Many foreign companies discovered Turkey as an interesting place for investments in consequence of Turkey's rapidly expanding economy, political and economic stability and the possibility of European membership
An option may be the establishment of a liaison office which enables the company to accustom with the market and to acquire a range of customers. Herein we will focus on general information regarding (i) conducting business of a liaison office, (ii) term of a liaison office and (ii) establishing steps of a liaison office of a foreign company under Turkish Law. .
“Especially for the reason that foreign investors do not know the Turkish market it may possibly not recommendable to entry the market by establishing a joint stock or a limited liability company.”
I. Conducting Business of a Liaison Office
According to Article 3/h of the Foreign Direct Investments Law numbered 4875 (published in the Official Gazette dated June 17, 2003 and numbered 25414) ("FDIL") , establishment of a liaison office requires the permission of the Undersecretariat of Treasury's General Directorate of Foreign Investment of the Republic of Turkey ("GDFI") in Ankara. A liaison office is not allowed to engage directly in any profit generating business. However, activities such as gathering information, conducting market researches, visiting clients and describing the aspects of the parent company, arranging transfer of documents between the clients and the parent company and entering into contacts to expand the business opportunities of its parent company are permissible, since they are not considered as commercial activities. In light of the above mentioned, a liaison office may not directly issue invoices for the goods sold or services rendered to the local persons, however, the parent company may issue such invoices.
Furthermore a liaison office is not required to bring a capital into the Republic of Turkey, however, the expenditures of a liaison office, such as the payment of salaries must be brought from abroad in foreign currency. Due to the fact that a liaison office can not engage in any commercial activity and can not obtain income and transfer money abroad from Republic of Turkey. As a result A liaison office is not taxpayers of income and corporate taxes; however, it must keep records of all of its expenditures and revenues, which are transferred from the parent company.
II.Term of a Liaison Office
A liaison office establishment permit may be issued for a maximum period of three (3) years. Upon its expiry, an application may be made for the extension of its term for an additional period of three (3) years. When assessing such application, GDFI takes into account the previous years' activities of the relevant liaison office together with its future projects and objectives.
III.Establishing Steps of a Liaison Office
a. Permission of the GDFI
First of all, permission of the GDFI shall be obtained. Documents required by the GDFI for the application are as follows:
i. A commitment letter specifying that all expenses of the liaison office shall be provided from abroad by transferring foreign currency into Turkey (notarized and apostilled);
ii. Parent company's certificate of activity should be provided from the Trade Registry or Chamber of Commerce where the parent company is registered (notarized and apostilled);
iii. A board resolution of the parent company for the incorporation of a representative office in Turkey (notarized and apostilled);
iv. The most recent annual report of the parent company including its balance sheet and profit/loss statement (notarized and apostilled);
v. A Power of Attorney to be granted to the person, who will conduct the activities of the representative office (notarized and apostilled);
vi. Detailed explanation with respect to (a) the business to be conducted by the representative office, (b) the number of personnel to be employed by the same and (c) the estimated expenses to be made in one (1) year.
b. Registration of the Tax Office
Within one (1) month after obtaining the permission from the GDFI, an application must be made to the relevant tax office. Although the liaison office itself is not subject to taxes and the employees are exempt from income tax, tax office registration is required for the withholding tax liabilities over the rental payment to be extended to real persons and for the stamp duty liabilities over the salary payments. Upon obtaining the permission of the GDFI, documents required for the application to the relevant tax office are as follows:
i. Copy of the Certificate of Permission of the GDFI;
ii. Rental agreement for the liaison office (notarized);
iii. Signature specimen of the representative of the liaison office (notarized and apostilled);
iv. A copy of the Power of Attorney granted to the representative(s) inTurkey;
v. Passport copy and work&residence permit of the representative of the liaison office (for foreigners) or notarized ID copy and domicile certificate (for Turkish citizens);
vi. Standard application form filled in and signed by the representative of the liaison office.
c. Registration of the Social Security Institution ("SSI")
i. Copy of the Certificate of Permission of the GDFI;
ii. Copy of the tax office registration certificate;
iii. Rental agreement for the representative office (notarized);
iv. Signature specimen of the representative(s) inTurkey (notarized);
v. A copy of the Power of Attorney granted to the representative(s) in Turkey;
vi. A copy of the passport copy of the representative(s) (for foreigners) or notarized ID copy and domicile certificate (for Turkish citizens);
vii. Standard Work Place Opening Notification Form;
viii. Standard Employee Entrance Notification Form;
d. Reporting to the GDFI the establishment of the Liaison Office
As the last step, upon completion of the establishment process, duly establishment of the liaison office has to be reported to GDFI with the documents mentioned below:
i. Copy of the rental contract of the liaison office;
ii. Copy of the tax registration certificate;
iii. Copy of the application to the SSI;
In case a liaison office terminates its activities, the termination and examination of business note to be received from the related tax office has to be submitted to the GDFI. Liaison offices cannot claim any money transfer except the residue arising due to termination or liquidation. The GDFI might cancel the permits of liaison offices in case the offices are found to have violated the legislation.
IV. Conclusion
Establishment of liaison offices in Turkey by the Turkish entities does not have any legal ground pursuant to the Turkish Law. However, in practice, by application to the relevant Tax Office, Turkish entities may open liaison offices by submitting (i) an application petition, (ii) a notarized board of directors resolution regarding the establishment of a liaison office and (iii) a copy of the rental agreement of the place which will be used as the liaison office.
Although the Turkish law stipulates a list of required documents, the GDFI and relevant Tax Offices may always request, at its discretion, additional documentation or information while evaluating an application. One should bear in mind that in the regulated sectors, the process of a liaison office establishment is subject not only to the Turkish law, but also to the applicable sector ad specific legislations.