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- What are the key differences between a Liaison Office and a Branch?
Unlike liaison offices, branches can conduct business deals and engage in commercial activities. Branches need to be registered in Turkey and will be subject to tax. Liaison offices are limited in their duration whereas no such limitation exists for branches.
- How long does it take to establish a liaison office or a branch?
If the paperwork is complete, the processing times for liaison office applications are 15-20 days and 20-30 days for a branch.
- Are there any application fees?
There are no application fees for liaison offices (although the government has the right to announce application fees in case of a legal amendment)
- Is it possible for a liaison office to solicit goods and services?
No. However, if the liaison office is established for the purpose of representation, it can refer all potential business contacts to the foreign company abroad.
- Is it possible to employ foreign employees in a branch or in a liaison office?
In Turkey employing foreign staff is subject to a few restrictions. In general, the foreign labor quota system - the rule of five Turkish employees for every foreign worker employed - is sought in work permit applications. One of the exceptions to this rule is the key personnel, as described in the Foreign Direct Investment Law.
The Regulation concerning foreign work permits within the scope of the Foreign Direct Investment law defines key personnel as meeting at least one of the below-mentioned criteria.
- Being involved in senior management or executive position
- Managing the entire company
- Supervising and checking company's auditors, administrative or technical personnel
- Employing and/or dismissing personnel; or playing a role in the decision-making process
- Carrying a title such as company's shareholder, chairman or member of the board of directors, general manager, associate general manager, company manager and similar positions
- Having the necessary knowledge on company's products, services, technical know-how or management
- For liaison offices: one person who has been issued a letter of authorization by the principal company abroad, provided that 200,000 USD dollars (or equivalence of foreign currency) has been brought from abroad within the last year of its activities.
Therefore the maximum number of foreign personnel that may be employed by a Liaison Office under the regulation is one.
- Are liaison offices required to keep financial and legal books? Are they subject to certification?
Liaison Offices are not required keep fiscal and legal books such as balance sheet or company books. For the same reason certification is not necessary. Instead, liaison offices need to declare their activities to the Ministry of Industry and Technology once a year, until the end of May.
- I see that in the permitted activity code list, the life span of most activities is listed as 5 years. Based on this, is it possible to get the inital permit for 5 years as well?
No. The initial permit is always issued for 3 years. The liaison offices who would like to extend their permit must apply for extension, in which case, their extension will be valid for the corresponding number of years.
- During the extension process, can the documents be signed by the liaison office representative such as the foreign key personnel?
No. The application for the extension and the declaration must be signed by the principal company abroad, and supporting documents must be up-to-date.
- What kind of financial documents need to be submitted during the extension process?
As liaison offices must entirely be financed from abroad, the Ministry requires bank documents that show proof of transaction. In this context, the Ministry accepts 'DAB' (currency exchange receipts) and a letter which indicates that:
- The cumulative funds sent from abroad
- The name and the country of incorporation of the principal company
- Transaction dates
We can help your bank to prepare this document in the required format.
- Do liaison offices have to pay VAT?
Liaison offices are not exempt from VAT. They have to pay VAT in their B2B transactions. However, unlike other companies, they do not have to declare VAT transactions to the Tax Office.
- Do liaison offices have to pay stamp tax on contracts they conclude in Turkey?
As liaison offices cannot conduct commercial activities, they are not considered as 'tax payers' - hence, by default, they do not have stamp tax payer status. However, if they conclude a contract in Turkey that is subject to stamp tax liabilities, they are required to pay for the stamp tax at the related tax office. One solution may be to include a provision in the contract whereby the other party pays for the stamp tax.
- What about taxes on payroll? Are Liaison office employee salaries subject to tax?
Liaison office employees are exempt from almost all taxes applicable to payroll, including income and withholding tax.
- What about social security premiums and contributions?
Social security premiums must be paid. Exemption is not applicable to SSI premiums and contributions.
- As per regulation, all funds for liaison office operations and expenses should be transferred from abroad. What about local expenses? Do liaison offices need to have a bank account in Turkey?
The funds for liaison office operations must be transferred from abroad and must be in foreign currency. The parent company is not allowed to send TL currency to its liaison office in Turkey. However, certain local expenses (such as food, gas and rent) and the SSI premiums of employees must be paid in TL currency. Therefore, in practice, liaison offices should have two seperate bank accounts in Turkey: one for foreign currency and must be used for receiving fund transfers from abroad - and the other one should be in TL currency which should be reserved for converting funds to TL and making local payments.