Setting Up a Company Abroad: Choosing a Country and Tax

Setting up a company abroad means that a person living in Turkey, or a company established in Turkey, creates a separate legal entity under the laws of another country and starts commercial activity there. The formation is completed in that country's registry, but the tax story continues in Turkey. Where the income is taxed, at what rate and how many times is determined jointly by the law of the country of formation, Turkey's Corporate Income Tax Law and the tax treaty between the two countries.

In this article we break the process down into 7 steps for Turkish investors considering setting up a company abroad. We also cover, in turn, why the tax rate alone is not a reliable guide when choosing a country, the conditions of the foreign participation income exemption, and the controlled foreign corporation rule that applies in low-tax countries.

For whom does setting up a company abroad make sense?

Setting up a company abroad makes sense when you need to work with local customers in the target market under that country's contract and invoicing practices. This route comes up when running exports from Turkey is not enough, when there is a local tender or licensing requirement, or when the investor wants to raise capital from abroad. Structures set up only because the tax rate is low, on the other hand, often run into the control rules in Turkey.

The three reasons we hear most often from our clients are: needing a local sales unit in the European or Gulf market, customers wanting a local counterpart in software and service exports, and bringing a family business's overseas investments under one roof. Each reason calls for a different structure. A market-focused sales company and a holding company that holds investments are not set up in the same country or in the same way.

At the decision stage, we recommend asking this question: will this company actually operate abroad, or will it exist only on paper? A company with staff, an office and a local manager is treated very differently, both in the country of formation and in Turkey, from a company that is nothing more than an address.

7 steps to set up a company abroad

Whatever the country, a sound overseas structure proceeds in the order below. Some steps take place in Turkey and some in the country of formation; planning both on the same timeline avoids lost time.

1. Put the purpose in writing. Will you set up a sales unit, a production company or a company that holds investments? The choice of country and company type is shaped by this answer.
2. Determine the ownership structure. Will you hold the shares directly, or will your company in Turkey? This choice changes how dividends are taxed in Turkey.
3. Choose the country. Proximity to the market, flexibility of company law, corporate income tax burden, whether there is a tax treaty with Turkey, and access to banking are assessed together.
4. Identify local requirements. Many countries require a local address, a local representative or company secretary, and some require a resident director. These items make up a significant part of the annual cost.
5. Prepare the documents to be sent from Turkey. If the founder is a Turkish company, registry records, the signature circular and a resolution of the board of directors or board of managers are requested; if the founder is an individual, passport and address documents are requested. Most documents require an apostille and sworn translation.
6. Plan the bank account and capital transfer. Foreign banks carry out a comprehensive know-your-customer review for new companies. Clarifying in advance which account the capital will be sent from and with which documents speeds up account opening.
7. Set up the registration and tax arrangements on the Turkish side. This step covers recording the subsidiary correctly in the Turkish company's books, monitoring the exemption conditions for dividends coming from abroad, and setting up the annual filing calendar.

The last step is often the most neglected. If you try to fix the accounting records and filing arrangements in Turkey only after the company abroad has been set up and started operating, one of the exemption conditions may already have been missed.

Choosing a country: why isn't the tax rate alone enough?

A country with a low corporate income tax rate looks attractive at first glance. But for a shareholder resident in Turkey, the real question is where and how the total tax burden arises. Profit is taxed in the country of formation, withholding may be applied at source when dividends are distributed, and when the dividend arrives in Turkey it may be taxed again depending on the shareholder's status.

When choosing a country, we recommend assessing the following criteria together:

• Proximity to the target market and customers
• Flexibility of company types, minimum capital and local director requirements
• Corporate income tax and dividend withholding
• Whether there is a tax treaty in force with Turkey
• Ease of opening a bank account and receiving international payments
• Annual accounting, audit and filing burden

None of these criteria should overshadow the others. A low-tax country with no treaty with Turkey and difficult access to banking may end up more expensive overall than a country with slightly higher tax but a treaty and proximity to the market.

What does a double taxation avoidance treaty do?

A double taxation avoidance treaty is an international agreement in which two countries allocate taxing rights so that both do not fully tax the same income. The treaty caps the tax the source country can levy on dividends, interest and royalties and clarifies the definition of a permanent establishment. You can find the list of Turkey's treaties in force, their Turkish texts and the table of dividend rates on the Revenue Administration's double taxation avoidance treaties page .

According to the Revenue Administration's list dated 23.04.2025, Turkey has treaties in force with 93 countries. The list includes countries Turkish investors frequently consider, such as Germany, the Netherlands, the United Kingdom, the U.S.A., the United Arab Emirates, Estonia and Georgia. To benefit from a treaty, you usually need to submit to the other country a certificate of residence showing that you are resident in Turkey.

A treaty limits dividend withholding between the two countries, but it does not eliminate the tax on the foreign company's own income. Rates differ in each treaty and, in some treaties, are tiered according to the shareholding percentage. The rate should therefore be checked in the current text of the treaty with the country you choose.

Opening a company or a branch abroad?

If your Turkish company will operate abroad, you have two basic options: set up a separate company in that country, or open an overseas branch of the Turkish company. Opening a company abroad confines the risk to a separate legal entity; a branch remains part of the Turkish company, and the parent company is liable for its debts.

The two routes also work differently on the tax side. Subparagraph (g) of the first paragraph of Article 5 of Law No. 5520 exempts the income of a permanent establishment abroad from corporate income tax, provided it bears a tax burden of at least 15% and is transferred to Turkey within the filing period. For dividends from a foreign company, the participation income exemption in subparagraph (b) of the same article applies.

Which structure suits you depends on the duration of the activity, the size of the risk and where you plan to use the profit. If you are thinking of starting with a new company in Turkey and building the overseas structure through that company, you can find the formation steps in our article how to set up a company guide.

Under what conditions does the foreign participation income exemption apply?

Foreign participation income is the dividend a full taxpayer corporation in Turkey receives from a company abroad that qualifies as a joint stock or limited liability company. This income is exempt from corporate income tax in Turkey if four conditions are met together. You can access the current text of the law Corporate Income Tax Law No. 5520 (mevzuat.gov.tr) page.

Under the Corporate Income Tax Law, the tax burden condition is calculated by dividing the taxes paid in the subsidiary's country by the sum of distributable income and those taxes. In other words, what counts is not the nominal rate in the law but the tax actually assessed that year. For a subsidiary operating in an incentive zone, the actual burden may fall below 15% and the exemption may be lost.

The paragraph added by Law No. 7491 provides a second route. If the Turkish company holds at least 50% of the foreign subsidiary's paid-in capital and transfers the income to Turkey within the filing period, the exemption applies at a rate of 50% without the other conditions being required. For structures that cannot achieve the full exemption, this option should be calculated separately.

Update (October 2026): Presidential Decree No. 11257 (Official Gazette 30.04.2026) changed this route. For periods starting on or after 01.01.2026, if you hold at least 20% of the foreign subsidiary's capital and the income is brought to Turkey within the filing period, the exemption applies at a rate of 80%.

Subparagraph (c) of the same article also exempts, under certain conditions, gains from the sale of shares in foreign subsidiaries. Only joint stock companies at least 75% of whose assets consist of foreign subsidiaries and which have held the shares for at least two full years can benefit from this exemption. For those considering bringing their overseas investments under a Turkish joint stock company, we discuss this structure in our article what is a joint stock company .

Why does the controlled foreign corporation rule matter?

The controlled foreign corporation (CFC) rule ensures that passive income accumulated in a low-tax foreign company controlled by shareholders in Turkey is taxed in Turkey even if no profit is distributed. Article 7 of the Corporate Income Tax Law governs this rule. Its purpose is to prevent profit from being parked in a country with a very low tax burden and tax in Turkey from being deferred.

The rule comes into play where individuals and corporations that are full taxpayers in Turkey hold, directly or indirectly, individually or together, at least 50% of the foreign company's capital, dividends or voting rights. If there is such control, it is checked whether the following three conditions are met together:

• 25% or more of the company's total gross revenue consists of passive income such as interest, dividends, rent, license fees and gains from the sale of securities.
• The company bears a total tax burden similar to income and corporate income tax of less than 10% on its commercial balance-sheet profit.
• The company's total gross revenue in the relevant year exceeds the foreign currency equivalent of 100,000 YTL, as worded in the law.

If all three conditions are met, the foreign company's profit is added to the Turkish shareholder's corporate income tax base in proportion to its shareholding. Sales companies with genuine commercial activity, staff and an office generally fall outside this rule; the real risk lies with companies that hold investments and are set up in low-tax countries.

What happens if the place of business management is in Turkey?

Article 3 of the Corporate Income Tax Law treats corporations whose legal seat or place of business management is in Turkey as full taxpayers. The place of business management is where business is actually concentrated and managed. A company set up abroad on paper but with all its decisions, contracts and correspondence run from Turkey may face the risk of being taxed in Turkey on its worldwide income.

For this reason, where the foreign company's board meetings are held, who signs contracts and where, and where bank instructions are given from should be documented. Appointing a local director is not only a requirement of the country of formation but also evidence that the place of business management is genuinely in that country.

Is tax paid abroad credited in Turkey?

Yes, to a limited extent. Under Article 33 of the Corporate Income Tax Law, corporate income tax and similar taxes paid in a foreign country on income earned there and transferred to the general result accounts in Turkey may be deducted from the corporate income tax calculated in Turkey on the same income. The amount to be credited cannot exceed the amount found by applying the Turkish corporate income tax rate to that income.

For dividends a Turkish corporation receives from a foreign subsidiary in which it holds, directly or indirectly, 25% of the capital or voting rights, the law also allows a credit for the portion of the taxes the subsidiary paid in its own country that is attributable to the dividend. The general corporate income tax rate is 25% as of October 2026. If more than 25% tax was paid abroad, the portion exceeding the limit is not deductible in Turkey. Tax within the limit that cannot be deducted that year may be deducted until the end of the third following accounting period.

The law requires the tax paid abroad to be proven with documents obtained from the competent authorities of that country and certified by the Turkish embassy or consulate there. Archiving documents with each payment rather than trying to collect them at year-end significantly reduces the workload during the filing period.

Mistakes we often see in practice

Some assumptions come up often in discussions about overseas structuring:

• Choosing a country based only on the corporate income tax rate, without taking into account dividend withholding and tax in Turkey.
• Holding shares personally and assuming that the participation exemption under corporate income tax also applies to individuals.
• Bringing dividends to Turkey after the filing deadline and missing one of the exemption conditions.
• Managing the foreign company by taking all decisions from Turkey and laying the groundwork for a place-of-management dispute.
• Not keeping documents for tax paid abroad and being unable to use the credit right in Turkey.

Wrong: “If I set up the company in a low-tax country, no tax arises in Turkey.” Right: A shareholder resident in Turkey may be liable for tax in Turkey on dividends received from the foreign company and, under certain conditions, on that company's undistributed profit. Legal optimization is possible with a structure that takes these rules into account from the start.

What you need to put on the table before deciding

Setting up a company abroad is not just opening a registry entry in a country; it is a structure built together with your tax arrangements in Turkey. When you choose the country, company type and ownership chain together, you make both the obligations in the country of formation and the exemption conditions in Turkey predictable. You can find our other articles on company formation in the Company Formation in Turkey category.

Through our overseas company formation service for Turkish investors , we run the process with our expert team, from choosing the country and structure to preparing documents and setting up registration and filing arrangements in Turkey.

Last updated: 17.10.2026