Liaison Office Establishment
Companies having their headquarters outside of Türkiye might choose to establish a liaison office (representative office) in Türkiye for various reasons, in case no commercial activity is to be conducted in Türkiye. The primary difference between liaison office and a capital company is that due to the nature of these offices, income tax is not a subject as the liaisons cannot take part in commercial and invoicing activities. The amendment published in the Official Gazette on July 3rd 2012 entitled “FOREIGN DIRECT INVESTMENT REGULATION LAW” has been completely revamped and new procedures and regulations regarding the establishment and operations of liaison offices have been put in place.
According to the new regulation, liaison offices can be established based on the following activity types for certain periods of time:
Liaison Office Establishment
Hem yerli hem de yabancı birçok kuruluş, masraflı insan kaynakları ve IK’ya konu olan diğer süreçler ile uğraşmak zorunda kalmadan, işveren sorumluluğunu paylaşarak PEO olarak adlandırılan personele ait proje bazlı idari yönetim hizmetlerinden yararlanmayı tercih ediyor.
Activity | Period (Years) |
|---|---|
Representation and hospitality businesses(Businesses related with sectoral organizations to be representative of the foreign company, coordination, and organization of business contacts in Türkiye.) | 5 |
Supplier control(Maintaining the status of suppliers in Türkiye in terms of quality and standards control in line with the foreign standards set by the foreign company) | 5 |
Technical Support(Training or providing technical support for distributors, suppliers, manufacturers, providing support services to enhance quality standards) | 5 |
Communication and information transfer(To be delivered to foreign companies located in a business relationship with Türkiye on the market developments, consumer trends, competitors and distributors selling situations, distributor firms' performance, and so on. Issues relating to the collection and transfer of information.) | 5 |
Regional management center(Foreign company, units in other countries will be developed for investment and management strategies, planning, promotion, sales, after sales services, brand management, financial management, technical support, R & D, foreign procurement, testing of newly developed products, laboratory services, research and analysis, employee training and management services, such as ensuring the coordination of activities.) | 10 |
The initial license period of operating a liaison office is limited to three years. Offices that wish to extend their license shall apply to the Ministry of Technology and Industry, prior to the expiration date.
Ministry can inspect the liaison offices ex officio or upon the written notification of the relevant institutions to determine whether they operate their activities in accordance with the activity field stated in their permit and the legislation. After the inspection, a 30-day period is granted to the liaison offices that operate activities beyond the scope of their permit to apply for the permit required for their de facto activities. This period can be extended for another 30 days the most in case there are valid grounds. The operating permit of the liaison offices that did not apply until the end of the granted period is cancelled. The operating permit of the liaison offices that conduct commercial activities as detected upon the inspection is cancelled and this process is informed to the relevant authorities.
In case the Liaison Office winds up their operations, "Termination and Examination of Business Note" issued by the tax office must be submitted to the relevant authority. At this point, the liaison office cannot transfer funds except for those related to remaining balances and liquidation.
In addition to the regulations mentioned above, there are also rules that apply to the transfer of funds, tax administration, and foreign currency outlined in the FDI Law.
There are several items that must be taken into consideration for a liaison office to be successfully established in Türkiye and maintained from a legislative view. Liaison offices must be registered at the treasury and file several periodic declarations at the proper authorities.
As per the new regulations, due to the fact that employees of liaison offices are not subject to income tax and the funds brought into the organization must be in foreign currency, the tracking and record keeping of these funds is extremely important. The funds that are sent to the organization must be exchanged into local currency and matched with the expenses that the company incurs. Also, the exchange statements from the bank must be kept on file so that they can be submitted annually by the month of May to the Treasury Administration. These filings are not only important during the operating period, they are also a crucial part of the permit extension process. If the reporting procedures and requirements put forth by the Bank and Tax Authorities, the entity is not only at risk of having their permit revoked but can also be forced to retroactively calculate and pay income tax accruals for employees and face further penalties.
Through our consultancy and BPO services, our clients do not need to concern themselves with the arduous tasks and can focus on their primary operations instead. Our years of experience in this field and countless Fortune 500 customers served with great success have established our credibility as one of the leading liaison office consultants and BPO providers.