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Establishing a Branch and Liaison Office in Turkey: Strategic Market Entry for Global Companies
One of the safest strategies preferred by international companies when integrating into Turkey's dynamic and growing market is to create structures linked to the main headquarters rather than directly establishing a new capital company (LTD/A.Ş.). Choosing the right legal model plays a critical role in achieving your business objectives. At this point Establishment of branches and liaison offices in Turkey, offers global companies two different but highly functional legal bases for getting to know the local market, conducting feasibility studies or starting direct commercial operations. At Akal CPA, thanks to our strategic location in Ankara’s bureaucratic heart, we complete all registration and approval processes of foreign-based companies before the Ministry of Industry and Technology and the Trade Registry Directorates on a zero-error principle and at the highest speed.
What is a Branch and What are the Limits of Commercial Activity?
Legal units that a parent company incorporated abroad opens in Turkey’s market in order to directly engage in commercial activity, issue invoices and generate income are called “Branches”. Although branches may appear independent in their internal operations, they are legally and financially fully dependent on the parent company (headquarters) abroad. When establishing a branch, the parent company’s trade name must be used (e.g. X Company Turkey Istanbul Branch). The earnings that branches generate in Turkey are subject to Corporate Income Tax. At this point, to minimize the impact of the branch's tax obligations on the head office and to benefit from double taxation avoidance agreements, the tax consulting and planning strategies offered by our expert team are of vital importance.
What is a Liaison Office and Why is it Preferred?
Liaison offices, designed for global companies that want to conduct market research, inspect suppliers, prepare feasibility reports and follow investment opportunities before entering the Turkish market, are non-commercial units. Liaison offices can by no means engage in commercial activity, issue invoices or generate income. All expenses and employee salaries must be covered by foreign currency (capital) to be transferred to Turkey by the parent company abroad. The permission to establish liaison offices is granted directly by the Ministry of Industry and Technology (General Directorate of Incentive Implementation and Foreign Capital) in Ankara. Akal CPA's Ankara-based operational strength ensures that these ministry approvals are obtained within days, not months.
Bureaucratic Steps in the Formation Stage
Branch and liaison office formation processes require much more intensive international paperwork than setting up a local company (LTD/A.Ş.). The parent company's founding documents (Articles of Association), certificates of activity and board resolutions must be apostilled, brought to Turkey and certified by sworn translators. The process steps are as follows in general terms:
- Preparation and Approval of Documents: The official registry summaries of the headquarters abroad and the power of attorney of the company officials are prepared and apostilled/consular approval is obtained.
- Ministry Permission (for Liaison Offices): The prepared files and the activity reports of the parent company are submitted to the relevant Ministry in Ankara and permission for establishment is requested. Initially, permission is granted for a maximum of 3 years.
- Trade Registry Registration (For Branches): The decision to open a branch and the documents of the head office are submitted to the Trade Registry Office and the branch is officially registered and announced. For investors looking for an alternative roadmap company formation for foreigners procedures are also always kept on the table.
- Tax and SGK Registrations: After the formation approvals, a potential tax number is obtained from the tax office and an SGK file is opened for employees. Although liaison offices are not Corporate Income Tax payers, they are obliged to file withholding (Muhtasar) and SGK declarations.
Your Strategic Business Partner for Your Processes in the Turkish Market
For flawless compliance with foreign investor legislation and IFRS reporting processes, turn to Akal CPA's Ankara-based operational powerhouse.
Technical Comparison of Liaison Office and Branch Structures
When moving your overseas-based operation to Turkey, you need to have a clear understanding of the legal and financial limits to choose the structure that best suits your objectives. The comparison table below will directly support your strategic decision-making process:
| Criteria / Feature | Branch | Liaison Office |
|---|---|---|
| Commercial Activity and Invoice | Engage in direct commercial activity, sell goods/services and issue invoices. | Absolutely cannot engage in commercial activities, can't invoice, can't generate revenue. |
| Corporate Income Tax Liability | It is liable to pay Corporate Income Tax and VAT on the earnings it generates within Turkey’s borders. | As it does not generate income, Corporate Income Tax and VAT liability does not arise. |
| Establishment and Approval Authority | Ministry of Industry and Technology permission not necessary. It is registered by the Trade Registry Directorate. | Ankara Ministry of Industry and Technology (General Directorate of Foreign Capital) grants special permission for its establishment. |
| Tax Status of Employees | Standard Income Tax (Withholding Tax) is deducted from staff salaries. | If salaries are brought in from abroad and paid in foreign currency, employees' salaries are fully exempt from Income Tax. |
| Activity Duration | It is established and operates indefinitely. | The Ministry grants permission for a maximum of 3 years . At the end of the period, an extension must be requested or the office must be closed. |
Taxation of Employees and Employment of Foreign Personnel
Chief among the reasons why global companies prefer liaison offices are their major personnel cost advantages . Under the Income Tax Law, if the salaries of personnel working in liaison offices are paid out of the parent company’s foreign currency transfers to Turkey from abroad, these salaries are fully exempt from Income Tax. In this way, the company avoids a heavy tax burden on gross salaries. Residence and work permits for expat (foreign expert) staff working in both branches and liaison offices are handled by our work permit consultancy team, while the correct application of the income tax exemption and the smooth filing of statutory declarations are legally safeguarded by our payroll services experts.
IFRS Reporting and Financial Integration with the Head Office
The financial statements of branches operating in Turkey must be kept in accordance with Turkey’s local Tax Procedure Law (VUK). However, for this data to be integrated into the parent company’s global balance sheet abroad (consolidation), it must be converted to International Financial Reporting Standards (IFRS/TFRS). Akal CPA delivers not only local bookkeeping but also, in full, the general accounting services and IFRS conversion that make your financial data speak the same language as your global head office. Through the independent audit services provided where necessary, the financial transparency of your Turkish branch is reported to the main investors in an international format.
Ankara Based Akal CPA: Your Solution Partner in Bureaucracy
The presence of the Ministry of Industry and Technology in Ankara, which is the approval authority especially in liaison office establishment processes, makes it mandatory to work with a strong consultancy partner in the capital. As Akal CPA, we minimize the establishment times by managing the approval processes on-site, instantly and proactively. With our expert staff who closely follow the legislative changes, we build the legal armor of foreign capital in Turkey on a solid foundation and solve the risks at the source for your sustainable growth.
Frequently Asked Questions
No, absolutely not. Liaison offices are only established to conduct market research, monitor investment opportunities and provide information to the parent company abroad. They are strictly prohibited by law from engaging in commercial activity, generating income and issuing invoices. All their expenses must be covered by remittances from the headquarters abroad.
Although the new Turkish Commercial Code does not set a minimum legal capital limit for the establishment of a branch, in the practice of the Trade Registry Directorates, it is expected that a capital figure independent of the parent company's capital and allocated for the Turkish branch will be registered in order for the branch to continue its activities.
If the salaries of liaison office employees are transferred to Turkey and paid directly in foreign currency by the parent company abroad, no income tax withholding is deducted from these salaries under the Income Tax Law. This is one of the biggest cost advantages of liaison offices. SGK premiums, however, continue to be paid as standard.
Branch openings of foreign companies in Turkey are approved and registered directly by the local Trade Registry Directorates. However, in order to establish a Liaison Office, official approval and "establishment permit" must first be obtained from the Ministry of Industry and Technology, General Directorate of Incentive Implementation and Foreign Capital in Ankara.
Yes, they are. Branches opened in Turkey are treated as "limited taxpayers". Therefore, they are liable to pay Corporate Income Tax and Value Added Tax (VAT) under the laws of the Republic of Turkey only on the earnings they generate from their commercial activities in Turkey and from the Turkish market. Tax planning within the framework of double taxation avoidance agreements is of great importance.
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