Türkiye attracts the attention of foreign investors with its developing economy. Instead of opening a company directly, a soft entry into the market can be achieved by first establishing a liaison office. The requirements for opening and operating liaison offices are regulated with the Foreign Direct Investment Code No. 4875 (“Code”) and the Regulation on Implementation of the Foreign Direct Investment Law (“Regulation”). The companies can obtain permission to establish a liaison office from the Ministry of Treasury and Finance (“Ministry”). In this article, we would like to mention about what are the regulations of liaison office and how to establish it in Türkiye.
What are the activities of Liaison Office?
According to the Regulation, a liaison office can work in the fields of representation of the parent company and hospitality; control and inspection of suppliers in terms of quality and standards; technical support; communications and data transfer and as a regional management center. They cannot engage in commercial activities.
Operation permit is granted with a maximum of three-year period and can be extended with the application to the General Directorate of Incentive Practices and Foreign Capital, before expiration date. The Ministry concludes the extension applications by evaluating current and future business plan and targets, current and predicted amount of the expenses, number of employees, etc. Licenses granted for market research and marketing and promotion of services of the foreign company cannot be renewed after the initial term.
There must be a representative of the liaison office in order to carry out activities and this representative should be authorized with a power of attorney.
How a Liaison Office can be established in Türkiye?
The foreign companies who request to establish a liaison office in Türkiye, must submit the following documents to the General Directorate with a petition;
- Application form,
- A declaration containing the scope of the work to be carried out by the liaison office and the commitment that the office will not carry out commercial activities, alongside with the document showing the signature authority of the representative of the foreign company official who signed the declaration,
- Certificate of Activity of the foreign company,
- Activity report or balance sheet and income statement of the foreign company,
- Power of attorney of the representative who will carry out the activities of the liaison office,
- Power of attorney if the establishment procedures of the liaison office are carried out by another person.
Applications for establishment and extension of operation permit are concluded by the Ministry, within fifteen days from the date of application.
After the permit has been granted, the liaison office must be registered with the relevant tax office. A copy of the tax office registration certificate and the lease contract of the liaison office must be submitted to the Ministry within one month. In case of a change in the address, representative of the office or trade name of the foreign company, it must be notified to the Ministry within one month, as well.
In addition, according to the Regulation, liaison offices must inform the Ministry regarding the activities in the previous year by the end of May at the latest every year. If this notification is not fulfilled, operating permit extension request is not evaluated and the license may be revoked by the Ministry.
The Ministry can inspect the liaison offices whether they carry out their activities in accordance with the legislation and the field of activity specified in their permits. This inspection may be conducted upon written notifications of the relevant institutions and organizations or by the request of the Ministry.
Due to the fact that liaison offices do not engage in commercial activities, they are not subject to corporate tax and value added tax. The salaries of the employees must be paid in foreign currency or indexed to foreign currency by the foreign company. Thus, these payments are not subject to income tax.
In a nutshell, establishing a liaison office has many advantages and is recommended for foreign investors who wish to discover the opportunities and develop their knowledge about Turkish business world.
Att. Dilara KARTALOĞLU KILIÇ
TARLAN LAW OFFICE
ATT. AYLİN TARLAN
Tarlan Avukatlık Bürosu Bloğu 