Branch Office in Turkey

Subsidiary (Local Company with a Foreign Company as the shareholder) vs. Branch (Representative Office with Permanent Establishment)

Most foreign investors in Turkey prefer to establish themselves as subsidiaries since this establishment form allows for more flexibility in terms of company structure and the greater ability to act expeditiously during permit phases. From a legal point of view, the difference between a branch and a subsidiary generally boils down to the independence factor from the parent company. In the Turkish legal system, branches are not considered as separate entities from the parent company whereas subsidiaries are. Therefore, subsidiary is a completely different company that can be formed as a Limited Liability Company (LLC) or a Joint Stock Company (JC).

Corporate Company Types in Turkey

The Turkish legal system allows for 5 different corporate establishment types:

• Limited Liability Company (LLC)
• Joint Stock Company (JSC)
• Commandite Company
• Collective Company
• Cooperative Company

The widely preferred entity types are the LLC and the JSC. The three remaining types are very uncommon and not preferred by multinational companies.

JSCs have a complex liability and operation structure, i.e., the obligation to hold general assembly. JSCs are most suitable for those companies who would like to go public.

The main difference between the two company types lies in liability perspective. Although, they are both capital companies (with responsibility to shareholders limited with their capital payments), the LLC shareholders are also liable with their personal assets for State related debts such as taxes and social security premium payments for employees. Since bureaucratically LLC and Joint Stock companies are now closer to each other (subject to New Turkish Commercial Code effective since 2012); it may be advised to foreign investors to incorporate Joint Stock companies instead of LLC due to flexibilities of corporate transactions and minimum shareholder liability for corporate related debts.

That being said, if liability is not the primary concern of the founders, LLC remains the most flexible establishment type in terms of operational requirements.

Quick Comparison between Liaison office Establishment vs. LLC 

	LIAISON OFFICE		LLC		BRANCH
	Not Allowed to engage in commercial activities		Allowed to engage in commercial activities		Allowed to engage in commercial activities
	Limited scope of activities		Unlimited scope of activities		Limited to the parent office's scope of activities
	Cannot issue invoices		Can issue invoices		Can issue invoices
	Cannot apply for grants		Can apply for grants		Can apply for grants
	Cannot ask for transfer of profits from abroad		Can ask for a transfer of profits from abroad		Can apply for a transfer of profits from abroad
	Time restricted (the permit is initially issued for 3 years; after 3 years, it can be extended up to 5 years - in some cases up to 10 years).		Does not have a time limit (in terms of permit).		Does not have a time limit (in terms of permit).
	Cannot finance its own activities – needs to be financed from abroad.		Can finance its own activities		Can finance its own activities
	Exempt from: Corporate Income Tax Value Added Tax Income tax on the salary of the employees		Not exempt from tax		Not exempt from tax
	Duration of application processing: 15-20 business days (provided that all documents are complete and in order).		Duration of application processing: 15-25 business days (provided all documents are complete and in order).		Duration of application processing: 15-25 business days (provided all documents are complete and in order).