Liaison Offices under Turkish Law
Turkey is a dynamic market that attracts foreign investors for new business opportunities. To further encourage investors, Turkish law envisages the possibility of establishing a liaison office in Turkey for foreign companies. Liaison offices provide foreign investors with various financial and legal benefits. The motivation behind such benefits is to familiarize foreign investors with the dynamics of Turkish market.
The legal framework regarding the establishment and operation of liaison offices in Turkey is regulated under the Foreign Direct Investment Act No. 4875 and the Regulation on Implementation of the Foreign Direct Investment Act (“Regulation”).
It is set out under the said legislation that companies incorporated pursuant to the laws of foreign countries may open liaison offices in Turkey, provided that they obtain permission from the Ministry of Industry and Technology and do not engage in commercial activities.
It is worth mentioning that liaison offices do not have a separate legal personality from their parent company. For the sake of example, liaison offices may be considered as a department or a room within their parent companies’ headquarters. Accordingly, the parent company is fully liable for the actions, debts and obligations of its liaison office.
Certain permitted fields of activity that liaison offices may carry out under Turkish law are as follows:
- Market research
- Promotion of products or services of the parent company
- Representation and hosting
- Control and inspection of local suppliers in terms of quality standards as well as provision of new suppliers
- Technical support
- Communication and transmission of information (e.g. transferring information regarding market conditions, new trends, sales of competitors etc.)
- Regional management centre
- Other type of activity (this should be explained very carefully in detail while preparing an application)
2. Incorporation of a Liaison Office in Turkey
For the first application to obtain permission from the Ministry, liaison offices are granted with a maximum of three-year-period. Any application for establishment of a liaison office is finalized by the Ministry within fifteen business days following the application, provided that the requested information and documents are complete.
The application documents to be submitted to the Ministry in order to establish a liaison office are as follows:
- Application form
- Letter of commitment stating that the liaison office will not carry out commercial activities
- The “Certificate of Activity” of the parent company approved by the relevant Turkish Consulate or approved in accordance with the provisions of the Hague Convention Abolishing the Requirement of Legalization for Foreign Public Documents
- Annual report or balance sheet and income statement of the foreign company
- Certificate of authority issued to the person who is appointed to conduct the operations of the liaison office
- The power of attorney if another person will carry out the procedure for establishing the liaison office
After obtaining their permits, liaison offices must submit a copy of their tax office registration document and the lease agreement for their office space to the General Directorate of Incentive Practices and Foreign Capital (“Directorate”). Such submission must be made within a month.
Towards the expiration of their operation permit, liaison offices may apply to the Directorate for extension (except for liaison offices that carry out market research or engage in promotion). The Directorate finalizes any application for establishment or extension within fifteen business days following the application, provided that the requested information and documents are complete.
3. Advantages of Liaison Offices
Liaison offices provide great convenience for foreign investors, especially in terms of taxation. For ease of reference, legal and financial advantages provided for liaison offices are listed below:
- Liaison offices are naturally exempt from corporate tax because they can’t carry out commercial activities, which leads to the liaison office not generating any profit.
- Employees’ working for a foreign company that is not established in Turkey are exempt from income tax and withholding tax on their salaries, provided that their salaries are directly paid by the foreign company in a foreign currency unit. Accordingly, foreign companies that operate a liaison office in Turkey are not obliged to pay income tax and withholding tax on their employees’ salaries.
- Liaison offices need to pay VAT where they purchase a product or a service in Turkey. However, they don’t need to make VAT declarations to the relevant tax office because they cannot draw up an invoice.
- Liaison offices are not required to keep fiscal books such as general journal, inventory register or balance sheet since they are not independent from their parent company.
- It is not required for liaison office to register with the relevant trade registry. Accordingly, they don’t need to keep notifying the trade registry about certain changes regarding the structure of their organization. Naturally, they also don’t need to get anything published in the Turkish Trade Registry Gazette.
In conclusion, foreign investors intending to enter the Turkish market may prefer to establish a liaison office in Turkey to familiarize themselves with the business environment of the country. Thanks to this alternative model, foreign investors may carry out market research regarding Turkey while enjoying various financial and legal advantages.
Please kindly note that it requires technical knowledge to establish and maintain a liaison office. Therefore, it is advised to seek legal advice before submitting an application to establish a liaison office in Turkey.