Turkish Corporate Tax System

The Turkish government has been promoting tax policies that greatly benefit the investor, especially the foreign investor, by establishing some tax deductions to facilitate trade and the establishment of new businesses in the country. Some of these deductions are:

• 75% of the profits from the sales of the participation stocks included in the assets of the corporations for at least two full years.
•  50% of the profits derived from the sales of the immovables held in their assets of the corporations for at least two full years.
• 100% of profits made by companies from their participation in the capital of another company.
•  50% of the profits gained from architecture, engineering, design, software, medical reporting, accounting report keeping, call centre, product testing, certification, data storage, data processing, and data analysis when provided to companies abroad.
• 100% of profit arising from manufacturing companies in Free Zones.
• Corporate Tax Exemption for profit in Technology Development Zones.

Joint-stock companies

The options are wide when deciding to open a company in Turkey, but one of the most common is a joint-stock company. For doing so, foreigners wishing to establish one must fulfil several requirements.

There are different options when deciding to open a business in Turkey, however, one of the most common for investors is a joint-stock company. To achieve this, foreigners must comply with certain requirements such as drafting the Articles of Association that has to contain information about the company's members and then, the representative should reserve a business name. 

This kind of company is perfect for middle-sized and large companies that can be listed on the stock exchange. Nevertheless, this is not mandatory.

LLC

On the other hand, if what you want is a small or medium-sized company, perhaps opening a Limited Liability Company (LLC) in Turkey might be the best way to go.

The first thing to know is that the minimum share capital is 10,000 TRY (USD 1,373), and must be deposited into a bank account in the name of the company. 

You need these documents to open an LLC in Turkey:

• Filled in the company registration application form.
• A written request for application.
• Suitable identification proving you are the founding members.
• A letter of commitment in line with Article 29 of the Trade Registry Regulations.
• A receipt of payment of the deposit necessary to the Customers Fund Account (normally 1/1000 of the company's capital).
  
  
  

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Establishing a Subsidiary

Another good option in Turkey is setting up a subsidiary. This type of company is separated from the parent company and can be established as a new one incorporated in this country. It implies that the subsidiary has to observe the taxation laws in Turkey.

However, foreign investors can benefit from minimized withholding taxes on profits or even an exemption from paying this tax.

To establish a subsidiary, the investor must submit several documents as follows:

- Articles of association of both the parent company establishing the subsidiary and of the new entity;

- Copies of the passports of the managers of the Turkish subsidiary;

- A signature declaration from the manager/s showing they accept the position in the subsidiary;

- Commercial books of the new company must be purchased by the subsidiary's representative.

About time, you might be surprised if we tell you that the registration process will take around 10 days. But, if any other licenses or approvals are necessary, investors should expect a longer period before starting operations.

Opening a branch office

Also, a good alternative is to open a branch office which is less independent because it must undertake the parent company's activities. The latter is the one liable for each of the obligations of the branch office. Moreover, branches are represented by the branch manager who is selected by the parent company.

As of the process, you would need to fill in the application to get a special permit from the Turkish Ministry of Industry and Trade, and an authorized commercial representative must be appointed. Once you have obtained this permit, the branch will be registered with the Trade Register, as an ordinary company.

From a taxation matter, the branch is taxed in terms of corporate tax legislation which is 15%. The documents required to open a branch office are as follows:

- A translated version of Articles of Association

- Permission granted from the Ministry of Customs and Trade

- The accompanying declaration approved by the Ministry of Customs and Trade

- Power of Attorney for the Branch Manager

- Signature Circular of Branch Manager

- For a Turkish branch manager, copies of Identification Card (Notarized before a Notary Public), for foreign branch manager, copies of the photo-bearing identification pages of their passports, as notarized and apostilled

- Letter of Undertaking

- Registration Form

- Establishment Form

- Petition

Establishing a representative office 

Another type of company worth the mention is the representative office. If you are looking for contacts, conducting market research, following up on business opportunities, or simply offering information to the main company your main option has to be establishing a representative office in Turkey.

All of these features can be summarized in the category of providing preparatory and auxiliary services to the parent company. 

Now, the steps to be followed for establishing a representative office in Turkey are:

- After receiving the establishment permit, the Representative Office must send a copy of the tax office registration document to the Treasury within a month. These offices are also mandated to notify the Treasury of any change of address within a month at the latest.

- Representative Offices should send the "Data Form for Representative Office Activities" to the Undersecretaries yearly until the end of May, to inform the Undersecretaries about their activities of previous years.

Free Zone Companies and Incentives in Turkey

This country, in addition to all the tax benefits we have already mentioned, has several tax-free zones in its territory that allow companies to operate 100% tax-free on local and domestic income. 

It should be considered that these zones are the best place for large and medium-sized businesses, as they have numerous benefits such as zero taxation, a very strong and independent banking system, the ability to invest 50% of profits or funds in passive income, such as stocks bonds and other investments, no sanctions or blacklists, it can be used as a base for IT development, internet and high-tech.

As we have seen before, opening a business anywhere in Turkey requires some basic paperwork, and the process usually takes no more than 5 days, as it is one of the most efficient bureaucracies in Europe. These requirements are:

- Tax registry

- Choosing the entity type

- Trade registry

Nothing out of this world, but when setting companies in Turkey located in free zones, your company must possess at least one shareholder and one director.

Then, an office in the free zone is required. The registration of a company in a free zone is almost the same as incorporating a business in any other Turkish city.

However, the process is the following:

- Select the business structure.

- The financial steps are next. At this point it is vital to set up a corporate bank account and sign a rental agreement for office space in the free zone.

- The third step in this process is registering the chosen business form based on the Articles of Association with the Trade Register in the respective free zone.

- Other important registering processes are for taxation purposes, and with the Customs Authorities in Turkey.

- The final step is to apply for the free zone operating license with the authority governing there in which you want to operate in.

These tax measures by the Turkish government are perfect for investors from other regions of the world who find it difficult to do business anywhere in Europe. The paperwork and bureaucracy are slower, and the tax benefits are likely to be smaller.

This is one of the reasons why so much foreign investment is focused on Turkey, making it a more established place for business and more sustainable for the future. 

If you decide to open a company in Turkey, please don't hesitate to contact MUNDO’s specialists!