Introduction
A liaison offices in Turkey is a sort of entity that differs structurally from a business and a foreign company’s branch office.
Liaison offices are for investors who wish to have a point of observation where they may observe the market for a length of time and gain a better grasp of the country’s economic climate before going right into business in a foreign country. While seeking for investment opportunities in the Turkish market on behalf of their parent firms, they can develop highly useful local experience and improve the number and quality of their relationships in this way.
Legal Personality
Under Turkish law, a liaison offices in Turkey is not considered a legal entity. It does not have a separate legal identity from its parent corporation. A liaison office, of course, does not have its own articles of incorporation.
The rights and responsibilities of the liaison offices in Turkey are directly owned by its parent firm due to the lack of a separate legal personality.
Similarly, the parent company’s name must be included in the liaison office’s trade name. So, if a foreign company’s liaison offices in Turkey is called “ABC Manufacturing Ltd. Türkiye stanbul rtibat Bürosu,” it might be called “ABC Manufacturing Ltd. Türkiye stanbul rtibat Bürosu” (1).
Tasks
Liaison offices are prohibited from engaging in commercial activities that produce revenue. Under Turkish legislation, this is severely prohibited, and if a liaison offices in Turkey violates this restriction, its permit will be revoked by the relevant governmental agency. A liaison offices in Turkey cannot negotiate business deals, issue invoices, or market any goods or services in this context.
The liaison offices are capable of performing the following tasks:
a) Market analysis,
b) Promotion of the parent company’s products and services
c) Hosting and representation
d) Oversight of suppliers
f) Technical assistance
b) Information exchange and communication
g) A regional management center, as well as
g) Other activities of a similar nature.
Capital
Because a liaison offices in Turkey does not have its own capital, Turkish legislation does not impose any minimum capital requirements for liaison offices.
All money required by the liaison office, whether for rent, employee pay, or any other expenses incurred in the course of its operations, must be given by the parent firm.
Employees and a representative from the Liaison Office
A representation from each liaison offices in Turkey is required. The representative is a real person who supervises and represents the liaison offices in Turkey to third parties, as well as being in charge of the liaison office’s day-to-day operations and other tasks assigned by the parent firm. A foreigner with a residence permit in Turkey can also be chosen as a representative.
The parent business has the authority to fire or limit the powers of the liaison offices in Turkey representative at any moment.
According to Turkish labor rules, a company must hire five Turkish workers for every foreign worker it hires. The liaison offices are an exception to this general rule. One person authorized by the parent firm will be granted a residence permit without triggering the general rule if a sum equal to 200,000 USD was transferred from abroad within the preceding year.
Liability
The rights and liabilities of the liaison offices in Turkey are directly owned by its parent firm due to the lack of a separate legal personality. As a result, regardless of funds moved to accounts in the name of the liaison offices in Turkey in Turkey, the parent business is entirely liable for the debts and obligations of its liaison office.
The parent company’s liability for its liaison offices in Turkey in Turkey cannot be limited, either by monies granted to the liaison offices in Turkey or other agreements.
Tax
It is impossible for liaison offices to make any money because they are not allowed to engage in income-generating commercial operations by definition. This will, of course, result in an automatic exemption from corporate tax.
Because the liaison offices are unable to generate invoices, they are not required to make VAT (Value Added Tax) statements to the tax office. This does not, however, imply that they are VAT-free. When they buy products or services in Turkey, they must pay VAT. A liaison offices in Turkey must also pay stamp duty if they are a party to a contract in Turkey that is subject to it. They are also not exempt from paying stamp duty.
Employee salaries at the liaison offices in Turkey are likewise free from income and withholding taxes if the funds for these salaries are sent from abroad in a foreign currency. As a result, if employee salaries are paid in Turkish liras, they will be liable to income tax.
Despite the fact that the liaison offices in Turkey is free from corporate tax, it is required to register with the local tax office and maintain correct records and accounts.
SSI (Social Security)
The liaison office’s Turkish employees must pay social security contributions.
Unless the foreign employee of the liaison offices in Turkey is a citizen of a country with which the Republic of Turkey has a bilateral social security agreement and who is already covered by social security in his home country, he must be registered in the social security system and pay social security contributions.
Permission to Open a Liaison Office
The Ministry of Economy’s General Directorate of Incentive Implementation and Foreign Investment is the governmental organization that issues and renew permits for liaison offices. The liaison offices are likewise under the supervision of the same governmental agency.
There is no charge to apply for a permission to open a liaison office.
The following papers must be included in the application file:
1. Fill out an application
2 Annexed to the letter of commitment must be a document demonstrating the authority of the official who signed it on behalf of the parent company.
3. The parent company’s Certificate of Good Standing,
4. The parent company’s annual report, or balance sheet and income statement,
5. Authorization document for the person who has been assigned to carry out the liaison office’s duties, and
6. The person who will follow the establishment processes before the general directorate is given power of attorney.
Please be aware that documents issued outside of Turkey must either be apostilled or attested by the Turkish embassy in that country if the nation where the parent firm is domiciled is not a party to the Apostille Convention. In Turkey, such documents must additionally be translated and notarized.
If the parent firm operates in an industry with specific restrictions, such as banking, capital markets, or insurance, the general directorate may confer with relevant regulatory organizations before awarding the liaison offices in Turkey authorization.
In order to be awarded a liaison offices in Turkey permit, the parent firm must have been in existence for at least one year. As a result, a newly established company’s application to open a liaison offices in Turkey in Turkey will very certainly be denied.
The liaison offices are granted an initial permit for a maximum of three years.
The general directorate makes a decision on the applications within 15 days of receiving them, provided that the file is properly prepared.
Evaluation
The general directorate keeps an eye on the liaison offices at all times. Every year, the Data Form for Liaison offices in Turkey Activities and any accompanying papers (such as a letter from the bank where the liaison office’s account is housed) pertaining to the liaison office’s activities must be presented to the general directorate. Otherwise, the permission may be immediately revoked or not renewed once the first period has expired.
The general directorate not only has the jurisdiction to grant or extend licences, but it also conducts inspections, either on its own or in response to notices from appropriate authorities. The compliance of the liaison office’s actions with the regulations will be examined, including whether the liaison offices in Turkey engages in commercial activities or operates within the sphere of activity specified in its permit.
The general directorate revokes the permits of liaison offices that conduct commercial business. A non-compliant liaison offices in Turkey operating in a field of activity beyond the scope of its permit, on the other hand, is given a specific amount of time to allow the parent firm to apply for the inclusion of such an area of activity not covered by the permit.
When the liaison office’s address or representative changes, or its parent company’s commercial name changes, the liaison offices in Turkey must notify the general directorate within one month at the latest. The new rental agreement, the new representative’s permission document, or the paperwork displaying the parent company’s new commercial name should all be attached.
Extension
An application for an extension can be made before the initial time expires.
The application for extension is assessed in light of the liaison office’s previous year’s activities, the parent company’s business strategies and goals, existing and projected expenditure, the number of employees, and other factors. As a result, supporting proof should be included in the extension application file. A bank letter indicating that funds in the liaison office’s account were transferred from the parent company abroad, documents demonstrating the liaison office’s relationship with Turkish counterparts, such as reference letters, documents proving that the liaison offices in Turkey served as host or representative at fairs, conferences, and other events, and reports from the liaison offices in Turkey to its parent company regarding the Turkish mark
Prolongation Period
For each given sphere of activity, the table below shows how many years of extension are allowed:
- Areas of Interest
Hosting and Representation (Representation of the parent company at sectoral institutions and relevant organizations, coordination of business contacts of the company officers, etc.)
Duration : 5 years
2. Areas of Interest
Local Supplier Control, Inspection, and Provision (Provision of local producers and products for the parent company and inspection of those suppliers in terms of the quality standards, etc.)
Duration : 5 years
3. Areas of Interest
Technical Assistance (Provision of training and technical support services for distributors, supporting local suppliers for their enhancement of quality standards)
Duration : 5 years
4. Areas of Interest
Information Communication and Transfer (Collection and transmission of information to the parent company having business contacts in Turkey such as the market conditions, consumption trends, sales of competitors, performance of distributors, etc.)
Duration : 5 years
5. Areas of Interest
Centre for Regional Management (Particularly oriented to other units of the parent company in foreign countries; coordination and management of some operations such as strategies, planning, promotion, sales, after sales services, brand management, financial management, technical support, R&D, training of personnel, etc.)
Duration : 10 years
The general directorate makes a decision on extension applications within 15 days after receiving them, provided that the dossier is properly prepared.
Termination
When a liaison offices in Turkey wishes to stop operating in Turkey, it must obtain a “Termination and Examination of Business Note” from the tax office where it is registered and submit it to the general directorate.
The balance left in the liaison office’s accounts at the time of termination can be transferred abroad.
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