Our subject is the evaluation of the establishment of companies through representative offices, branches and affiliates by foreign investors who want to invest in Turkey in order to carry out their commercial activities, both in terms of taxation and how the transactions should be carried out before the competent authorities in terms of the legislation in Türkiye.
The legislation for foreign companies and individuals to establish a company in Turkey is almost the same as the company establishments of individuals or legal entities in our country. The only differences are the apostille-certified registry/activity summary to be obtained from the relevant country's authorized institution, the participation decision and the amount of capital to be paid.
This issue is also regulated in Article 40 of the Turkish Commercial Code (TTK) and states that “Branches in Turkey of commercial enterprises headquartered outside Turkey shall be registered as domestic commercial enterprises, provided that the provisions of the laws of their own countries regarding trade names are reserved. A fully authorized commercial representative with a domicile in Turkey shall be appointed for these branches. Foreign companies need a fully authorized representative in order to open a branch in Turkey and to effectively carry out their activities. The residence of this representative must be in Turkey. If the commercial enterprise has more than one branch, branches to be opened after the registration of the first branch shall be registered as branches of domestic commercial enterprises.
The establishment of companies and branch openings carried out by foreign investors in Turkey are considered as “direct foreign investments” within the framework of the Foreign Direct Investment Law No. 4875 (“Law No. 4875”). Therefore, foreign companies headquartered abroad can continue their activities with the “branch opening” procedure without establishing a separate company in Turkey.
In addition, in accordance with the third paragraph of Article 48 of the TCC, "The trade name of a branch of a business headquartered in a foreign country must indicate the location of the headquarter and branch, and that it is a branch." Within the scope of the provision of the article, it is necessary to indicate in the branch name that it is a branch, and to indicate the headquarter and branch addresses.
In this context, the title of the first branches to be opened in Turkey of commercial enterprises headquartered abroad;
It should be determined as 'Headquarters title - Country of Headquarters - relevant province Headquarters Branch' (For example: X Company GMBH Headquarters Germany Izmir Headquarters Branch). The word 'Headquarters' will not be included in the titles of other branches opened after the opening of the headquarter branch.
The e-mail address required for foreign companies to open a branch in Turkey
The most important condition is that the capital of the foreign company is divided into shares. Otherwise, it is not possible to open a branch.
In order for a foreign company to open a branch in Turkey;
1- Must obtain permission from the Ministry of Trade of the Republic of Turkey.
Since branches headquartered abroad are defined as “foreign investors” in Law No. 4875, they are required to apply for authorization through the Electronic Incentive Application System (E-TUYS) of the Ministry of Industry and Technology of the Republic of Turkey, fill out the “Company and Branch Establishment Notification Form” and fulfill their notification obligations within the relevant scope, within the scope of the Regulation on Amendment of the Implementation Regulation on Direct Foreign Investments Law published in the Official Gazette No. 30438.
2- Registration must be made to the Chamber of Commerce and the Trade Registry.
In this context, the procedure and necessary documents are specified for each trade registry directorate. Basically, after the completion of the first stage procedures of these branches, the registration will be completed through the Central Registry System (MERSİS) with the potential tax number they will receive and the requirements will need to be fulfilled in accordance with the practices of the trade registry directorate where the branch will be located.
TAX LIABILITY OF BRANCHES OPENED BY FOREIGN COMPANIES IN TURKEY
Branches that generate income in Turkey become taxpayers. Turkey has agreements with many countries to prevent heavy taxation and double taxation of foreign investors and companies. Although foreign companies also have tax liabilities, the tax liabilities of branches opened by these companies in Turkey vary depending on the taxes they pay in the country of origin and the commercial activities they carry out. Countries with high potential investors such as Germany are also among these agreement countries. In this context, double taxation is prevented. In other words, the position of the company in terms of taxation and the taxes it pays in the country of origin are also important.
According to the activities of the opened branch;
In Terms of Corporate Tax: There is no special feature in terms of taxation in case foreign capital persons or organizations open a branch or establish a company in Turkey, they are taxed on the profits and revenues they earn in Turkey. The legal procedure that branches or companies established in this way must follow and fulfill is no different from other branches or companies established with domestic capital. They are taxed exactly like a Turkish company.
In Terms of Income Tax: In the event that individuals and organizations with foreign capital open a branch or establish a company in Turkey, there is no special feature in terms of income tax withholding; they are required to withhold income tax on the rental fees of the real estate they rent and the wages of the Turkish or foreign personnel they employ, as responsible persons, and deposit it to the tax office.
In terms of Value Added Tax: Branches opened or established are taxed in accordance with the Turkish Tax Legislation, just like fully liable corporations, in terms of value added tax, as well as corporate tax, and their taxation does not present any special feature.
ADVANTAGES OF FOREIGN COMPANIES OPENING A BRANCH IN TURKEY
Turkey has great importance due to factors such as its geopolitical location, workforce, and investment potential. With the changes in legislation, foreign investors have been given the opportunity to establish any type of company defined in the TCC, and in terms of opening a branch, only the condition of dividing the company's capital into shares has been recognized. Now, not only a joint stock or limited company, but also an ordinary company can be established. With the regulation, the pre-capital requirement for investment has been eliminated. It is possible for foreign companies to easily transfer payments arising from their activities abroad.
Turkey has agreements with many countries to prevent double taxation of foreign investors and companies. Thanks to this tax reduction, foreign investors are relieved of the liability of double taxation. This situation encourages foreign companies and investors to invest in our country and makes our country more attractive in terms of investment.
DOCUMENTS REQUIRED FOR FOREIGN COMPANIES TO OPEN A BRANCH IN TURKEY
Branches must define an authorized user in the E-TUYS system. They apply for user authorization procedures and carry out their procedures within the framework of the specified procedures and principles. Users must have a qualified electronic certificate obtained from electronic certificate service providers, and branches must have a registered electronic mail account obtained from a registered electronic mail service provider. Qualified electronic certificates and registered electronic mail accounts previously obtained for other purposes and with a validity period can be used for E-TUYS.
They can log in to E-TUYS, which is accessible on the Ministry of Industry and Technology website, by filling in the information in the fields of “Investor”, “Partner List” and “Affiliates” (if any) electronically, and save them within 1 month at the latest following authorization, through the qualified electronic certificate holder user they have authorized.
Foreign companies must submit the following documents to the Ministry of Trade in order to open a branch in Turkey.
- Application petition signed by the company or its representative.
- Original and translation of the decision of the company's authorized bodies to open a branch
- Original and translation of the company's articles of association
- The establishment documents showing where, when and under which state laws the company was established and the activity certificate showing that the company is still operating.
- Original and translation of the power of attorney of the authorized representative in Turkey
After obtaining permission to open a branch from the Ministry of Trade, the following documents must be submitted to the Trade Registry Office and the branch to be opened must be registered:
- Petition signed by the company official,
- Translated copy of the articles of association
- The decision taken by the authorized body of the company regarding the opening of a branch. In this decision; the title of the branch, its full address, representatives, duration, form of representation and branch capital must be clearly written.
- 1 copy of the museum declaration and permission letter approved by the Ministry of Trade
- Signature declaration under the branch title
- Power of attorney issued for the representative of Türkiye
- Translated registry document obtained from the competent authority of the country where the company is registered (notarized with apostille translation)
- Identity and residence of the branch representative, if the representative is a foreigner, a translated and notarized passport copy
- Undertaking letter according to article 29 of the Trade Registry Regulation
- Establishment Notification Form
During the preparation of the above information and documents, it is concluded that it would be more appropriate to conduct a new research by visiting the official websites of the competent authorities and taking into account the legislative updates.
APPOINTMENT OF A MANAGER TO A BRANCH OF A FOREIGN COMPANY
The director appointment procedures of foreign companies headquartered abroad and opening a branch in Turkey must also be reported to the relevant chamber of commerce. The required documents for this notification are as follows:
- Notification petition regarding the appointment of a director,
- The decision of the authorized bodies of the center or the branch authorities, if they have the authority to appoint a manager, regarding the appointment of a manager (if the decision was taken in a foreign country, it must be notarized or approved by the Turkish Consulate. In addition, a notarized translation must be brought.)
- Signature declaration of the branch representative,
- If the branch officer is a Turkish citizen, a copy of his/her Turkish ID card; if he/she is a foreigner, a copy of his/her passport approved by a notary public and a copy of his/her tax number.
- A notarized and signed document indicating that the branch official accepts the task.
CONCLUSION:
If foreign companies want to continue their commercial activities in Turkey, they can do so by opening a Turkish branch. Branches are preferred because they are easier than establishing a company and can start operating as soon as possible. However, the requirement that the branch officer reside in Turkey is a disadvantage compared to establishing a company.
To establish a branch, permission must be obtained from the Ministry of Industry and Trade and the necessary registration procedures must be carried out in the trade registry. Completing the applications quickly and easily depends on the preparation of the necessary application documents in accordance with the conditions and the registration application being made in accordance with the procedure without missing the deadline.
Except for some companies that are subject to special permission, company establishment procedures can be carried out by only completing the necessary registration procedures at the chamber of commerce if the necessary documents are ready without obtaining permission from the ministry. However, obtaining permission from the ministry for branch establishment procedures constitutes another disadvantage of opening a branch.
Failure to comply with the foreseen rules may cause both the application process to be interrupted and some administrative fines to be imposed on the company. After the branch becomes operational, it is necessary to follow up on the registration of transactions subject to registration in the trade registry.
SOURCES USED:
- Foreign Direct Investment Law No. 4875
- Income Tax Law No. 193
- Turkish Commercial Code No. 6102
- Corporate Tax Law No. 5520
- Value Added Tax Law No. 3065
- TURMOB Publications
29.08.2022
Source: www.MuhasebeTR.com