Liaison Office in Turkey
You may see below our brief concerning liaison office.
1. In General
Liaison office is an establishment that researches the market of the country where the investor intends to engage in business. The investors may prefer opening a liaison office rather than setting up a company in Turkey. It is important to note that a liaison office is not a branch of a company and have no separate legal entity and it is only a representative office of the company which seeks to do business in Turkey.
Foreign investors usually prefer liaison office in Turkey in order for their representation and to gather information on behalf of the company in the relevant sector. It is noteworthy to state that a liaison office is not allowed to engage in commercial activities and to conduct any activity other than the permitted activities/purposes such as acting for their own profit or giving or accepting any offers or issuing invoices. In this regard, the purpose of a liaison office might be to conduct market researches, to promote and advertise goods and services of the prospective investor, to communicate or to transfer information, to provide technical support, to inspect the local suppliers or authorized sellers in terms of service quality, to set-up a regional management center etc.. During such activities, all expenses to be made by the liaison office, including the salaries of employees, are to be covered by the company.
As per the Foreign Direct Investment Law No. 4875 (“Law”) and the Regulation on the Implementation of Foreign Direct Investment Law (“Regulation”), Ministry of Industry and Technology (“Ministry”) has the authority to allow companies to open up liaison offices in Turkey.
The following documents shall be submitted to the Ministry for application:
• The Application Form,
• The Letter of Commitment indicating the scope of activity of the liaison office and including a statement that the liaison office will not engage in commercial activities,
• The authorization document of company official,
• The “Certificate of Activity” of the company approved by the relevant Turkish Consulate or apostilled,
• Operational report or balance sheet and income statement of the company,
• The certificate of authority issued to the name of the person/s who is/are appointed to carry out the operations of the liaison office,
• The power of attorney in case the establishment transactions will be carried out by a proxy.
The applicant must specify the field activity to be conducted by the liaison office as one of the activity fields specified as follows:
i. Market Research,
ii. Promotion of the products and services of the company,
iii. Representation and Hosting,
iv. Control, Inspection and Provision of Local Suppliers,
v. Technical Support,
vi. Communication and Transfer of Information,
vii. Regional Management Headquarter,
viii. Other (in case the liaison office will operate in another field of activity, detailed information is required with regards to such activity).
The Ministry considers the qualifications of the applicant such as field of activity, capital, and number of employees. The Ministry would grant a permit for up to 3 years at the first application. Following this maximum time period, the companies are expected to open a branch or set up a company in Turkey. Therefore, Ministry would be unwilling to extend the time period granted for liaison offices.
Following the issue of the permit, the liaison office must be registered in the tax office and must execute a lease agreement for their registered address in Turkey. The tax office registration documents and the lease agreement of the liaison office must be submitted to the Ministry within 1 (one) month. In case of any change in the address, the representative of liaison office and the title of the company, the Ministry must be notified within 1 (one) month of such change.
3. The Permit Extension
In case the foreign investor applies for the extension, the Ministry reviews the past years’ activities, the grounds for further extension of the term, future business plans and purposes, amount of past, present and envisaged spending, and number of employees as well. However, the permit granted for market research and advertisement and promotion of the goods and services cannot be extended as per Article 8 of the Regulation.
Liaison offices are exempted from the corporate income tax but must be registered at the tax office and obtain a tax number. They file monthly or quarterly tax declarations for withholding tax. They also keep petty cash book registering their expenses. Furthermore, the salaries of the liaison office’s employees are not subject to personal income tax and stamp tax, provided that the salaries are paid in foreign currency with the income generated outside of Turkey. However, liaison offices shall pay the social security premiums.
The Ministry may audit a liaison office per se or upon written notifications of the relevant institutions and organizations so as to check whether the liaison office carries out its activity in accordance with the legislation and the field of activity specified in its permit. As a result of the inspection, a liaison office that are found to be operating outside the scope of the permit are given 30 (thirty) days to apply for a permit for the actual activity. This period may be extended for 30 (thirty) days at most in the presence of justified reasons. The permit of the liaison office which do not make any application at the end of the given period will be cancelled by the Ministry.
However, please bear in mind that the Ministry, as a result of an inspection, may directly cancel the permit of the liaison office that have carried out commercial activities in Turkey.