HOW TO ESTABLISH A COMPANY IN TURKEY

POWER OF ATTORNEY

The person who is to incorporate the new company should be granted with sufficient powers of attorney. Whether, a document that is issued by the company’s attorney in one country can be certified for legal purposes in all other countries, depends on certain modalities, which are mentioned in ‘’ Apostille Convention ‘’.  In Turkey documents that are prepared outside Turkey can be certified for legal purposes in Turkey when the documents are confirmed by Turkish authorities (consulates, embassies and political officers). 

Can a foreigner establish a company in Turkey?

Foreigners can establish a company by completing the necessary documentation which shall be submitted to the Trade Registry.

Documents of the Company Establishment

• Letter of Undertaking (Trade Registry Regulation Article 24)
• Articles of association including notarized signatures of founders and notary certification proving that all shares constituting the registered capital have been subscribed by the founders in the articles of association
• Founders’ statement signed by the founders
• The bank letter proving that the share capital has been deposited
• The bank receipt indicating that 0.04% of the company capital has been deposited to the account of the Turkish Competition Authority at a state bank
• Permit or letter of compliance for companies whose corporation is subject to the permit or letter of compliance issued by the relevant ministry or other official institutions
• Notarized copy of signatures of persons with the authority to represent and bind the company
• Application number indicating that the trade name to be used has been checked and confirmed by the Trade Registry Office
• Company establishment statement form (3 original copies)
• Certificate of residence of founding partners
• Notarized translation of passport in case the foreign shareholder is a real person; apostilled and notarized translation of registry document issued by the competent authority in case the foreign shareholder is a legal entity

TAX IDENTIFICATION NUMBER

A tax identification number is given to all legal entities who are obliged to pay taxes in Turkey, also foreign legal entities.

Full responsible legal entities

Legal entities should apply the following documents to the Tax Office, which is authorized to make levy with these documents:

• Corporate name, company address, site and year of establishment, corporate seal that showing registered office
• Petition which is signed by an authorized person
• Documents which are designated with a tax identification number (serial no: 2003/1).

Foreign legal entities

Because of the activity a tax obligation is required, tax identification number is also given to foreign legal entities. If the activities of a foreign legal entity do not require any tax obligation in Turkey and the entity does not have a Turkish tax identification number, the foreign legal entity should apply the following documents to the Tax Office:

•  Specimen articles of organization which are valid and approved by a Turkish agency or which are approved in a foreign language and translated into Turkish by an official translation center.

COMMERCIAL NAME

Commercial names are mainly protected under the Turkish Code of Commerce. A company can protect a commercial name via the Central Registration System (MERSİS).

After notary public  confirm , the commercial name shall be registered and will be announced from the management opening in 15 days in trade register where is head office .

The commercial name must include one of the activity areas in Turkish.

CAPITAL

A quarter of the capital of the shareholders has to be in a deposit to the company‘s bank account. That part of capital shall be blocked by the bank on behalf of the company. It will be paid to the shareholders in case a formal letter written by the Registry of Commerce demands to do so.

NOTARISATION

Articles of association are prepared by shareholders. The articles of associations should contain the following;

• Corporate name
• Shareholders and share amount
• Address of the registered office
• Company manager/representative
• Capital and share. Amount of quarter of capital shall be cash and it should determine how the other part will be paid.
• Announcement of company and how they are going to do the announcement
• Disincorporation ,preferred  share and profit sharing

After the articles of association are prepared they are transferred to MERSİS. Then it is confirmed by notary public. In this process, statement of signature and registration request shall be prepared for authorized signatory in order to transmit it to the trade register. Also notarized identity semblance shall be organized in tax office for the starting work statement.

POTENTIAL TAX NUMBER

The Tax Office will give the Potential tax number for the legal entity of the company. To receive a potential tax number, the company should apply to the tax office with articles of association and a petition that is related to the request.

Although there is no activity for tax obligation, the potential tax number shall be given referring to notification based on Tax Procedure Law Article 8/last paragraph and code 4358. Legal entities have to present the taxpayer identification number to related natural persons and legal entities.

Potential tax number is needed to pay the quarter of capital to the bank during the establishment phase. After the registration of the company this number will be the valid tax number of the company.

The potential tax number is also given to any natural person and legal entity who is a foreigner national, between shareholders and managers.

STAMP TAX

Stamp tax obligation is obligatory for joint-stock companies and arbitrary for limited companies. The taxpayers that have to give stamp tax, have to present the tax return regularly every month. They have to present the stamp tax to the related tax office before the 20^th day of the following month. The pay day is on the evening of the 26^th day. The taxpayers who do not give tax return constantly (momentary) have to present the tax return during the 15 days that necessitate process stamp tax.

REGISTRATION IN THE COMPANIES REGISTER

Any company in Turkey, whether established by a local or a foreign investor, must be registered at the competent Trade Registry Office, according to where the company is based. The Registry holds detailed and updated information of all the recorded companies (any change in the company assett must be submitted to the Office).

To register a company to the Turkish Trade Registry Office, some specific documents must be submitted:

• Registration form
• Proof that the initial share capital has been deposited
• Notarized copies of the articles of association
• Founder’s declaration
• Copies of the incorporation notification form
• Document attesting the persons authorized to represent the company

After these documents are completed, they are presented to the related tax register. During this process, related mortars should be paid. After the application is confirmed, a formal letter of registration, registry certificate and activity certificate should be taken.

After registration phase of obtaining authorized signature list

The signature list is obtained from notary public with “proof of registration” and articles of association that are given from the registry of commerce. If the businesses will be following by proxy, the power of attorney is given to people who determinate in behalf of company by authorized signatory. The company obtains its title of legal entity after registration of the articles of association in the trade register. So, company manager who is representative of company, with specimens of signature that sign under the corporate name, can prepare the authorized signature list. The list will be necessary for all processes that are performed on behalf of company.

LEGAL OBLIGATORY CORPARATE BOOKS

• General Journal: all company transactions are recorded in the general journal. Transactions have to be registered chronologically and articled. The journal has to contain at least  the following information:
• Rotation number of article
• Date
• Debtor and credit
• Amount
• Document type and if available date and number

• General Ledger: a collection of the company’s accounts. Where the General Journal is organized as a chronological record the General Ledger is organized by account.  The General Ledger has to contain at least the following information: 
• Date
• Rotation number of articles from general journey
• Amount
• The names of the final account that helps to group accounts

• Inventory Register: this is a detailed list of all the articles, goods and property of the company.   Individually premises, credits, debts, amount of cash, assets and debt values are registered at the opening of the commercial undertake and at the end of the accounting period.

• Stock Ledger: this is a permanent record of the capital stock of a company. The names and addresses of the stockholders, the number of the shares owned and the serial numbers of their stock certificates are registered. The Stock ledger has to contain at least the following information:
• Name and surname of stock holder
• Contact information of stockholder
• If available name and surname of beneficial owner on share
• If available contact information of beneficial owner
• Nominal value of share
• Possessed pieces of share
• Contexture of share
• Acquisition date of share
• Register date
• Type of share and whether is this due to bill
• Information of Acquisition and transfer of share

• Book of Board Decision: this is a record of all the decisions of the corporate management. Decisions that are taken by the board of directors of joint-stock companies and the directors of limited partnership are registered. The Book of board decision has to contain at least the following information:
• Date of decision
• Number of decisions
• Those present in meeting
• Content of decision
• Signatures of members

• General Meeting and Negotiation Book: this book keeps record of all matters that are discussed and all decisions that are taken during general meetings. This book can be organized by question, answers, motions, decisions, or it can be organized by attaching the meeting record to the book.

• Book of Operating Account: this book shows the revenues and expenses of the company. The book is organized as follows: expenses on the left side, revenues on the right side.  Expenses are for instance: taken goods, paid or run indebted cash that is a result of a given service. Revenues are for instance: cost of goods or collected money that is a result of given service accrued revenues and the all income that is obtained from business activities.

• The legal obligatory official book has to be confirmed by notary public before the register date of the company.

TAX OBLIGATION

After a company is registered, the company needs to register itself at the Tax Office with the following documents:

• Notarized Articles of Association
• Rental contract
• Official writing of registration and main certificate of registry
• Notarized Specimen of identity of partners

The Tax Office will draft a report based on the company’s documents. On behalf of the company, an authorized person should sign the report. After this the company can fulfill its tax obligation.  

APPLICATION TO SOCIAL SECURITY INSTITUTION

If the company wants to employ staff it should apply to the social security institution. The company should apply with:

• Declaration of workplace
• Trade registry gazette ( if there is no issue in gazette , company should apply with article of association and certificate of incorporation )
• Authorized signatures list
• Tax board
• Work agreement or official writing of tax office that showed who takes the job.
• In construction work a Copy of Construction permit is needed and, if available, construction contract between contractor firm and employer.

The trade register has to send the information from the companies on the starting date and number of staff within 10 days to the related institutions.

PURCHASE OF AN EXISTING COMPANY

The purchase of an existing company is realizable through a share transfer. In order to complete a share transfer in a Limited Liability Company, the parties have to respect a strict procedure.

The notarization of the share transfer agreement and the approval of share transfers by the general assembly are required. In addition, the registration and announcement of the new share transfer at the Trade Registry is also required.

The purchase of the shares is subject to the stamp tax and VAT . VAT would be excluded where the transferor had possessed the related shares for a period of at least two years.

In order to complete a share transfer in a Corporation, the endorsement and transfer of share certificates are required. The notarization of the share transfer agreement as well as the registration and announcement of the new share transfer at a local trade registry office is not required.

The transfer of share certificates is exempted from stamp tax and other duties and charges except for VAT. Where the transferor has held the related shares for a period of at least two years, VAT will be excluded.

Establishment of a Representation office

BASIC CHARACTERISTICS

Liaison offices are deemed not to engage in income-generating activities and have any commercial operations in Turkey. As they are deemed not to have any commercial operations, all the expenses of the liaison offices have to be covered by the foreign exchange sent by parent foreign entity. It is should be noted that it is not a legal entity.

A liaison office can perform only a few categories of activities, according to the Turkish laws: market research, representation, promotion for the goods and services provided by the parent company, control of the suppliers, technical support, communication and information, regional management center and others.

The Undersecretariat of Treasury’s General Directorate of Foreign Investment of Republic of Turkey grants a license for establishment of liaison offices.

Liaison offices, in their first applications, are granted operation permits of 3 years at most. For extensions, the liaison offices are required to make an application before the expiration of their permissions.

DIRECT TAXATION

As Liaison Offices are deemed not to have any commercial operations, all the expenses of the liaison offices have to be covered by the foreign exchange sent by the parent foreign entity and they are also exempted from the major taxes in Turkey. Liaison Offices by itself is not subject to taxes and exempted from the Turkish taxes listed below:

-corporate income tax

-value-added tax

-income tax on salaries of the liaison office employees

-stamp tax

ACCOUNTING OBLIGATIONS

Liaison Offices are not required to keep accounting books. However, they must record all expenses and revenues (e.g. transfers of funds from the parent company), which can be examined by agents of the Revenue Agency.

FOREIGN REPRESENTATIVE: CREATE A BRANCH

Foreign investors who are willing to expand their business in Turkey will have different opportunities. On one hand they can choose an indirect investment, with a low risk, that could permit them to do a market survey without having to form a stable organization, on the other hand there is the chance to make a direct investment in the country.

More in detail, opening of a branch could be a convenient choice compared with the formation of a company, both for the rapidity of the constitution than in terms of costs. As liaison offices, also branch offices don’t have separate legal personality from its parent company nor financial autonomy, and being dependent from the parent company means that also their scope of activities is limited to the one of the parent company itself. The main difference with the liaison offices is that the branches can carry out activities that have commercial nature, while the liason office are allowed to exercise only activities that don’t generate an income.

It should be underlined that, as mentioned, despite the branch office is fully owned by the parent company, the Turkish law prescribes the necessary presence of branch manager who is resident in Turkey and which has full powers to represent the company in the fulfillment of administrative, legal and bureaucratic activities.

Can a foreign representative create a branch in Turkey?

A company registered in a foreign country has the opportunity to do business in Turkey by opening a branch office, for which will be fully responsible. In order to open a branch in Turkey, a foreign company must obtain the prior permission from the General Directorate of Commerce, established at the Ministry of Industry and Trade.

The competent board of the parent company should adopt the resolution for the establishment of a branch in Turkey.

The parent company should grant power of representation to the person who will establish the branch in Turkey. The power should be formalized before a foreign notary public and legalized with an apostille.

The documents required to ensure that the permission from the General Directorate of Commerce is granted are the following:

– Letter of commitment of the company to open branch

– A delegation prepared by the company in favor of its legal representative (branch manager), who must be resident in Turkey and must be an expert professionist

– An original copy of the company statute

– Documents relating to the founding of the company and showing his current good condition

These documents must be authenticated and approved by a turkish consulate of the country where the company is registered and must be delivered in Turkish language with certified translation.

TAX PROCEDURES

From a taxation point of view, the branch office is treated a non-resident entity, so is subject to corporation Turkish tax only on the incomes coming from Turkey. The business income resulting from the Turkish branch is subject to corporate income tax of 20%.

Taxpayers of corporate tax were determined in article 1 of Corporate Tax Law numbered 5520. According to the article 3 of the same code titled “Full and Narrow Obligation”, the taxpayer which both legal center and workplace do not state in Turkey, is obliged as narrow taxpayer. Hereunder, the branches which stated in Turkey and have a resident representative, as narrow taxpayers, pay in just their incomes which earned via the branch or representatives.

REGISTRATION IN THE COMPANIES REGISTER

Once the authorization of the Ministry of Industry and Trade has been obtained, it will be necessary to register the branch at the Trade Registry Office through the delivery of the following documents:

– Application form

– The authorization obtained by the Ministry of Industry and Trade

– Power of attorney in favor of the manager for the adoption of measures in the name and on behalf of its parent company, notarized and translated into Turkish

– Statement of commitment with which they confirm the veracity of all information submitted, signed by authorized person

– Copy of the company’s certificate of incorporation, translated and authenticated in Turkish.

– Certified copy of the passport of the representative of the branch

– 2 copies of a special document provided by the Ministry of Industry and Trade (Müzeyyel Beyanname)

The branch which is established for the first time by the foreign company, shall be named as “commercial title of company headquarter  + country of origin + İstanbul Merkez Şubesi (main branch of İstanbul)”. The following branches shall not use “Merkez(main)” term.

DIFFERENCES BETWEEN JOINT STOCK COMPANY AND LIMITED LIABILITY COMPANIES

1. NUMBER OF SHAREHOLDERS

Corporations and Limited Liability Companies ( LLC.) can be incorporated by only one shareholder. Although there is no restriction about the Number of shareholders for corporations, the Number of shareholder in a limited liability companies shall not exceed 50.

• SHARE CAPITAL

The share capital cannot be less than 50.000 TL for corporations which adopt the principal capital  system but the share capital for corporations which adopt registered capital system cannot be less 100.000 TL. The share capital for limited liability companies cannot be less than 10.000 TL.

• PUBLIC OFFER

Corporations can open the shares to the public by increasing its capital and can provide outsourcing by expanding the number of shareholder. On the other hand LLC cannot open its shares to the public.

• SHARE CERTIFICATE

Shares of a corporation may be issued as bearer or registered shares.  Shares of an LLC. must be created as registered shares.

• DEBENTURES

The corporations may issue debentures or other negotiable securities. The LLC may neither resolve nor guarantee the issue of debentures or other negotiable securities.

• RESPONSIBILITY OF DEBTS

The shareholders (apart from those who have the authority to represent the company) of a corporation have no responsibility for the public debt, while the shareholders of LLC carry responsibility for the public debt regardless of whether shareholder is authorized to represent the company.

• SHARE TRANSFER

The transfer of shares of corporations before a notary public is not necessary. However, the ownership of share certificates of a LLC does not exceed with transfer, written contract shall be prepared for the transfer of share certificates and notary public shall ratify this contract. Also the company’s general assembly should approve the transfer of shares and this transfer should be registered in the Commercial Registry. On the other hand for the transfer of shares of Corporations is not necessary to register the transfer in the Commercial Registry and publish it in the Commercial Registry Gazette.

SIMILARITIES BETWEEN JOINT STOCK COMPANY AND LIMITED LIABILITY COMPANIES

1. THE DEBT OF PUT CAPITAL

Shareholders are only liable to the Company by the amount of capital committed to put the company but also the shareholders of LLC carry responsibility for the public debt regardless of whether shareholder is authorized to represent the company.

• RESPONSIBILITY OF DIRECTORS

If administrators violate their duties which are raised from Law and the Articles of Incorporation, they may be responsible for the damage caused against companies, their shareholders and, as well to the creditors of the company.

3.   DIssolutIon of the Company

Although it can not be decided about Corporation on the field of nullity or absence, if it was acted contrary to the provisions of law at the establishment of the company, the board ofdirectorate may request that the decision to dissolve the company. This provision shall also apply to the limited liability companies.