WHAT IS A LIASION OFFICE UNDER TURKISH COMMERCIAL LAW?

WHAT ARE THE CONDITIONS FOR FOREIGN COMPANIES TO ESTABLISH A LIAISON OFFICE IN TURKEY?

The establishment of liaison offices in Turkey by foreign companies is subject to specific conditions under the Regulation on the Implementation of the Foreign Direct Investment Law. These conditions aim to ensure that foreign companies operate in compliance with Turkish legal regulations.

1. The Company Must Be Established Abroad

The foreign company intending to open a liaison office in Turkey must be a legal entity established and operating under the laws of a foreign country.

2. Obtaining Ministry Approval for Establishing a Liaison Office in Turkey

Foreign companies must obtain permission from the Ministry of Industry and Technology to establish a liaison office in Turkey. The Ministry grants activity permits under specific conditions, and penalties may apply if activities are conducted outside the scope of the permit. Notably, newly established companies cannot be granted such permits. The foreign company must have been in operation for at least one year. However, this condition is not mandatory for all companies and is subject to the Ministry’s discretion.

3. Prohibition on Engaging in Commercial Activities

Liaison offices in Turkey are prohibited from engaging in commercial activities. They are limited to non-commercial functions such as representation, research, technical support, and information sharing on behalf of the foreign company as a contact office in Turkey.

4. Complete and Accurate Submission of Application Documents

Applications for establishing a liaison office in Turkey or extending its activity permit must include all required documents, fully and accurately submitted.

5. Special Regulatory Sectors

Requests to establish liaison offices in sectors subject to specific regulations, such as finance, insurance, and capital markets, are evaluated under the respective sectoral regulations. The Ministry considers the opinions of relevant institutions and organizations before concluding these requests.

HOW TO ESTABLISH A LIAISON OFFICE IN TURKEY FOR FOREIGN COMPANIES?

Establish a liaison office in Turkey must apply to the General Directorate of Incentive Implementation and Foreign Investment under the Ministry of Industry and Technology with the required documents. According to Article 8 of the Regulation on the Implementation of the Foreign Direct Investment Law, the Ministry grants permits for a maximum of three years. Renewal applications must be submitted before the permit expires.

The documents required for establishing a liaison office are regulated under Article 7 of the Regulation. These include:

1. Application Form: A completed application form in the format provided by the Ministry.
2. Declaration:
   • A declaration outlining the scope of the activities the liaison office plans to carry out and affirming that it will not engage in commercial activities.
   • A document verifying the signing authority of the foreign company representative who signs the declaration.
3. Certificate of Activity for the Foreign Company:
   • A document proving that the foreign company is operational.
   • This document must be certified by the relevant Turkish Consulate or legalized under the provisions of the Hague Apostille Convention.
4. Activity Report or Financial Documents: An activity report, balance sheet, or income statement of the foreign company.
5. Authorization Document: A document authorizing the individual(s) who will manage the liaison office’s activities.
6. Power of Attorney: A power of attorney, if the establishment process is to be handled by another individual or organization on behalf of the foreign company.

The application process typically takes 15 business days, provided all required documents are submitted completely and accurately. Establishing a liaison office in Turkey is a critical step for foreign companies entering the Turkish market. However, since commercial activities are prohibited, it is essential to prepare the application in accordance with this restriction.

WHAT ARE THE ACTIVITY AREAS OF CONTACT OFFICES IN TURKEY?

Under the Foreign Direct Investment Law, liaison offices in Turkey cannot engage in commercial activities or conduct any transactions that generate income. These offices are limited to specific activities, which are defined along with their features and permit extension durations as follows:

Liaison offices provide a significant platform for foreign companies to operate in Turkey. However, compliance with the relevant regulations is mandatory. Failure to adhere to these rules may result in the cancellation of activity permits and legal sanctions.

WHAT IS THE ACTIVITY DURATION OF A LIAISON OFFICE IN TURKEY?

In Turkey, liaison offices are granted a maximum activity permit of 3 years based on the scope of activities declared during the application process. However, contact office in Turkey that wish to continue their activities beyond this period must apply for an extension to the General Directorate of Incentive Implementation and Foreign Investment under the Ministry of Industry and Technology before the permit expires.

1. Evaluation of Extension Requests for Liaison Office Permits

The General Directorate conducts a detailed evaluation of extension applications, considering the following factors:

• The liaison office’s activity report from the previous year.
• The foreign company’s future business plans and goals for Turkey.
• The current and anticipated expenditure levels in Turkey.
• The number of personnel employed at the liaison office.

2. Situations Where Liaison Office Activity Extensions Are Not Granted

In certain cases, the extension of a liaison office’s permit may not be possible. Specifically:

• Liaison offices operating for market research purposes.
• Liaison offices authorized to promote the foreign company’s products or services.

In such scenarios, companies wishing to maintain their presence in Turkey after the permit expires may need to explore alternative methods to establish their operations.

The approval of extension requests of liaison office in Turkey depends on the submission of complete and accurate documents by the applicant. The past performance of the liaison office and its alignment with future plans contributing to the Turkish market are key considerations. However, for activities granted limited permissions, it is crucial to anticipate the possibility of extension requests being denied.

RESTRICTIONS IMPOSED ON LIAISON OFFICES UNDER TURKISH LAW

Liaison offices differ from other company types due to their strict prohibition from engaging in commercial activities. Under the Foreign Direct Investment Law, liaison offices can only operate within designated activity areas, and earning any form of income from these activities is strictly forbidden. These restrictions confine liaison offices’ roles to gathering market information, representation, and organizational functions within the Turkish market.

1. Activity Duration Restrictions for Liaisons Office in Turkey

• The initial operating period is limited to 3 years.
• Extensions can range between 5 and 10 years, depending on the designated activity area.
• At the end of the term, extensions may be requested without altering the activity scope.

2. Asset and Financing Restrictions for Liaison Office in Turkey

• Liaison offices are not allocated any independent assets. All activities and organizational expenses must be funded by the parent company abroad.
• The parent company is required to finance the liaison office’s expenses, salaries, and other costs directly.

3. Branch Office as an Alternative for Commercial Activities

Foreign companies wishing to engage in broader commercial activities in Turkey must establish a new company in Turkey or a branch. These structures allow the foreign company to earn profits from commercial activities and own independent assets in Turkey.

4. Employment of Personnel at Liaison Offices in Turkey

Liaison offices are permitted to employ personnel, but with certain conditions:

• Additional permits may be required for employing personnel.
• The office is responsible for fulfilling all social security obligations for its employees.

These limitations are designed to ensure that liaison offices remain focused solely on representation and information-gathering activities without engaging in profit-making ventures. Foreign investors seeking a more active and revenue-generating structure are encouraged to explore options like establishing a branch or subsidiary. Choosing the right setup aligned with the company’s strategic goals in Turkey is crucial.

FINANCING EXPENSES OF LIAISON OFFICE IN TURKEY

Since liaison office in Turkey is prohibited from generating income in Turkey, all expenses must be financed by the foreign parent company through foreign currency transfers. These expenses include:

• Personnel Salaries and Social Security Contributions: Wages and SGK (Social Security Institution) premiums for employees.
• Rent and Office Expenses: Costs for the liaison office’s rent and other operational expenses.
• Bookkeeping Costs: Payments to professionals for maintaining financial records.
• Translation and Interpretation Services: Costs for translating foreign documents into Turkish.
• Cleaning and Temporary Services: Payments for office cleaning or temporary services.

The parent company assumes full financial responsibility for all payments and expenses related to the liaison office in Turkey, which must be transferred from abroad in foreign currency.

AUTHORITY AND RESPONSIBILITY OF CONTACT OFFICE IN TURKEY

In liaison offices, the legal relationship between the personnel and the foreign company can take one of two forms:

• Agency Agreement: Individuals act on behalf of the foreign company under an agency relationship.
• Employment Contract: Individuals are employed directly by the foreign company as employees.

1. Status Under Labor Law

• Liaison offices are not considered employers.
• The employer is the foreign parent company.
• However, liaison offices are responsible for ensuring compliance with social security contributions and other legal obligations for personnel working in their name.

2. Termination of Liaison Office in Turkey

Liaison offices may cease operations in two ways:

• Voluntary Closure: When the foreign company voluntarily decides to terminate the office’s activities.
• Closure by Authorities: Liaison offices operating outside their permitted scope or engaging in illegal activities may have their operating licenses revoked by the Ministry.

3. Closure Process and Legal Requirements

• Closing Procedures: Obtain a deregistration certificate (iş bırakma-yoklama fişi) from the tax office. Submit this document to the General Directorate of Incentive Implementation and Foreign Investment.
• Transfer Requests: No transfer of funds, apart from remaining balances during closure or liquidation, is permitted.

Article 8/e of the Foreign Direct Investment Law Implementation Regulation outlines the legal framework for these processes.

Liaison offices in Turkey are designed to operate strictly within the framework of non-commercial activities. All expenses must be financed by the parent company abroad, and the authority to represent the company is separate from employer-employee relationships. Non-compliance with operating licenses results in closure through administrative and legal processes.

HOW LONG DOES IT TAKE TO ESTABLISH A LIAISON OFFICE IN TURKEY?

The process of establishing a liaison office is typically completed within 15-20 days, provided all required documents are submitted accurately and in full. The timeline depends heavily on the completeness and correctness of the application dossier.

CAN LIAISON OFFICES ENGAGE IN SALES ACTIVITIES IN TURKEY?

Liaison offices in Turkey are prohibited from engaging in sales activities. According to Turkish legislation, contact office in Turkey is established solely for representational purposes and are restricted from conducting commercial activities. Their scope of activities is limited to market research, gathering information on local market trends, providing technical support to the foreign company, and overseeing local supplier relations.

Consequently, liaison and contact office in Turkey cannot carry out sales, sign contracts, or generate revenue. However, they can facilitate potential business connections and client relations by directing such opportunities to the parent company abroad. This ensures that all sales and commercial transactions remain under the parent company’s jurisdiction. Furthermore, liaison offices must comply with data protection obligations under KVKK (Turkish Personal Data Protection Law) when handling customer or market information.

CAN A FOREIGN WORKER BE EMPLOYED IN A CONTACT OFFICE IN TURKEY?

Employment of foreign personnel in a liaison office in Turkey is possible under certain legal restrictions and conditions. These restrictions are particularly related to foreign labor quota applications. In work permit applications for foreign employees, it is required that at least five Turkish workers be employed for each foreign worker. This regulation is designed to control the proportion of foreign workers in Turkey’s labor market. However, under the Foreign Direct Investment Law, there are some exceptions to this general rule. One of the main exceptions is the concept of “key personnel.”

Under the regulations related to foreign work permits, the Foreign Direct Investment Law defines key personnel as employees who meet specific criteria. Key personnel are individuals who are in senior management, play an active role in the organization’s management, and are involved in making strategic decisions. These individuals have the authority to control the company’s auditors, administrative or technical staff, and may also be involved in important decisions such as hiring and firing personnel. The regulation also recognizes employees in senior positions who have deep knowledge of the company’s products, services, technical expertise, or management as key personnel.

An additional regulation has been made specifically for Liaison Offices. Employment of key personnel in these offices is limited to a worker authorized by the parent company from abroad, provided that at least 200,000 USD (or its equivalent in foreign currency) has been brought from abroad in the last year. In this context, the number of foreign personnel that can be employed in a contact office in Turkey is limited to only one person.

LOCAL EXPENDITURES OF LIAISON OFFICES AND BANK ACCOUNT REQUIREMENT IN TURKEY

Regulations regarding the transactions and expenses of liaison offices state that all funds must be transferred from abroad. These funds must be in foreign currency, and it is prohibited for the parent company to send Turkish Lira (TL) to the liaison office in Turkey. However, there is a specific exception regarding local expenditures in Turkey. Daily expenses such as meals, gas, rent, and local payments like Social Security Institution (SGK) premium payments for employees must be made in Turkish Lira (TL).

In compliance with these regulations, liaison offices must maintain two separate bank accounts in Turkey. One bank account must be in foreign currency and used exclusively for transfers made from abroad. The other account must be in TL and used for converting foreign funds and making local payments.

Additionally, with the legislative changes made on November 26, 2019, it has become mandatory for liaison offices to open an account in a public bank for social security premium payments and, when necessary, other tax payments. This regulation is a necessary measure for liaison offices to fulfill their social security and tax obligations in Turkey.

In conclusion, liaison office in Turkey must use two separate bank accounts to regulate their financial transactions in Turkey, and one of these accounts must be in a public bank.

OBLIGATIONS AND LEGAL RESPONSIBILITIES OF A LIAISON OFFICE IN TURKEY

Liaison offices have specific legal obligations and regulations that they must fulfill while operating in Turkey. These obligations are important both in terms of tax regulations and legal audit requirements. The main duties that the liaison office must perform are listed below.

1. Documentation of the Expenses of the Liaison Office

The contact office in Turkey is required to meet its expenses from foreign currency transferred from abroad. Documenting these expenses is crucial for proper accounting procedures. The liaison office must ensure that these expenses are supported by bank receipts and store the documents properly for later submission if necessary. Bank receipts are the most important documents that prove the expenses were made with foreign currency sent from abroad. Proper and organized storage of such documents facilitates tax audits and legal inspections.

2. Preparation and Submission of the Annual Activity Report

Liaison offices are obliged to fill out an Information Form about the previous year’s activities and submit this report to the relevant authority every year. Liaison offices in Turkey must submit their activity reports by the end of May at the latest. This report summarizes all the activities carried out during the previous year and is considered a key document for auditing by the relevant authority.

3. Auditing and Practices

The Ministry may audit the liaison offices in Turkey to verify whether they are conducting their activities in line with the scope stated in their permits, either on its own initiative or based on notifications from relevant institutions. Liaison offices found to be operating outside the scope of their permit are given 30 days to apply for the appropriate permit. This period can be extended by a maximum of 30 more days for justified reasons. At the end of the period, those who do not apply will have their permits revoked.

In conclusion, accurately documenting the expenses of liaison offices and submitting the annual activity report on time is crucial for fulfilling legal responsibilities. Meeting these obligations ensures that the liaison office’s activities can continue within the legal framework.

IS THERE A TAX EXEMPTION ON SALARY PAYMENTS TO WORKERS IN A LIAISON OFFICE IN TURKEY?

Payments made to personnel working in liaison offices  in Turkey are subject to specific legal regulations and exceptions. To make these payments correctly, foreign companies must comply with Turkish tax legislation. Below are the key regulations related to personnel payments in liaison offices.

a. Income Tax Exemption on Salary Payments to Personnel

Salaries paid in foreign currency by employers who are not tax residents in Turkey, for employees working for them outside Turkey, are exempt from income tax. This exemption applies only to salary payments made in foreign currency to liaison office’s worker from the parent company abroad. These payments must be made from abroad. The relevant transfers must be proven to have been directly sent to the employee’s bank account.

To verify that payments and transfers are made correctly, it is mandatory to obtain and store documents such as bank receipts, foreign currency purchase documents, and international transfer receipts. These documents form the necessary evidence for the income tax exemption to be applied.

b. Stamp Duty Deduction

According to the Stamp Duty Law, stamp duty must be deducted from salary payments made to personnel working in a liaison office in Turkey. This deduction must be declared via the monthly declaration and paid within the legal deadline. Stamp duty is a legal obligation to ensure the validity of a salary payment document. Failure to fulfill this obligation by liaison offices can result in legal penalties.

c. Social Security Coverage for Workers

Personnel working in liaison offices must be insured under the Social Security Law. The liaison office in Turkey, as a limited taxpayer employer, is required to pay the social security premiums for its employees. This obligation must be fulfilled before the employee is registered as an insured worker. Otherwise, failure to pay insurance premiums may lead to legal responsibility under Turkish Labor Law.

d. Workplace Notification

Liaison offices in Turkey are required to notify the relevant Social Security Provincial Directorate about their workplace before their employees start working as insured workers. This notification is necessary for the fulfillment of the workplace’s social security obligations, and failure to do so can result in legal penalties.

In conclusion, payments made to workers and personnel in liaison offices in Turkey are subject to certain tax and social security regulations. Compliance with income tax exemptions, stamp duty deductions, social security obligations, and workplace notifications ensures that foreign companies’ operations in Turkey continue in a proper legal framework. Therefore, it is essential for liaison offices to fulfill all legal requirements when employing personnel.

ADVANTAGES OF OPENING A LIAISON OFFICE IN TURKEY FOR FOREIGN COMPANIES

Opening a liaison office in Turkey offers foreign companies both financial and operational advantages in Turkey. These advantages can be summarized as follows:

1. Tax Advantages of Liaison Offices

Liaison offices are exempt from the following taxes:

• Value Added Tax (VAT)
• Corporate Tax
• Income Tax (only for personnel)
• Stamp Tax
  This exemption makes liaison offices financially attractive.

2. Tax Declaration Obligations of Liaison Offices

Liaison office in Turkey is required to regularly submit a declaration, but they are not required to make any payments under this declaration. This simplifies operational processes.

3. Low-Cost Entry Opportunity

Opening a contact office in Turkey can be an ideal solution for entering a sector with a reasonable budget. It allows the company to gather market information and start activities without incurring high costs.

4. Market Research and Customer Analysis

One of the key ways to succeed in the local market is to understand market dynamics and know the customer base. Liaison offices serve this purpose by allowing foreign companies to:

• Research the market conditions and dynamics in Turkey
• Analyze customer demands
• Operate effectively in the sector

5. Providing Technical and Customer Support

Liaison offices offer a significant advantage in providing effective and rapid customer support. Particularly in sectors requiring technical support, they can:

• Respond to customer needs promptly and on-site
• Provide technical support and training related to products
• Offer after-sales services quickly
  This enhances customer satisfaction and helps the company gain a strong reputation in the local market.

6. Sectoral Success and Image Building

Liaison offices are an important tool for establishing a professional image in the local market and gaining a strong position in the sector. A well-functioning liaison office in Turkey, with the right strategies, can lay a solid foundation for more comprehensive commercial ventures in the future.

Opening a liaison office in Turkey is an important strategic step for foreign companies before starting commercial activities in Turkey. It offers significant advantages both financially and operationally, thanks to tax benefits, low-cost entry opportunities, the ease it provides in local market analysis, and the chance to offer effective support to customers.

KEY DIFFERENCES BETWEEN A LIAISON OFFICE AND A BRANCH

When foreign companies decide to invest in Turkey, it is crucial to choose whether to open a liaison office or a branch. Contact office in Turkey is typically opened for market research or preparation for commercial activities, while branches are established to directly engage in business activities. Therefore, the legal status, tax obligations, and functions of both options should be carefully evaluated. An incorrect choice can lead to both administrative and financial problems, as well as severe administrative penalties. Thus, it is important to seek support from a tax lawyer in Turkey.

1. Commercial Activity

• Liaison Office: Cannot engage in commercial activity or generate income. It only conducts activities such as market research, technical support, representation, and communication.
• Branch: Can enter into business agreements, conduct commercial activities, and generate income in Turkey.

2. Legal Status

• Liaison Office: Not registered in the trade registry and does not establish an independent legal entity under Turkish Commercial Law. It is affiliated with the parent company.
• Branch: Registered in the trade registry like Turkish capital companies and has a specific legal status.

3. Duration Limitation

• Liaison Office: Permit durations are limited, with an initial duration of 3 years and extensions ranging from 5 to 10 years.
• Branch: No duration limitation for the permit.

4. Contracts and Offer Transactions

• Liaison Office: Offers, contracts, and other official documents can only be signed by the parent company. The liaison office can only provide support in these processes.
• Branch: Can sign commercial offers and contracts directly and run business processes independently.

5. Taxation

• Liaison Office: Enjoys tax exemptions (such as VAT, Corporate Tax, Stamp Tax).
• Branch: Is subject to taxation in Turkey for its commercial activities and must file tax returns.

6. Financing and Expenses

• Liaison Office: All expenses are covered by the parent company abroad, and it is prohibited from generating income in Turkey.
• Branch: Can generate income from its commercial activities to cover its expenses.

Liaison office in Turkey is established to provide support in promotion, research, and communication without the goal of engaging in commercial activities or generating income. On the other hand, branches are a better option for companies that wish to engage in independent commercial activities in Turkey. The foreign company’s objectives and scope of activities in Turkey play an important role in determining which structure to choose.

SUPPORT SERVICES FOR ESTABLISHING A LIAISON OFFICE IN TURKEY FOR FOREIGN COMPANIES

C&B Law Office offers comprehensive legal consultancy and practical support for foreign companies seeking to establish a liaison office in Turkey. The following are the services provided by C&B Law Office, along with detailed steps of the process:

1. Preparation of the Application File: Upon the foreign company’s request to establish a liaison office in Turkey, C&B Law Office collects the necessary documents and conducts a legal review of the requirements. After the review, the application file is prepared and made ready to be submitted to the relevant authorities.
2. Application for Establishment Permission: C&B Law Office ensures that the necessary permission for opening the liaison office is obtained from the Ministry of Economy. The law office provides legal guidance throughout each stage of the application process, ensuring a smooth progression and handling all necessary procedures to secure approval.
3. Registration with the Tax Authority: C&B Law Office registers the liaison office with the Turkish tax authority, ensuring that the office receives a tax identification number. This step is critical to fulfilling the office’s tax obligations in Turkey.
4. Tax Liability Establishment: C&B Law Office facilitates the establishment of tax liability for the liaison office, including income tax (withholding tax) and other applicable taxes. The law office provides necessary guidance on correctly paying taxes related to personnel wages, office rent, and other expenses.
5. Corporate Entity Registration Form: C&B Law Office ensures that the corporate entity registration form is filled out and submitted to the tax authority. A copy of the form is sent to the relevant official institution within one month to fulfill all legal obligations.
6. Lease Agreement Preparation: C&B Law Office prepares the lease agreement required to complete the establishment process of the liaison office and submits it along with the application file to the relevant authorities. The office also ensures the legal validity and compliance of the lease agreement.
7. Address Change Notification: If the liaison office’s address changes, C&B Law Office provides legal guidance on notifying the relevant official institution of the new address within one month. The necessary documents for the address change are prepared, and the official process is completed.

C&B Law Office manages all steps involved in setting up a liaison office for foreign companies in Turkey, ensuring the accurate preparation of documents and timely submission of applications. The law office offers legal support to help foreign companies legally establish their activities in Turkey.