Turkish Labor Law
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As a rule foreign nationals have the same right to establish companies as accorded to Turkish citizens.
Pursuant to Article 3 of the Law on Direct Foreign Investments, foreign investors are free to make foreign direct investments in Turkey, and shall be subject to equal treatment with domestic investors.
However foreign companies based in abroad may only set up branches and liaison offices in Turkey. There are some differences as regard to functions and tax and social security liabilities of them.
BRANCHES OF FOREIGN BASED JOINT STOCK COMPANIES
Foreign based stock companies may only be allowed to set up a branch company by the approval of Ministry of Industry and Trade, and if they wish to employ staff they must set up a legal entity.
These branches may engage in commercial and profit making activities which should only be in the same scope of the parent company and they have autonomy in terms of accounting.
As the profit they made is obviously earned in Turkey they are subject to corporate tax in Turkey, and salaries of employees’ are subject to income tax withholding. But the salaries of expats that paid by directly parent company in foreign currency brought in from abroad are exempt from tax withholding.
Stipulations in Turkish Commercial Code
– Title of The Branch: Pursuant to Article 48/3 of Turkish Commercial Code No. 6102 (TTK) every branch must use the parent company name by indicating that it is a branch. In the trade name of Turkey’s branch of a company based abroad, locations of the parent company and branch, and the fact of its being a branch (… Şubesi) must be included.
– Registration and Announcement In Trade Registry Gazette: Turkey branches of business corporation based abroad shall, within 15 days as of the opening date, register and announce themselves and their trade name in the trade registry of site of establishment, and submit to trade registrar, the notarized signature circulars of persons authorized to represent the branch, and assign a commercial representative with full authority residing in Turkey.
– Publication of Financial Statements: Managers of Turkey branches of companies foreign based shall publish the detailed financial statements of the branch; and publish the condensed year-end financial statements, and annual reports belong to the parent company and, if any, to group the former is a member of, within 6 months after their approval as per governing laws the parent company subjected to.
LIAISON (REPRESANTATIVE) OFFICES OF FOREIGN COMPANIES
The other way of entering into Turkey markets for foreign-based commercial enterprises is setting up liaison offices which are specified in Foreign Direct Investment Law No. 4857, and in the framework of procedures and principles stated in “Application Regulation”.
Ministry of Economy is the competent authority for granting and extending the permission of liaison offices. These offices, also called representative offices, do not perform any commercial activities that generate revenue or profit and the all expenses of a liaison office shall be covered by the foreign based company.
Some sample activities of a liaison office are: preparatory and auxiliary services such as collecting information relating to market; performing surveys; following developments and changes in the local regulations; providing information relating to the activities of the parent company and its products to suppliers or customers.
The applications for opening liaison offices in special fields such as capital market, money market and insurance business that have particular legislation shall be assessed by the institutions and organizations assigned as competent authority in line with their special legislation.
Operation Basis and Procedures
a) In first application liaison offices may be given permission for at most three year in their scope of activity. Offices wishing to extend their operating period should apply to General Directorate of Incentive Implementation and Foreign Investment before the expiration of the authorization.
b) The General Directorate shall assess the extension application as regard to past activities; prospective business plan and target; current and foreseen expenditure and employed personnel of foreign based country. Permission of liaison offices who engaged in market research or product promotion is not extended.
Tax Exemption
As liaison offices are not in the commercial enterprise status and do not gain any revenue or profit they are not subject to VAT (Value added Tax) and corporate tax.
Personnel of liaison offices that paid by foreign based company with foreign currency brought from abroad are exempt from income tax. And also no stamp tax deduction shall be made.
SSI Liability
Without prejudice to bilateral agreements Turkey is party to, personnel of liaison offices should be insured under the Social Security and General Health Insurance Law No. 5510. SSI Declaration: The declaration shall be submitted to the authorities at latest one day before the insured’s start date.
