Branch Office in Turkey
Subsidiary (Local Company with a Foreign Company as the sole owner) 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, braches 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 Establishment Types in Turkey
The Turkish legal system allows for 5 different corporate establishment types:
- LLC
- Joint Stock Company
- Commandite Company
- Collective Company
- Cooperative Company
The widely preferred entity types are the LLC and the Joint Stock company. The three remaining types are very uncommon and not preferred by multinational companies.
Joint Stock companies have a complex liability and operation structure, i.e., the obligation to hold general assembly. Joint Stock companies 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 TCC in effect 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 (initially 3 years, after 5 year extension – in some cases 10). | Does not have a time limit | Does not have a time limit | |||||||||
| Cannot finance its own activities – needs to be financed from abroad. | Can finance its own activites | Can finance its own activities | |||||||||
|
Not exempt from tax | Not exempt from tax | |||||||||
| Application processing times: 15 business days (provided all documents are in order). | Application processing times: 15-25 business days (provided all documents are in order). | Application processing times: 15-25 business days (provided all documents are in order). |
