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How to Incorporate in Turkey

April 2014 - Corporate & Commercial. Legal Developments by ADMD Law Office .

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Non-resident companies and/or foreign individuals may choose to enter into Turkish market through incorporation of a commercial entity. Find below a summary of relevant information regarding available company types, branches and liaison offices. 

How To Incorporate in Turkey

ADMD Law Office, Istanbul Turkey

Limited Liable and Joint Stock Type Capital Companies

 

Capital companies are the most common form of business entities in Turkey utilized by both local and foreign investors. Investors may choose to participate into an already existing capital company or establish a new one. 100% ownership of Turkish corporate entities by foreign companies and/or individuals is permitted.

 

Under Turkish law, both joint stock corporations (similar to 'Corporations' in the U.S. and 'Société Anonyme' in Europe) ('Anonim Şirket' - A.Ş. in Turkey) and limited liability companies (similar to 'LLC' in the U.S. and Europe) ('Limited Şirket' - LTD in Turkey) are capital companies, as opposed to so-called "personal companies" used for individual service providing.

 

In capital companies, the liability of shareholders is limited with the share capital subscribed in principle. In both A.Ĺž. and LTD. company types, fields of activity, operations, and other corporate matters are governed by their company articles of association (AoA - similar to 'certificate of incorporation' and 'bylaws' in other jurisdictions) within the framework set out in the Turkish Commercial Code No. 6102 dated January 13, 2011 (the 'TCC').

 

From a practical point of view, Joint Stock Companies - A.Ĺž.'s are legal entities are better developed and more flexible (the management body is Board of Directors, company holds General Assemblies etc.) and A.Ĺž.'s could issue share certificates (physically printed) available for various financing purposes. On the other hand, Limited Liable Companies - LTD.'s are generally used for projects and investments in a smaller scale (the only corporate body is Shareholders General Assembly and day to day businesses are run by Board of Managers).

 

The main difference between the two company types lies in liability perspective. Although, they are both capital companies (with responsibility to shareholders limited with their capital payments), the LTD. shareholders are also liable with their personal assets for State related debts such as taxes and social security premium payments for employees. Since bureaucratically LTD. and A.Ĺž. companies are now closer to each other (subject to new TCC in effect since 2012); it may be advised to foreign investors to incorporate A.Ĺž. companies instead of LTD. companies due to flexibilities of corporate transactions and minimum shareholder liability for corporate related debts. 

 

Subject to new TCC, both company types (A.Ĺž. and LTD.) can now be incorporated by only one (1) shareholder. The minimum capital requirement for AS companies is TRL 50,000.- (fifty-thousand-Turkish-Liras) and the minimum capital requirement for LTD companies is TRL 10,000.-. For both company types ÂĽ (one-fourth) of capital shall be paid into the company accounts (temporary accounts to be established before Chamber of Commerce filing for incorporation) at commencement (which can be freely used for expenses of the company following establishment) and the remaining shall be paid in to the company in twenty-four (24) months.

 

In both company types, the incorporator shareholders could be companies or individuals and they can all be established or resident in foreign countries.  

 

Branches of Foreign Companies in Turkey

 

Alternative to directly establishing or participating in a capital company, investors may choose to invest in Turkey through formation of a branch office or a liaison office of an already existing foreign commercial entity established at another jurisdiction.

 

Although independent legally, branch offices are not considered as separate legal entities and are closely associated with their parent companies with respect to their internal management. However, branch offices of non-resident companies do have autonomy in terms of accounting and for carrying out commercial transactions. They are also subject to corporate taxes independently here in Turkey.

 

Branch incorporation for non-resident entities is quite similar to subsidiary company formations but require an additional permission from the Turkish Ministry of Customs and Trade (formerly known as Ministry of Industry and Commerce).

 

In practice branch offices are no longer common in Turkey for foreign investors. They are mostly used for localization (among districts of Turkey) following an establishment of a subsidiary company in Turkey first.

 

Liaison (Representative) Offices In Turkey

 

Liaison offices (also known as representation or representative offices / 'Ä°rtibat BĂĽrosu' in Turkish) are the right tools for 'non-commercial activities'. Liaison offices cannot issue invoices and/or gather income in Turkey.

 

There is less bureaucracy for formation and maintenance of liaison offices. However, there is still a requirement to obtain a permission from the Undersecretary of Treasury Incentive Application and Foreign Investment Directorate (organized under Ministry of Economy) pre-opening and some procedures to comply with during operations.

 

By definition liaison offices cannot carry out any commercial activities. The involvement in commercial activities is perceived as the issuing of invoices, collecting money, receiving orders etc. in Turkey.

 

Liaison offices are primarily established to provide preparatory and auxiliary services such as representation services, information gathering, marketing etc. to their parent companies. Typical assignments of a liaison office are: collecting information relating to customers, suppliers and competitors; performing surveys on markets and the activities of distributors, agents or licensees; following developments and changes in the local regulations and (if necessary) lobbying, preparation of surveys on possibilities of establishing a branch or incorporation of a subsidiary company in Turkey, providing information relating to the activities of the parent company and its products to suppliers or customers. Within this framework some of the restricted areas for liaison offices in Turkey are sampled below:

 

- Liaison offices cannot engage in any commercial activities.

- Liaison offices cannot give any commercial offers or accept them.

- Liaison offices cannot issue pro-forma invoices.

- Liaison offices cannot sell any goods or services.

- Liaison offices cannot provide technical support or consulting services on behalf of the parent.

- Liaison offices cannot operate in any direct or indirect commercial activity that generates income.

 

Formation Procedure for Businesses

 

Although it may vary due to the type of commercial entity and other specifications with respect to the investors' choices; the procedure for incorporation of commercial entities in Turkey can be summarized as below:

 

- Obtaining and legalizing shareholder identity documentation;

- Getting necessary formation permissions (in cases of branches, liaison offices and incorporations at free trade zones only);

- Opening a temporary capital advance blockade account at a local bank (not applicable for liaison offices);

- Drafting and notarization of certificates for incorporation (Article of Association) (not applicable for liaison offices);

- Getting an office lease contract for registration address;

- Registration to chamber of commerce trade registry (not applicable for liaison offices);

- Appointment of management;

- Notarizing of company books (legal and accounting);

- Registration to tax office (first preliminary and following on-site visit by tax officials);

- Obtaining a work place opening permit for the office address (from district municipalities);

- Getting employee payroll registration (at social security institution);

- Obtaining operations licenses in cases of 'regulated' field of activities or incorporations at free trade zones.

 

Documents Required for Establishment

 

The documents required for the establishment of capital companies and/or branch or liaison offices is not complicated and mainly consists of the documentation of the incorporating shareholder firms or individuals such as their activity certificates and certificates of good standing or passport and residency information. Please note that foreign documents require either an 'Apostille' verification (based on Hague Convention of October 5, 1961 Abolishing the Requirement of Legalization for Foreign Public Documents) or Turkish Consulate verification at the source country.

 

Time Required for Establishment

 

The company registration at the trade registry only takes one (1) to three (3) days and the whole procedure for incorporation of takes less than 2 (two) weeks following the submission of documentation for both types of capital companies (limited liable companies and joint stock companies) including tax registration and work place opening permit. For branches and liaison offices an additional 2 (two) weeks shall be reserved to obtain the special permissions from the relevant authorities. In case of license requirements for regulated fields of activities or free trade zone incorporations an additional 2 (two) weeks shall also be reserved.

 

Other Sources for Relevant Information

 

- http://www.admdlaw.com/

- http://www.invest.gov.tr/en-US/investmentguide/investorsguide/Pages/EstablishingABusinessInTR.aspx

- http://english.ito.org.tr/wps/portal

- http://www.economy.gov.tr/index.cfm?sayfa=380BE181-C6CE-B8EF-37B940FAAD239BA2

- http://www.ticaretsicil.gov.tr/english/

- http://www.yased.org.tr/webportal/English/Pages/MainPage.aspx

- http://www.doingbusiness.org/data/exploreeconomies/turkey/

- http://turkey.usembassy.gov/doing_business_in_turkey.html