office.
3. LIAISON OFFICE OPERATIONS
Liaison offices are not allowed to trade in their own names and on their own account. Power of attorney must be granted by the parent entity authorizing the manager to contract in the name of the parent for the necessary services in Turkey (e.g., office accommodations, telephone, local staff, and local incidental purchases). The power of attorney can be limited, as desired, by the parent specifying that certain transactions (or those over a certain monetary amount) require prior parent company approval. The transactions must not breach the limitations of the permit. Equipment may be imported from abroad for use by the liaison office. The employees of the office may maintain contact with Turkish customers and suppliers of the parent company and may advertise and promote the parent's business interests. Contracts of sale may not be concluded, except in the case of incidentals, such as the sale of locally purchased office equipment that is no longer required.
4. REGISTERING TO THE LOCAL TAX OFFICE
Within one month after obtaining the permission from the General Directorate of Foreign Investment an application must be made to the tax office. Although the liaison office itself is not subject to taxes and the employees are exempt from income tax, tax office registration is required for the withholding tax liabilities over the rental payments to be extended to real persons and for the stamp tax liabilities over the salary payments. Since a liaison office cannot perform any commercial activity, it is not expected to have a taxable income. Therefore, it will not pay any corporate tax. However, it must keep formal books of account, and must keep records of all expenditure and income, including transfers from the parent, which are open to inspection (usually annual) by the authorities of the Ministry of Finance. There is no prescribed form for these records, except that they must be clear and complete and that documentary evidence must be available in support of all transactions. In general, these records should be consistent with those of the parent, both for its own control purposes, and in order to obtain a tax deduction in the home country for the Turkish office expenses.
5. PERIODICALLY INFORMING THE PUBLIC AUTHORITIES
Liaison offices are also required to submit activity reports to the FID annually. The main purpose of these is to demonstrate that the conditions of the permit have been complied with.
Both foreign and local staff may be employed. Staff requirements are specified in the permit application. The office is required to deduct social security contributions but not income tax from the employees' salaries. The deduction for social security must be determined according to official rates and must be accounted for to the social security offices monthly. Wage and salary records must be maintained, and these may be inspected by the authorities. Office operating costs and other expenses must be financed by transfers in foreign currency from abroad.
6. TERMINATION OF ACTIVITIES
In the case that the liaison office terminates its activities, the "termination and examination of business note" to be received from the related tax office has be submitted to the General Directorate. Liaison offices cannot claim any money transfer except the residue arising due to termination and liquidation. The Undersecretariat might cancel the permits of liaison offices ascertained to have violated the legislation and shall notify related authorities thereof.
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.