Liaison Offices are offices which are established by foreign companies which intend to invest in Turkey for the purpose of  carrying out market research, following up business opportunities and conveying the information to the head office without carrying out commercial activities. Law no. 6224 on Encouragement of Foreign Capital set up the legal framework for the establishment of liaison offices. This legal framework was finalised in line with the provisions of Law no. 4875 on Foreign Direct Investments which entered into force on June 5th,2003 and the Implementing Regulation of Foreign Direct Investments Law.

   

A permit from the Ministry of Economy’s General Directorate of Incentives and Foreign Capital is required for opening a liaison office. The Ministry examines requests from recently established companies to open a liaison office in Turkey by taking into consideration their area of activity, capital and the number of personnel; and may foresee the condition of a one-year period after the establishment of the company to grant a permission.

  

Applications concerning establishment and extension shall be processed within fifteen business days provided that the documents/information required are complete.  

 

Permissions granted to liaison offices are valid for a period of 3 years at most. A 3-year extension can be granted by taking into consideration the past year activities of the office as well as prospective plans and objectives of the company for each application. Offices, which intend to extend the period of activity, have to apply to the General Directorate before the expiration of their current permit. 

 

Liaison offices with an establishment permit send a copy of the tax office registration as well as the rental contract to the General Directorate latest within one month. Offices notify the General Directorate of any change in address, liaison representative  / representatives or job title of the foreign company latest within one month by attaching the rental contract with the new address, authorisation document of the new representative or the document / documents indicating the job title amendment of the foreign company.

 

In line with the existing legislation, liaison offices cannot engage in any commercial or other profit-generating activities or any activity which is out of the scope of their permit; or make and transfer profits. The liaison offices must meet all their costs with foreign currency which they will bring from abroad.

 

Liaison Offices must be registered as limited taxpayers in order to determine and check whether they carry out any commercial activity; and keep the books foreseen in the Tax Procedures Law. The Liaison Office must keep, obtain approval for and maintain a journal, general ledger and inventory register on a balance sheet basis.  

 

In accordance with the relevant provisions of Law no. 4875 on Direct Foreign Investments and its Implementing Regulation, provided that the office in question is established as a Liaison Office and does not carry out commercial or any other revenue-generating activities it shall not be subject to corporate tax and value-added tax liabilities. If a foreign company operates in Turkey only through a liaison office, tax office registration is required for withholding tax liabilities. Rental payments and payments made to professionals shall be deducted from withholding tax liabilities. 

 

We included the opinion on value-added tax liabilities and documentation in case of inventory sales or sale of vehicles sent by the Ministry of Finance to our firm at the end of this note. 

 

An exemption is introduced with Article 23 Paragraph 1 Subparagraph (14) of Income Tax Law for salary payments to persons employed in Liaison Offices. In order to benefit from tax exemption, legal employers whose head office is based abroad and who are registered as limited taxpayers must make salary payments to persons employed in Liaison Offices from their income generated abroad in foreign currency. Unless salary payments to employees in liaison offices are made in foreign currency they shall not be subject to tax exemption. In such circumstances, employees must declare their entire income without tax deduction through an annual tax statement and pay the relevant taxes.  

In accordance with the Stamp Duty Law, a stamp duty requirement for salary payments was in place until the entry into force of Article 8 of Law no. 5335 on July 8th, 2006. With the said change to the law, the phrase ‘‘Payments related to salaries indicated in Article 23 of Income Tax Law shall not be subject to stamp duty.’’ was added to the end of paragraph 34 of the Section of the Stamp Duty Law entitled ‘‘II. Documents Which Are Not Subject To Stamp Duty IV Commercial and Civil Affairs’’.

 

Turkish citizens who are employed in Liaison Offices must be notified to the Social Security Institution. The premium ratio is 37.5%, that is, 15% for personnel and 22.5% for the employer. The ceiling for payments subject to premium is TL 6,639.90 on a monthly basis. The ceiling is revised on 1 January and 1 July each year. The premium ratio for employment of individuals who have already retired is in total 32%. Foreigners are not subject to compulsory insurance.

 

Paragraph (e) of Article 6 of Law no. 5510 stipulates that: 

During the implementation of the provisions on short-term and long-term insurance, ‘‘individuals who are send to Turkey by an organisation based in a foreign country and on behalf of that organisation in order to perform a task in Turkey and provide evidence of their social insurance coverage abroad as well as freelancers who reside abroad and are subject to the social security regime of their country of residence shall not be considered to be insured.’’. In accordance with this provision, foreigners who are sent to Turkey on a temporary basis and can provide evidence for their social security coverage in their countries do not have to pay premiums to the Social Security Institution. After obtaining the initial permit for the liaison office, work permit for foreigners must be obtained from the Ministry of Labour and Social Security and an application for residence permit must be submitted to the Police organisation latest within 30 days. Article 6 of the Implementing Regulation of Foreign Direct Investments Law no. 4875 which entered into force on September 6th, 2003 explains employment of key personnel in foreign direct investments. This article stipulates that ‘A maximum of one person with an authorisation certificate shall be granted work permit by the Ministry provided that USD 200,000 or an equivalent amount of foreign currency is brought into Turkey in the past year for the operations of liaison offices which operate in accordance with Law no. 4875.’’.

 

Liaison Offices send the Information Form Concerning the Liaison Office Activities, annexed to this Regulation (ANNEX 4) and its annexes to the Ministry each year latest until the end of May. Should Liaison Offices fail to send this form and its annexes their requests for extension shall not be examined. Furthermore, operation permits may be cancelled ex officio.

The Ministry may carry out inspections as to whether Liaison Offices carry out their activities with the relevant legislation and within the area of activity specified in their permits either ex officio or upon the written request of relevant institutions or organisation. Following the inspection, the Ministry allows for a period of thirty days to the offices determined to have operated outside the scope of their permissions so as to provide them the opportunity to make an application for their actual operations. This period may be extended for thirty days at most in case of justifiable reasons. Should the liaison offices fail to apply for a licence at the end of this period their operation licences shall be cancelled. Operation licences of offices which are identified to carry out commercial activities shall be cancelled and notified to the relevant authorities. 

Should liaison offices terminate their activities they must submit the termination and examination of business note to be received from the relevant tax office to the General Directorate. Liaison offices cannot claim any money transfer except the balance arising out of the termination and liquidation. 

 

Following documents are required for applications to the Ministry for the establishment of a liaison office: 

a) Application form (ANNEX-6),

 

b) Letter of commitment indicating the scope of activity of the liaison office and a commitment that the office shall not carry out commercial activities (ANNEX-7) and authorisation document of  foreign company official who signed the letter,

 

c) The Certificate of Activity of the parent company approved by the relevant Turkish Consulate or approved in accordance with the provisions of the Convention Abolishing the Requirement of Legalisation for Foreign Public Documents, prepared on the basis of the Hague Conference on Private International Law. 

 

d) Operational report or balance sheet and income statement of the parent company, 

 

e) The certificate of authority issued to the name of the person / persons who is/are appointed to carry out the operations of the liaison office,

 

f) The power of attorney in case that another person will carry out the establishment transactions of the liaison office.

 

Annex 4 Information Form Concerning The Activities of Liaison Offices, Annex 6 Application Form for Liaison Offices and Annex for Letter of Commitment are available in the Official Gazette of July 3rd, 2012 no. 28342. Information given above has been shared based on our experience from 3 separate registered liaison offices to which we provide accountancy services. 

 

Certified Public Accountant Lütfi GÜLBENK

Attornet-at-law Esma GÜLBENK