Understanding The Concept of Liaison Office; In the realm of global business, the establishment of liaison offices plays a pivotal role in facilitating cross-border interactions, fostering international relationships, and expanding the global footprint of the mother company.
One such location where the concept of liaison offices holds significant relevance is indeed Turkey. A liaison office, in the context of Turkey’s business landscape, serves as a strategic entry point for foreign companies to engage with the local market, develop partnerships, gather insights and introduce the brand and services of the mother company.
At its core, a liaison office is a branch or representation of a foreign company that acts as a communication bridge between the mother company and the relevant market. While a liaison office does not engage in commercial activities that generate revenue, it serves a crucial role in establishing and maintaining business connections.
We can say that these offices act as information hubs, gathering market intelligence, conducting research, and facilitating collaboration between the parent company and potential local partners, clients, or stakeholders. The benefits of establishing a liaison office in Turkey are multifaceted.
Most importantly, it allows foreign companies to gauge the local market’s dynamics, consumer preferences, and competitive landscape. This invaluable market insight can inform strategic decision-making for future business engagements.
This Article delves into the intricacies of understanding the concept of liaison office, benefits of liaison office establishment in Turkey, establishment procedures of a liaison office in Turkey, requirements for setting up a liaison office in Turkey, required documents for setting up a liaison office in Turkey and initial steps for setting up a liaison office in Turkey.
Establishing a Liaison Office in Turkey
A liaison office can be defined as a representation that undertakes activities such as introduction, representation, and hospitality; market research; communication and information transfer; supervision and control of suppliers in Turkey; regional management and/or technical support for a company established according to foreign country laws and based in abroad.
According to the Regulation on the Implementation of the Direct Foreign Investment Law, the Ministry of Industry and Technology is authorized to grant permission for foreign companies established according to foreign country laws to open liaison offices in Turkey, provided that they do not engage in commercial activities in Turkey, and to extend the duration of these permissions.
Liaison offices play a significant role in a foreign company’s entry into the Turkish market, the establishment of the brand’s recognition in the Turkish market, establishing connections with customers, and positioning the parent company within the industry. It is recommended that foreign companies entering the country’s market establish a liaison office in Turkey first.
What Are The Requirements For Setting Up A Liaison Office
There are requirements for setting up a liaison office in Turkey. The first two fundamental requirements for liaison office set up in Turkey are that the legal entity establishing the representative office must be a company legally established according to the relevant foreign country laws, and the liaison office to be established in Turkey must not engage in any commercial activities.
For liaison office set up in Turkey, the liaison office to be established in Turkey must select one of the specific activity areas listed in Article 8 of the Regulation on the Implementation of the Law on Direct Foreign Investments. These activity areas are as follows:
• The liaison office to be established in Turkey may choose representation and hospitality as its activity area.
• The liaison office to be established in Turkey may choose the control in terms of quality and standards, inspection, and provision of suppliers as its activity area.
• The liaison office to be established in Turkey may choose technical support as its activity area.
• The liaison office to be established in Turkey may choose “communication and information transfer” as its activity area.
• The liaison office to be established in Turkey may choose “regional management center” as its activity area.
In the initial applications for liaison offices, permission is granted within the scope of the declared activities for a maximum period of 3 years. In the first application, even if the liaison office declares that it will operate for more than 3 years, the Ministry of Industry and Technology grants the liaison office only a 3-year period.
Offices seeking to extend their operational periods apply to the Directorate General before the expiration of the operational period.
The Directorate General evaluates extension requests based on the previous year’s activities of the office, the foreign company’s future business plans and objectives in Turkey, the current and projected expenditure amount, and the number of personnel employed, and concludes the extension of the activity in accordance with the periods specified in Article 8 of the Regulation on the Implementation of the Law on Direct Foreign Investments, as appropriate to the nature of the conducted activity.
Within this framework, liaison offices that will operate in the fields of representation and hospitality, quality control, inspection and supplier provision for Turkey, technical support, communication and information transfer, may have their durations extended for up to 5 years, and liaison offices operating in the field of regional management center may have their durations extended for up to 10 years.
However, the operational periods of offices granted permission for market research or for promoting foreign company’s products or services are not extended. These activity definitions are considered to fall within the scope of the ‘Representation and hospitality’ and ‘Control in terms of quality and standards, supervision, and supply of suppliers in Turkey’ activity areas.
If a request for extension is made and the company’s activities include market research or promoting foreign company’s products or services, the duration of the liaison office’s activity is not extended.
Furthermore, in practice, the extension of the duration of the activity titled ‘regional management center’ is not permitted, and in this regard, the process is made more challenging. For liaison offices that will operate under the title of regional management center, the condition is that the parent company has companies in other regions and designates the liaison office in Istanbul as the regional management center.
Liaison offices must submit the ‘Information Form on the Activities of Liaison Offices’ and the attached documents provided in this Regulation to the Ministry by the end of May each year, regarding the activities of the previous year.
The extension requests of liaison offices in Turkey that do not submit this form and the attached documents will not be taken into consideration. Activity permits can also be canceled ex officio. The activities of liaison offices in Turkey can be inspected by the Ministry to determine whether they are being conducted in accordance with the legislation and the specified activity scope in their permits, based on ex officio or written notifications from relevant institutions.
As a result of the inspection, liaison offices found to be conducting activities beyond the scope of the permit are given a period of thirty days to apply for permission for the activity actually conducted, provided that they do so.
This period may be extended for up to an additional thirty days in case of justifiable reasons. The activity permit of offices that do not apply within the given period is canceled. For offices determined to be conducting commercial activities as a result of the inspection, their activity permits are canceled, and this is reported to the relevant authorities.
Liaison offices are exempt from VAT, corporate tax, income tax, and stamp tax. However, liaison offices have obligations to pay insurance for their employees, similar to legal entities that employ personnels. However, the insurance premiums of personnel are also exempt from income tax. On the other hand, liaison offices are obliged to register as limited taxpayers with employer status.
What Are The Initial Steps For Setting Up A Liaison Office
• After obtaining the necessary information and documents from the foreign national company in other words, the mother company, that has prepared the documents we specified within the next Article, the application file is prepared by conducting a compliance check with legal requirements.
• Application is made to the Ministry of Industry and Technology to obtain establishment permission for the liaison office in Turkey.
• After establishment, the liaison office in Turkey is registered with the tax office.
• The registration form for legal entities is filled out and submitted to the tax office.
• For legal entities, the registration form, tax office registration certificate, and a copy of the relevant lease agreement must be submitted to the Directorate General of Foreign Capital within 1 month at the latest.
What is The Required Documentation For Establishing A Liaison Office
To establish a liaison office in Turkey, the following documents must be submitted to the Ministry of Industry and Technology:
• Application form for establishing a liaison office in Turkey. Our law firm provides you the required text.
• Declaration including the scope of work to be carried out by the liaison office and an undertaking that the office will not engage in commercial activities, along with a document (signature circular) showing the authorization of the foreign company representative who signs the declaration. Our law firm in Turkey will provide you the required declaration text required.
• Notarized translation of the representative’s passport.
• Board resolution of the foreign company indicating the decision to establish a liaison office in Turkey.
• Certificate of Good Standing (Good Standing Document) of the foreign company, attested according to the provisions of the Convention Abolishing the Requirement of Legalization for Foreign Public Documents, issued by the relevant Turkish Consulate or under The Hague Apostille Convention.
• Activity Report or balance sheet and income statement prepared for the foreign company. The company’s seal and signature are required and sufficient in these documents.
• Authorization document issued to the person(s) appointed to carry out the activities of the liaison office.
• Power of attorney if the establishment procedures of the liaison office are conducted through another person. If you want us to make the application our law firm needs to be authorized by an apostilled Power of Attorney.
Documents mentioned above that are issued in a foreign country must be apostilled and sent to our law firm.
Liaison offices that obtain establishment permission must also submit the tax office registration certificate and a copy of the lease agreement related to the office to the Directorate General within 1 month at the latest.
Transactions of Liaison Offices In Turkey
As briefly stated above, the liaison office to be established in Turkey must choose one of the following activity areas: “representation and hospitality”, “quality control, inspection, and supplier provision”, “technical support”, “communication and information transfer”, and “regional management center”. These activity areas and their definitions, as indicated in Article 8 of the Regulation on the Implementation of the Law on Direct Foreign Investments, are presented below for your information:
• The liaison office to be established in Turkey may choose representation and hospitality as its activity area. Representation and hospitality encompass the representation of the foreign company in sectoral organizations and relevant institutions, coordination and organization of the foreign company officials’ business contacts in Turkey, and meeting the office usage needs of these individuals.
• The liaison office to be established in Turkey may choose quality control, inspection, and supplier provision of suppliers in Turkey as its activity area. Quality control, inspection, and supplier provision involve the inspection of companies manufacturing on behalf of the foreign company within the framework of the foreign company’s quality standards, and providing for the procurement of products and manufacturer requirements of the foreign company.
• The liaison office to be established in Turkey may choose technical support as its activity area. Technical support includes providing training or technical support to distributors, offering support services to supplier manufacturers to improve quality standards, and similar matters.
• The liaison office to be established in Turkey may choose “communication and information transfer” as its activity area. Communication and information transfer include the collection and transmission of information on market developments, consumer trends, sales statuses of competing firms and distributors, distributor firm’s performance, etc., for the foreign company engaged in business relations with real and/or legal persons in Turkey.
• The liaison office to be established in Turkey may choose “regional management center” as its activity area. A regional management center entails coordinating and managing services related to investment and management strategies, planning, promotion, sales, after-sales services, brand management, financial management, technical support, research and development, external procurement, testing newly developed products, laboratory services, research and analysis, employee training, etc., with regard to the foreign company’s units in other countries.
Liaison Office Personnel Salaries
In accordance with Notification No: 2008-32/34 related to Decree No.32 on the Protection of the Value of Turkish Currency, Article 8/(6) and also Article 4/(g) of Decree No.32 on the Protection of the Value of Turkish Currency, it is prohibited for residents of Turkey to agree upon the contract price and other payment obligations arising from certain contracts between themselves in “foreign” currency or indexed to foreign currency”.
Additionally, the Decree states that within thirty days from the effective date of this prohibition, which is September 13, 2018, the previously agreed-upon foreign currency contract prices in existing contracts of this kind will be redefined by the parties in Turkish currency.
According to the provision containing this prohibition, “Residents of Turkey are not allowed to determine the contract price and other payment obligations arising from contracts among themselves, including transactions involving movable and immovable property sales, vehicle and financial leasing, and all types of movable and immovable property leasing, leasing, employment, service, and construction agreements, in foreign currency or indexed to foreign currency, except in cases determined by the Ministry.”
However, in accordance with the Regulation on Decree No. 32 on the Protection of the Value of Turkish Currency (Regulation No: 2008-32/34), Article 8/(19), “In contracts where non-residents have employers or service recipients as parties, who have branches, representative offices, offices, liaison offices in Turkey, or directly or indirectly own fifty percent or more shares or have joint control and/or control within the scope of their activities in free zones in Turkey, and in business and service contracts within the scope of the activities of companies in free zones, stipulating the contract price and other payment obligations arising from these contracts in foreign currency or indexed to foreign currency is possible.”.
The salary to be paid to the personnels of a liaison office in Turkey will be made in foreign currency by the parent company abroad. Transfers must be deposited in foreign currency to the bank account of the relevant personnel.
Reach Us For A Liaison Office Set Up In Turkey
In the dynamic world of international business, establishing a successful presence in foreign markets is a key driver of growth, success and brand recognition. In this context, Mesci Law Firm based in Istanbul stands out as a trailblazer, offering invaluable expertise and services for companies seeking to establish liaison offices in Turkey.
As demonstrated by our comprehensive guide available under this Article, our law firm in Turkey has emerged as a leading player in facilitating the seamless setup of liaison offices in Turkey within a remarkably short span of a few weeks. If you are willing to introduce your brand and services in Turkish market, you can kindly reach us for a liaison office set up in Turkey and learn more. Our lawyers will assist you on liaison office set up in Turkey. Our law firm also provides you options such as setting up a branch office in Turkey and setting up a limited liability company in Turkey with foreign partners. Our law firm is one of the leading law firms in Istanbul, providing company formation services in Istanbul.