Turkey continues to be an attractive destination for foreign investors looking to establish a business presence. With its strategic location between Europe and Asia and a growing economy, Turkey offers vast opportunities. In 2024, important updates have been introduced to the company formation process, especially in the minimum capital requirements, making it crucial for foreign investors to stay informed.
Foreign investors should be aware of these changes, particularly when setting up a Joint Stock Company (AS) or a Limited Liability Company (LTD). Navigating the updated incorporation procedures and understanding the new capital requirements will be key to successfully starting a business in Turkey.
I. Types of Capital Companies in Turkey
When starting a business in Turkey, foreign investors typically choose between two main types of companies: the Joint Stock Company (AS) and the Limited Liability Company (LTD). Both types allow for 100% foreign ownership and offer distinct advantages depending on the nature and size of the business.
a. Joint Stock Company Formation in Turkey: 2024 Requirements
A Joint Stock Company (AS) requires a minimum capital of TRY 250,000 as of 2024. One-fourth of this amount must be paid into the company's account prior to incorporation, with the remaining balance to be paid within 24 months. The AS is often favored by larger businesses due to its flexible structure, particularly with regard to share transfers. In an AS, shares can be easily transferable without needing to be registered or notarized unless the company's Articles of Association specify otherwise. Management is handled by a Board of Directors (BoD), which can consist of a single person, either a legal entity or an individual.
b. Limited Liability Company Formation in Turkey: 2024 Requirements
The Limited Liability Company (LTD) is generally preferred by small and medium-sized enterprises. The minimum capital requirement for an LTD in 2024 is TRY 50,000, which can be paid within 24 months without the need for upfront deposits. Unlike the AS, share transfers in an LTD require approval from the majority of shareholders and must be registered and notarized. Management in an LTD is carried out by a Board of Managers (BoM), where one of the company's shareholders must be a manager. This structure tends to suit businesses where tighter control over ownership and decision-making is desired.
c. AS vs LTD: Which Company Type is Best?
The choice between an AS and an LTD largely depends on the investor's business goals, the level of capital available, and the desired flexibility in ownership and management. Foreign investors should carefully evaluate their needs before selecting the appropriate structure.
II. Key Steps for Incorporation
For foreign investors, understanding the essential steps for incorporation is crucial to ensure a smooth and compliant process. The procedures have been streamlined but still require careful attention to detail.
a. Required Documents
The first key step in establishin a company is preparing the required documentation. Foreign investors who are individuals must provide notarized identification documents, such as a valid passport. If the shareholder is a foreign company, an official investment decision from the parent company, along with an apostille certificate, is required. These documents must be translated into Turkish and notarized to meet the legal requirements.
b. Drafting the Articles of Association
Once the necessary documents are prepared, the next step is drafting the Articles of Association (AoA). This document outlines the company's structure, purpose, and management. It is crucial for foreign investors during the incorporation process to ensure that the AoA reflects their specific business goals and complies with Turkish law. After drafting, the AoA is submitted through the online registry system to initiate the incorporation.
c. Chamber Registrations
The company is then registered with the Chamber of Commerce Trade Registry. This step completes the incorporation process, officially establishing the business entity in Turkey. The requirements for registration differs depending on the company type, with LTD registration being easier and faster.
d. Finalizing Incorporation: Company Books and Tax Registration
Finally, after incorporation, the company's legal and accounting books must be notarized, and the business must be registered with the tax office. An on-site visit from tax officials is typically part of the final tax registration process, marking the last step in completing the process.
Detailed overview of corporate tax system in Turkey can be found here.
III. Management and Responsibilities
During the initial incorporation stage, and especially when drafting the AoA, establishing a clear management structure is vital. Therefore, understanding the roles and responsibilities of company management is crucial to ensuring smooth business operations.
a. Management in Capital Companies
In a Joint Stock Company (AS), the company is managed by a Board of Directors (BoD), which must include at least one member. This member can be either an individual or a legal entity. The BoD has the authority to oversee the company's overall direction, make strategic decisions, and represent the company in legal matters. Foreign investors who establish an AS have the flexibility to appoint non-shareholder individuals or legal entities as members of the BoD.
In a Limited Liability Company (LTD), the company is managed by a Board of Managers (BoM), which must also include at least one member. Unlike an AS, in an LTD, one of the company's shareholders must be appointed as a manager. This gives foreign investors more direct involvement in the management of the company, as the shareholders have a more active role in overseeing operations, but also comes with additional work permit requirements for foreigners, depending on the situation. Similar to an AS, foreign investors can appoint legal entities or individuals to the BoM, providing flexibility in structuring management.
b. Delegation of Signature Powers
Both types of companies allow for the delegation of signature powers to directors or managers for the handling of daily business activities. This delegation is particularly important for foreign investors who may not be directly involved in Turkey on a day-to-day basis, as they can assign local managers to represent the company in routine matters.
IV. Practical Considerations
When it comes to capital investments, foreign investors must also consider several practical challenges that can arise during the process. Understanding these potential hurdles and how to address them can ensure a smoother path to establishing a successful business.
a. Bureaucracy and Red Tape
One of the main challenges for foreign investors is navigating the bureaucracy involved in setting up a company. While Turkey has streamlined the process in recent years, there are still several steps, such as obtaining notarized translations of documents, registering with the Chamber of Commerce, and opening bank accounts. Engaging a local law firm can help guide foreign investors through these requirements, ensuring that all documentation is properly prepared and submitted in accordance with Turkish regulations.
b. Language Barriers
Language barriers can also pose a challenge. While English is commonly used in international business, many official documents and processes are conducted in Turkish. It's important for foreign investors to work with bilingual professionals who can ensure accurate translations of legal documents and provide clear communication during the incorporation process.
c. Bank Account Opening and KYC
Another key consideration is opening a bank account, especially for Joint Stock Companies (AS), where a portion of the capital must be deposited before incorporation. Turkish banks adhere to strict "Know Your Client" (KYC) protocols, which often require shareholders or their representatives to be physically present during the account opening. This can be a logistical challenge for foreign investors, but with proper preparation and guidance, this step can be completed smoothly.
V. Conclusion
In 2024, capital investment in Turkey presents a valuable opportunity for foreign investors looking to tap into a dynamic market that bridges Europe and Asia. With updated regulations, including changes to minimum capital requirements, establishing a business in Turkey has become more accessible albeit more costly.
By carefully selecting the appropriate company type—whether it's a Joint Stock Company (AS) or a Limited Liability Company (LTD)—and ensuring compliance with Turkish regulations, foreign investors can minimize risks and focus on building a successful enterprise. The process involves several important steps, from preparing and notarizing documents to registering with the Chamber of Commerce and setting up management structures. Additionally, understanding the financial liabilities, tax obligations, and practical considerations such as navigating bureaucracy and language barriers will help ensure a smooth incorporation process.
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