Turkish law, more precisely the Foreign Direct Investment Law numbered 4875 and the Regulation on the Implementation of the Foreign Direct Investment Law (the “Regulation”), allows foreign companies to have an official presence in Turkey under the form of a “liaison office”. This alternative option is often chosen by foreign companies which are interested in the Turkish market but are reluctant to establish a subsidiary in the form of a company and branch. In this article, we will be explaining the area of activities, permission procedure, and advantages of the liaison offices to be established in Turkey. Prohibition on Commercial Activities In Turkey, liaison offices cannot conduct commercial activities. In other words, the liaison offices of foreign companies are not entitled to sign commercial agreements or issue invoices. This prohibition is the first condition of establishing a liaison office in Turkey. If a liaison office enters commercial transactions, its operation permit will be cancelled. When required, the parent company (i.e., foreign company) should perform such activities directly. However, a liaison office may lease an office and open a bank account in Turkey to pay its operational expenses. The expenses of the liaison office will be covered by the parent company.
Permitted Activities The activities in which the liaison office may engage are listed in article 8 of the Regulation as follows:
Market research,
Promotion of the products and services of the parent company,
Representation and hosting (representation of the foreign company before sectoral institutions and related organizations, coordination and organization of business contacts of foreign company officials in Turkey, meeting the office demands of those officers),
Controlling and inspecting local suppliers in Turkey in terms of quality and standards, and procurement of local suppliers (inspection of the contract manufacturers of the foreign company within the framework of the quality standards of the foreign company, procurement of the products of the foreign company and the needs of the manufacturers),
Technical support (providing training or technical support to distributors, providing support to manufacturers to enhance their quality standards),
Communication and transfer of information (collection and transfer of information to the foreign company with business activities in Turkey such as market conditions, consumption trends, sales of competitors and distributors, performance of distributors),
Acting as regional management headquarters (providing coordination and management services for the units of the foreign company in other countries, such as creation of investment and management strategies, planning, promotion, sales, after-sale services, trademark management, financial management, technical support, R&D, external supply, testing of newly developed products, laboratory services, research and analysis, employee training).
When applying for the establishment of a liaison office, the parent company is required to choose the activities of the liaison office from the list above and to appoint an authorized person (or a representative) to carry out the respective activities on behalf of the liaison office. Permission Procedure The Ministry of Industry and Technology (the “Ministry”) is the competent authority to permit the establishment of the Liaison Office. The parent company should apply to the General Directorate of Incentive Implementation of the Ministry, located in Ankara, with the following documents:
Official application form,
Declaration form listing the scope of activities to be carried out by the liaison office and indicating that the liaison office will not conduct commercial activities,
Certificate of activity of the foreign company to be received from the relevant trade registry in the country where the foreign company is incorporated (to be apostilled or legalized),
Activity report or balance sheet and income statement of the foreign company for recent years,
Certificate of authority to be issued in the name of the authorized person of the liaison office,
Power of attorney to be issued in the name of the attorney who will file the permit application with the Ministry.
Upon submission of all documents, the Ministry shall examine the application in terms of practice areas, share capital and employee numbers of the foreign company. If no additional information or documents are required, the Ministry shall notify its decision within fifteen days of the application date. The liaison office shall directly become “established” and operational with the permission of the Ministry. However, there are also some additional post-establishment formalities such as registration with the tax office and the social security institution, submission of the lease agreement to the Ministry, and preparation of annual reports. The permit is granted for a maximum period of three years. However, if requested from the Ministry prior to the expiry of the permit, an extension may be granted to the activities of the liaison office, except for the activities of market research and promotional activities. Advantages of a Liaison Office Forming a liaison office is an advantageous way of having an official presence in Turkey with simpler formalities and fewer liabilities. As explained above, mere permission from the Ministry is sufficient for the establishment of a liaison office. Unlike with companies, share capital is not subscribed by the parent company for this purpose. From a taxation perspective, as liaison offices cannot engage in commercial transactions, they are not subject to corporate income tax. Thus, they are not required to file VAT declarations or keep company ledgers. Furthermore, if the parent company chooses to close its liaison office before the expiry of the permission, it would be a much simpler procedure than for companies. For further queries, please contact:
Arif Yetkin
Managing Partner
Doğukan Berk Aksoy
Partner