Foreign companies may establish a liaison office in Türkiye rather than establishing a joint stock company or a limited liability company before deciding to invest in Türkiye. By establishing a liaison office, foreign companies can; conduct the necessary research on their sectors in the Turkish market; discover the potential, deficiencies or demands in the market in which they intend to operate; and decide whether or not to operate in Türkiye as a result of their research. However, it is important to note that liaison offices are prohibited from engaging in commercial activities; liaison offices cannot engage in any commercial activity that will generate profit. In this article, the establishment of a liaison office will be explained in three phases.
The Regulation on the Implementation of the Foreign Direct Investment Law regulates the subjects in which liaison offices may operate as follows:
- Representation and hospitality: Representation of the foreign company before sectoral organizations and related organizations, coordination and organization of business contacts of foreign company officials in Türkiye, meeting their office usage needs.
- Control and audit of suppliers in Türkiye in terms of quality and standards and selection of suppliers: Inspection of the companies that manufacture on behalf of the foreign company within the framework of the quality standards of the foreign company, supply of the product and manufacturer requests of the foreign company.
- Technical support: Providing training or technical support to distributors and providing support services to supplier manufacturers to improve their quality standards.
- Communication and information transfer: Gathering and transferring information on market developments, consumer trends, sales situation of competitors and distributors, performance of the distributor company, etc. to be delivered to the foreign company having business relations with Türkiye.
- Regional management centre: Providing coordination and management services for the foreign company's units in other countries, such as formulation of investment and management strategies, planning, promotion, sales, after-sales services, brand management, financial management, technical support, R&D, outsourcing, testing of newly developed products, laboratory services, research and analysis, training of employees.
Foreign companies are required to apply to the Ministry of Industry and Technology ("Ministry") for permission to establish a liaison office. The company which will open a liaison office shall be established in the foreign country in accordance with the laws of that country. The Ministry may evaluate the requests of newly established companies to open a liaison office in Türkiye within the framework of factors such as the company's field of activity, capital and the number of personnel employed, and may stipulate that a period of at least one year must elapse from the establishment of the company to grant the activity permit. However, this condition is not valid for all companies and may be required in cases deemed necessary by the Ministry.
Activity Period of Liaison Office
For the first applications of liaison offices, the maximum authorization period to be granted within the declared scope is 3 years. However, offices wishing to extend their activity period shall apply to the General Directorate of Incentive Implementation and Foreign Capital ("General Directorate") before the end of the activity period.
Phase 1: Pre-Application Requirements
The required documents to be submitted to the Ministry for the establishment permission are as follows: application form, letter of undertaking, certificate or deed of incorporation of foreign company, the latest certificate of activity of foreign company, annual report & financial statements of foreign company, board of directors' resolution of the foreign company, power of attorney for appointment attorneys to establish the liaison office, power of attorney for the appointment of the manager of the liaison office, signature specimen from liaison office manager.
Phase 2: Application to the Ministry
All required documents mentioned above, if they are not already prepared in Turkish, should be translated by a sworn translator in Türkiye and notarized to complete the application to the Ministry. Once submitted, the Ministry will finalize the establishment application within 20 to 30 business days, provided all documents are complete.
Phase 3: Post-Application Requirements
After the establishment of the liaison office, the tax office should be notified regarding the establishment in order to obtain a tax office registration certificate with the necessary documents within 1 month. Additionally, liaison offices must submit a copy of the tax office registration certificate and lease agreement to the General Directorate within 1 month. Therefore, tax office registration and renting an office to be determined as the official address should be carried out in the most reasonable time after the application.
The parent company is not allowed to transfer funds to its liaison office in Türkiye in Turkish Lira (TRY). However, essential local expenses such as rent, utilities, meals, and employee social security premiums must be paid in TRY. Therefore, in practice, liaison offices must have two separate bank accounts in Türkiye: a foreign currency account for receiving funds from abroad and a TRY account for converting foreign funds into TRY and making local payments. Additionally, liaison offices must establish a Turkish public bank account for paying social security premiums and, if necessary, other tax obligations.
In order to hire Turkish employees, the office must register with the Social Security Institution and pay employee premiums and labour contracts of the employees must be prepared according to the Labour Law No. 4857 and to hire a foreign employee, the foreign employee must obtain a work permit from the Ministry of Labor and Social Security, provided that USD 200,000 or its equivalent in foreign currency is brought in for liaison office activities in accordance with the Regulation on Employment of Foreign Personnel in Direct Foreign Investments.
Liaison offices are not required to maintain financial or legal records such as balance sheets or journal ledgers. Instead, the liaison offices must report their activities to the Ministry of Industry and Technology annually by the end of May of each year.
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.
