When establishing a business in Turkey, investors can make a choice among different structures based on their needs. These include subsidiaries, branch offices, liaison offices, and standalone companies. Understanding the differences between these structures is essential for making the right decision.
Key Differences Between Subsidiary Companies and Branch Offices
Subsidiary Companies
- A subsidiary company is a legal entity where another company holds shares. In other words, if you establish a company where another business is a shareholder, it is considered a subsidiary.
- A subsidiary operates independently of its parent company. It can own property, enter into contracts, and manage business operations autonomously. This separation provides legal and financial protection for the parent company.
- Subsidiaries in Turkey can be established as either limited liability companies (LLC) or joint-stock companies (JSC), regardless of the parent company’s structure.
- A subsidiary can engage in activities different from its parent company and is responsible for its own debts.
- There is no requirement for a local director or shareholder to register a subsidiary in Turkey.
Branch Offices
- A branch office is an extension of a parent company and does not have separate legal entity status.
- There are no shareholders of a branch office.
- A branch office is taxed only on income generated within Turkey, unlike subsidiaries, which are taxed on global income.
- The branch office must adhere to the commercial activities outlined in the parent company’s Articles of Association (AOA).
- The parent company is fully liable for any debts incurred by the branch office.
- It is mandatory to appoint a local director. This director acts independently from the parent company in external relations.
Subsidiary Company & Branch Office Establishment Processes
Establishing either a subsidiary or branch office in Turkey involves the following steps:
- The parent company must notarize and Apostille its required documents.
- Documents can either be prepared in Turkish or translated by sworn translators and notarized in Turkey.
- Once all documents are ready, registration takes about 5 business days for a subsidiary and 20-30 days for a branch office.
Work & Residence Permits
The processes for work and residence permits vary slightly between subsidiaries and branch offices:
Subsidiary Companies
- The procedure for work and residence permit applications is the same as for standalone companies.
- The company must employ five Turkish citizens per foreign worker. However, companies younger than six months can bypass this rule by depositing 500,000 TRY into their bank account.
- Initial work permits are granted for 6 months to 1 year, with extensions available after this period.
Branch Offices
- After registering a branch office, you must deposit at least $200,000 USD into the company’s bank account.
- A foreign branch manager must be appointed, and this should be stated in the company’s trade registry certificate.
- Work permits can be issued for foreign staff without needing to hire five Turkish citizens during the first six months. After that, the 5-to-1 rule applies.
Liaison Offices
Liaison offices in Turkey act solely as representative offices for foreign companies. They cannot engage in commercial activities and do not generate profit.
- All expenses, including employee salaries, must be covered by the foreign parent company.
- To open a liaison office, a permit must be obtained from the Ministry of Trade. This permit is valid for a maximum of three years and may be extended under certain conditions.
- The permitted activities for a liaison office include market research, parent company promotion, representation, and other non-commercial activities.
Important Update on Liaison Office Salaries
Liaison office workers benefit from an income tax exemption in Turkey. No income tax is deducted from their salaries, making this a cost-effective option for foreign companies looking to expand their presence in Turkey without the tax burden for employees.
Liaison Office Establishment Process
The establishment of a liaison office follows a similar process to branch offices:
- All required parent company documents must be notarized and Apostilled.
- The documents must be translated into Turkish if they were prepared in a foreign language.
- The processing time for liaison office applications is 15-20 days.
Work Permits for Liaison Offices
- Only one person may be issued a work permit as the representative of the liaison office.
- A minimum of $200,000 USD must be deposited into the company account for work permit approval.
- The liaison office cannot employ more than one foreign staff member under current regulations.
Bank Accounts for Subsidiaries, Branch Offices, and Liaison Offices
Each entity (subsidiary, branch office, or liaison office) can open a commercial bank account in Turkey. The parent company typically wires funds to cover expenses.
Conclusion
Setting up a subsidiary, branch office, or liaison office in Turkey provides several options depending on the business goals. Subsidiaries and branch offices can engage in commercial activities, while liaison offices serve as non-commercial representatives. Turkey’s tax benefits, especially for liaison office workers, make the country an attractive destination for foreign investment.
Workon can guide you through every step of the process, ensuring that your company is established smoothly and efficiently. Whether you’re opening a subsidiary, branch office, or liaison office, we can assist with documentation, permit applications, and tax compliance. Contact Workon today to take the first step toward expanding your business in Turkey!
