Turkey presents an attractive opportunity for foreign entrepreneurs looking to establish their businesses. Whether you’re planning to expand your current operations or starting fresh, company formation in Turkey offers numerous advantages. However, starting a business requires a thorough understanding of local procedures, from legal requirements to registration steps. By having a complete understanding of the regulations and processes, you can smoothly navigate your way to successful business ownership in Turkey. This guide will provide a step-by-step overview of how to start a business in Turkey as a foreigner, covering all the necessary details.
Rights of Foreigners Starting a Business in Turkey
The first thing to know is that foreign nationals enjoy almost the same rights as Turkish citizens when it comes to setting up a company. As a foreigner, you can be the sole owner and manager of a company in Turkey without needing a Turkish partner, director, or employee. You also have the right to apply for both residence and work permits. However, it’s essential to follow the correct application procedures to take advantage of these rights.
Do Foreigners Need a Work Permit to Start a Business in Turkey?
One of the most frequently asked questions by foreign investors is whether a work or residency permit is required to start a business in Turkey. You can establish your business without needing any permits. However, after the establishment, you may need one depending on your role and plans within the company. If you are only a shareholder and do not intend to reside in Turkey, no permit will be necessary. However, if you serve as the director of a limited liability company or a board member of a joint-stock company and plan to reside or work in Turkey, you will need to apply for a work permit or residency permit. If you do not plan to live in Turkey or visit frequently, no permit is required.
Work and Residence Permit Requirements
Obtaining a work permit not only grants you the rights of a residency permit holder but also provides additional benefits. It allows you to reside in Turkey, work, and travel in and out of the country freely, ensuring you can manage your company efficiently without restrictions. To qualify for a work permit, your company must meet one of the two key criteria:
- 500,000 TL in paid-up capital (for companies not older than 6 months).
- Employment of at least five Turkish citizens per foreigner to apply for work permits.
If the company is less than six months old, foreign shareholders and/or directors can apply for work permits without having to hire five Turkish employees by depositing 500,000 TL into the company bank account. Once approved by the ministry, this work permit will be valid for 6 to 12 months. On the other hand, for those only applying for a residence permit, it’s important to wait until the company is operational, as residence permits are only issued once the business is up and running.
Types of Companies Foreigners Can Establish in Turkey
When setting up a company in Turkey, foreign investors have several options. Understanding the types of companies available is critical to making the right decision. The three main types are:
1. Sole Proprietorship (Şahıs Şirketi)
A sole proprietorship is suitable for foreigners who already have a residence permit in Turkey. It’s often recommended for smaller businesses, especially when the initial income is low. No minimum capital is required, and the company can be registered entirely online through e-Devlet, Turkey’s official government portal.
Advantages:
- Low-cost setup: A sole proprietorship has minimal registration costs.
- Easily closed: If needed, the business can be quickly closed without going through a lengthy liquidation process.
- Tax benefits: For annual profits up to 230,000 TL, the tax rate is between 15% and 20%, significantly lower compared to the 25% corporate income tax rate for other business structures.
- Young Entrepreneur Incentive: For business owners under the age of 30, the first 230,000 TL of annual profit is tax-exempt for three years, and the first year’s Bağ-Kur (social security) contributions, approximately 6,500 TL, are paid by the government.
Disadvantages:
- No legal separation: The business is not a separate legal entity from its owner. The company’s name is your name, and the tax number is your Turkish identification number.
- Limited scalability: While ideal for small-scale operations, the structure may not suit businesses with significant growth plans.
- Higher tax rates for larger profits: For profits between 230,000 TL and 580,000 TL, the tax rate is 27%; for profits above 3,000,000 TL, the tax rate increases to 40%.
2. Limited Liability Company (Limited Şirketi)
The limited liability company (LLC) is the most common structure for businesses in Turkey. It is a legal entity separate from its owners and can be established by one person, with a maximum of 50 shareholders. LLCs require a minimum capital of 50,000 TL.
Advantages:
- Limited liability: Owners are not personally liable for the company’s debts.
- Lower costs: Compared to a joint-stock company, an LLC is more cost-effective.
- Simplified management: LLCs do not require a board of directors, making management simpler.
- Flexible structure: If no changes are expected in ownership, LLCs offer a simpler and more affordable setup.
Disadvantages:
- Share transfers are more complicated than in joint-stock companies.
- Slightly higher costs than a sole proprietorship.
Additional Costs: The accounting fees for an LLC start at 3,036 TL + VAT per month, making this structure a cost-effective option for small to medium-sized enterprises.
3. Joint-Stock Company (Anonim Şirketi)
A joint-stock company (JSC) is ideal for larger businesses or startups planning to raise investment or go public. It can be formed by at least one person and has no maximum limit for shareholders.
Advantages:
- Flexibility for investors: A JSC is the preferred structure for companies seeking outside investment.
- Easy share transfers: Shares can be easily transferred without disrupting operations.
- Limited liability: Like an LLC, the company’s debts are separate from the shareholders.
- Tax advantages for investors: Investors in a JSC can avoid capital gains tax when selling shares after two years.
Disadvantages:
- Higher costs: The initial capital requirement for a JSC is 250,000 TL, with 25% of this amount required upfront.
- Ongoing compliance: JSCs must hold board meetings and general assemblies every two years, adding to operational complexity.
Additional Costs: The accounting fees for a JSC start at 4,314 TL + VAT per month, making it a more expensive option than an LLC.
Which Company Structure Should You Choose?
Choosing the right company structure depends on your goals. If you plan to live and work in Turkey, establishing a limited company with a 500,000 TL capital investment will allow you to apply for a work permit. For businesses focused on international trade, a limited company is also suitable, as it allows you to register with the exporters’ association and manage customs declarations through a registered electronic mail (KEP) address.
For startups planning to raise investment, a joint-stock company is the best choice, as investors typically require this structure. Additionally, a JSC allows for share transfers and capital increases without incurring additional taxes.
Company Registration Process in Turkey
To start the company registration process, foreign nationals must first obtain a potential tax number. If you have already entered Turkey, this can be done through the digital tax office. If you are not in Turkey, a Turkish citizen can be authorized to obtain the number on your behalf with a power of attorney.
Next, you will need a notarized passport translation and at least two copies for registration. These documents are submitted through MERSİS, the official Turkish company registration system, where your company’s articles of association are created.
Post-Registration Steps
Once your company is registered, several follow-up steps are required, including obtaining a signature circular from a notary, which is necessary to open a bank account. Additionally, your accountant will need a power of attorney to manage your company’s financial reporting.
Within one week of registration, the tax office will conduct an inspection to verify your company’s address. If you are using a virtual office service like those provided by Workon, you won’t need to worry about leasing office space.
If you plan to export products from Turkey, you will need to register with the exporters’ association and obtain a registered electronic mail (KEP) address. For imports, specific licenses and permits may be required, and Workon’s customs consultant can assist with these formalities.
Where to Start?
Starting a business in Turkey requires navigating legal processes, but with the right guidance, it can be a seamless experience. Whether you need support with company registration, managing compliance, or setting up your virtual office, Workon offers complete business support services. Explore our Business Starter Package to get started and receive a free consultation on your company formation process.
