Yeminli Mali Müşavirlik A.Ş.

Foreign Capital in Turkey

Foreign citizens and Turkish citizens residing abroad, and foreign entities established in accordance with their regulations and international companies who invest in Turkey are considered as foreign investors.

With the requirement to make the required declarations in accordance with the current regulations (legislation), foreign investors can invest in Turkey by establishing legal entities or offices or purchasing shares of an existing entity (either outside of stock exchange or from stock exchange with minimum 10% stocks or equivalent voting right).

What can be invested as capital?  

The followings that brought from abroad:  

• Convertible cash that is exchanged by the Central Bank of Turkey
• Securities (except for government bonds)
• Machinery and equipment
• Industrial and Economic Possession Rights

 The following or similar economical valuables acquired domestically:  

• Profit, revenue, receivable or other rights relating to investments, that is used to re-invest,
• Rights relating to research and exploitation of natural resources  

Key Facts (Essentials) Regarding Foreign Investors  

• Foreign investors can establish any legal entity or invest in an existing entity that is described in Turkish Commercial Code or Civic Law..
• Establishment of entities or offices is not subject to permission. However, foreign investors are required to declare their capital and activities to of Foreign Capital Department of The Treasure until the end of May on an annual basis, and information regarding their capital payments and transfer of shares in a period of one year .
• The entities established or participated by foreign investors are allowed to acquire (purchase) real estates or any rights regarding to the possession on them without any limitation. These investments cannot be nationalized unless public benefit requires so or they are paid for.
• Foreign investors can transfer their various proceeds and expenses abroad via banks or private financial institutions. Such proceeds and expense may include net profit, dividends, sales proceeds, indemnities resulting from their operations in Turkey and, amounts paid for licenses, management and similar agreements, capital and interest payments for loans.

 Establishment of Corporations and Branches  

• Anonymous corporations (Incorporated -Joint-Stock Company) require at least 1 individuals or legal entities as shareholders and minimum 50,000 YTL share capital.
• Limited corporations (limited liability company) require at least 1 individuals or legal entities as shareholders and minimum 5,000 YTL share capital.
• Establishment of corporations is not subject to permission except for certain operations, and the corporation’s article of association requires to be registered within 15 days after being approved by the notary.
• The branches of corporations located in Turkey that have headquarters outside of Turkey are registered just like domestic corporations as long as they use the same legal entity name as the headquarters.
• The followings are also required besides the regular documents required for any corporation:

• Passport or a notary-approved copy of the passport for individual shareholders
• For legal entity shareholders, declaration of the original operations document and notary-approved translation approved by the Turkish Consulate prepared by the chamber of industry or chamber of trades or by authorized courts or to be apostilled properly.

The Taxation of Corporation and Branch Earnings  

The net income/profit of corporations and branches made in Turkey are subject to 20% corporate tax. The profit made in the current year is declared quarterly and is subject to 20% Advance Payment Tax; and the amounts paid throughout the year (4 times) are deducted from the final amount of tax obligation, calculated on the annual profit.  

If the profit is distributed to shareholders these dividends are subject to withholding tax of 15%. Such withholding tax is not paid if the profit is not distributed but kept as earnings or added to the capital.  

Also if the branch’s profit is not transferred to the headquarter then it is subject to 20% corporate tax; if and when transferred, 15% income tax is withheld on the amount that is transferred.

Can Liaison Offices Be Established in Turkey?  

Establishment of liaison offices of corporations established in accordance with their country’s regulations are subject to the permission of The Treasury ( Undersecretary of Treasury ) with the condition of not performing any commercial activities.

Liaison offices are permitted to operate for a period of maximum 3 years; however this period can be extended for another period of maximum 3 years considering their prior year operations and future plans and targets.

The salaries of personnel employed at the liaison offices are exempt from income tax as long as they are transferred from abroad and paid in foreign currency.

The Status of Turkish and Foreign Personnel to be Employed  

Foreign personnel that will be employed at a foreign investment or a liaison office needs to get permission from the related ministry. Work permit is given for a certain period of time and can be extended at the end of the period.  

Foreigners who legally reside in Turkey continuously for a period of at least eight years or the ones who legally work for a period of six years can be qualified for an indefinite work permit.  

Turkish and foreign personnel to be employed at a foreign capital corporation established in Turkey are taxed in the same way. Employers are required to withhold the income tax when they pay the salaries or other benefits considered as salary either in cash or in kind.  

Income tax withheld from salaries is gradually increasing scaled, ranging between 15% and 35%.  

The foreigners that work in Turkey as employees of a company, except for those that are employed by corporations abroad and are sent to Turkey for a certain job and declare that are already insured, are considered to be insured and all types of social insurance (work accidents, occupational illness, illness, maternity, disability, old age and death) are applied.

YET YMM offers:

• Pre-feasibility work regarding the investment to be made,
• Consultancy on the corporation’s legal structure and its offices or branches,
• Analysis and consultancy to determine the risk and return balance of the foreign investor,
• Consultancy in establishment of the corporation and its offices or branches,
• Independent audits of companies that are to be participated, acquired or merged with, in accordance with international accounting standards,
• Consultancy in establishment of liaison offices and obtaining all necessary permits,
• Obtaining all necessary work permits for foreigners that are to be employed and all related consultancy,
• Consultancy in Turkish Tax Code as it relates to all types of taxation of the corporation to be established.