Establishing a Liaison Office in Turkey
Establishing a Liaison Office in Turkey
Foreign companies interested in expanding their operations into Turkey can establish a liaison office (also known as a representative office) by obtaining a license from the Ministry of Industry and Technology. It is essential to note that liaison offices cannot engage in any commercial activities within Turkey. To establish a liaison office, the following documents must be submitted to the Ministry of Industry and Technology, General Directorate of Incentive Implementation and Foreign Investment.
1. Purpose of a Liaison Office
A liaison office provides foreign investors with a strategic entry point into the Turkish market, enabling them to test the market before committing to more substantial investments. The Turkish Ministry of Industry and Technology, through the General Directorate of Foreign Investments, is responsible for approving the establishment of liaison offices. Initially, the liaison office permit is granted for a period of three years.
To extend the permit, the liaison office must submit a detailed report outlining its activities over the past three years and its plans for the next three years.
2. Benefits of Opening a Liaison Office
- Corporate Income Tax Exemption: Since the office does not engage in commercial activities, it is exempt from corporate tax.
- VAT Exemption: Liaison offices are not required to register for VAT unless they purchase goods or services locally.
- No Stamp Tax or Income Tax on Salaries: Wages paid to employees are exempt from income tax and stamp tax liabilities.
3. Permissible Activities of a Liaison Office in Turkey
A liaison office in Turkey is subject to specific limitations set by Turkish regulations. The primary purpose of the liaison office is to represent the foreign parent company without engaging in direct commercial activities. Permissible activities include:
- Market research
- Representation and promotion of the parent company’s goods and services
- Control and supervision of local suppliers
- Providing technical support
- Acting as a regional management center
- Communication and information dissemination
Liaison offices must strictly adhere to these allowed activities to avoid penalties or the risk of closure by the Ministry of Industry and Technology.
4. Key Requirements for Establishing a Liaison Office
When applying to establish a liaison office in Turkey, the Ministry of Industry and Technology will review specific details about the parent company and the proposed office. Key requirements include:
- Parent Company History: The parent company must have been in operation for at least one year before applying to open a liaison office in Turkey.
- Financial Reports: The parent company must submit certified financial statements covering at least one financial year.
- Capital Investment: Authorities will review the parent company’s capital investment. If no capital investment is required in the parent company’s country, the Ministry should be informed in advance.
- Consultancy Firms: If the parent company operates in consultancy services, additional documentation may be required during the establishment and permit renewal process.
The liaison office must not engage in any commercial or consultancy activities under any circumstances.
5. Required Documents for Liaison Office Application
To apply for the establishment of a liaison office in Turkey, the following documents must be submitted to the Ministry of Industry and Technology, General Directorate of Incentive Implementation and Foreign Investment:
- Application Form: Available from the Ministry of Industry and Technology.
- Statement of Works and Commitment: A statement outlining the works to be conducted by the liaison office, an undertaking not to engage in any commercial activities, and proof of authorization of the signatory.
- Certificate of Activity: Issued by the foreign country and verified by the relevant Turkish Consulate or according to the provisions of the Hague Convention (Apostille Convention).
- Financial Statements: Balance sheet and income statement of the parent company.
- Certificate of Authorization: Issued to the individual(s) appointed to conduct the activities of the liaison office.
- Power of Attorney: Required if another representative is handling the establishment procedures.
If the original documents are submitted, the Ministry of Industry and Technology will approve the copies and return the originals to the applicant.
6. Licensing and Tenure Extension
Liaison office licenses are granted for a maximum of three years, based on the declared activities. To extend the license, the liaison office must apply to the Ministry of Industry and Technology before the license expires.
The Ministry evaluates the extension applications based on:
- The nature of activities conducted in the previous year
- The business plan and future objectives in Turkey
- Existing and anticipated expenditure
- The number of employees
Liaison offices focused on market research or the promotion of foreign company products or services will not be eligible for tenure extensions.
Applications for establishment and extension are typically completed within 15 working days, provided all requested documents are accurate and complete.
7. Special Applications and Industry-Specific Regulations
Foreign companies applying to establish a liaison office in sectors requiring special permits (such as banking, insurance, or capital markets) will be evaluated by the relevant authorities, including the Capital Markets Board of Turkey or the Banking Regulation and Supervision Agency. The Ministry of Industry and Technology may consult with other competent bodies to conclude applications for liaison offices in these sectors.
8. Post-Establishment Obligations
After establishing a liaison office, companies must fulfill the following obligations:
- Tax Registration and Tenancy Agreement: Copies of tax registration and tenancy agreements must be submitted to the Ministry of Industry and Technology within one month.
- Notification of Changes: Liaison offices must notify the Ministry of any changes regarding the office representative(s) or the foreign company’s title within one month of the change.
- New Tenancy Agreement: If the office changes address, a new tenancy agreement must be submitted.
- Certificate of Authorization: If a new representative is appointed, the relevant certificate must be submitted.
9. Termination of Liaison Office Operations
If the liaison office ceases operations, it must submit a statement of termination from the relevant tax office to the Ministry of Industry and Technology.
Important points to note regarding termination:
- Offices may not transfer funds from Turkey except for outstanding balances during termination and liquidation.
- All outstanding liabilities, including taxes and social security premiums, must be settled before closure.
10. Banking and Financial Operations
Following the establishment of a liaison office, the company must open both Turkish Lira (TRY) and foreign currency bank accounts in Turkey. Key financial operations include:
- Local Bank Accounts: All expenses must be processed through local bank accounts in Turkey.
- Public Bank Account: The liaison office must maintain a public bank account for tax and social security premium payments.
- Fund Transfers: All expenses must be funded by the parent company through foreign currency transfers, which are cross-checked annually by the authorities, typically in May.
11. Responsibilities of a Liaison Officer
The liaison officer is the primary representative of the foreign parent company in Turkey. Responsibilities include:
- Establishing and maintaining relationships with local partners and clients
- Promoting the parent company’s products and services
- Preparing reports on the liaison office’s activities
- Ensuring compliance with Turkish laws and regulations
- Mediating conflicts arising during promotional activities
- Proposing and implementing promotional strategies, subject to the parent company’s approval
For liaison offices providing technical support, it is advisable to have distributors or customers in Turkey, as related information and documents (such as distributorship agreements) may be requested during permit extension applications.
12. Tax Obligations
Liaison offices in Turkey do not pay corporate income tax since they do not engage in commercial activities. However, they are subject to VAT for any purchases of goods or services made within Turkey. Employees’ wages are generally exempt from income tax, provided:
- Salaries are paid in foreign currency
- The employee provides proof of social security payments in another country
13. Employment in a Liaison Office
There are no specific restrictions on hiring personnel for a liaison office in Turkey. Companies can hire local or foreign employees based on the needs of the foreign parent company. However, immigration formalities must be followed for foreign employees, including obtaining residence permits for stays longer than 90 days.
14. Advantages of Opening a Liaison Office in Turkey
Opening a liaison office in Turkey offers several benefits:
- A low-cost strategy to test the Turkish market
- No corporate income tax or VAT registration required (if no commercial activities are performed)
- Exemption from stamp tax and income tax on employees’ wages
- Ability to promote and manage the parent company’s business interests in Turkey
