What are the forms of companies foreigners may establish?

Real persons and legal entities residing in abroad can establish a joint-stock company “JSC” (minimum one shareholders, with no upper limit in number of shareholders) or a limited liability company “LLP” (minimum one partner, up to 50 partners maximum), or branches in compliance with the Turkish Commercial Code for the purpose of making investments and carrying out commercial activities in Turkey.
They can also establish liaison offices which cannot carry out commercial activities and must be funded by the parent company abroad.

What is the time required to set up a business in Turkey (the time to register a Turkish company)?

Average time required is two weeks or less than that, with condition all establishment documents  must be complete and ready.

How the foreign capital can be brought in Turkey?

Foreign capital to be brought in Turkey can be in the form of;

• Capital in cash in the form of convertible or effective foreign currency bought and sold by Central Bank of Turkey.
• Machinery, equipment, tools and similar goods approved by Undersecretariat of Treasury (UT), General Directorate of Foreign Investments (GDFI)
• Assets and receivable of foreign nationals under Foreign Exchange Legislation approved by GDFI
• Intellectual property such as patent rights and trademarks subject to approval by GDFI

Is there any limitation in foreign shareholding in participating to a new or existing Turkish company?

No, there is no limitation in participation ratios by local or foreign shareholders; a JSC or a LLP company can be 100% foreign owned.
The transfer of shares between the foreign shareholders are realised freely without any further authorisation.

How foreigners can invest in an existing Turkish company?

Real persons and legal entities residing in abroad have to apply to General Directorate of Foreign Investments to purchase shares from existing companies in Turkey. In transfer of shares, the value of shares are freely determined between the parties.
The transfer of shares between the foreign shareholders are realised freely without any further authorisation.

What are the essentials of Turkish Corporate Tax system?

Corporate tax applies to joint-stock companies, limited companies, branches, state economic enterprises and business entities owned by societies, foundations and local authorities are also subject to corporation tax. The corporate tax rate is applied at 20%. 
Whether a company is subject to full or limited tax liability depends on its status of residence. A company, whose statutory domicile or place of management is established in Turkey (resident company), will have full tax liability. If a non-resident company conducts business through a joint venture or a liaison office it will have limited tax liability; i.e. fully subject to corporate tax on profits earned in Turkey on an annual basis. If there is no presence in Turkey, withholding tax will generally be charged on income earned; for example, for services provided in Turkey. However, if there is a double taxation treaty prevention agreement between subject countries, reduced rates of withholding may apply.

What is the minimum capital requirement to establish a Company for a foreigner in Turkey?

Turkish and foreign investors are subject to same conditions, minimum TL 50,000 capital contribution is required for a Joint Stock Company and establishment of a limited liability company can be made with a minimum share capital of TL 10,000.
¼ of the share capital is blocked at establishment stage in a bank, which will be de-blocked after completion of establishment. The remaining share capital is required to be contributed within 2 years after establishment.

What are the types of business entities that foreigners may establish ?

Primarily “Joint Stock Company” (Anonim Şirket) and “Limited Liability Company” (Limited Şirket) must be considered. Both are independent legal entities with capital represented by shares and partnership rights. Shareholders are not required to be Turkish. Branches of foreign entities or Liaison Offices are also types of business entities that foreigners may establish; but, they do not constitute a separate legal entity.

What is the number of shareholders required ?

Joint Stock Companies can be established by a minimum one individual or legal entity shareholder with no maximum number of shareholder limitation. Joint Stock Companies with more than 250 shareholders (even the shares are not publicly traded) are subject to the regulations of Capital Market Board which is the executive body of publicly held companies.
Limited liability companies can be established by a minimum of one shareholder and a maximum of 50 shareholders. These companies are not allowed to go to public offering.

How is briefly, the establishment process ?

For a business entity establishment in Turkey, the article of association is necessary to be prepared along with numerous other documents to be obtained from prospective shareholders and to be prepared by Prizma. A power of attorney from shareholders will be necessary to speed up the establishment procedures. A joint stock or a limited company is considered established, when it is registered with the Trade Registry and published at the Commercial Registry Gazette.
However, in order that a company must be fully operational, a signatory circular must be issued and registration to tax office, preparation of the official statutory books and registration to Social Security Administration (SSK) are all necessary.

How is the management in Joint Stock and Limited Liability companies ?

A joint stock company is managed by a board of directors consisting of a minimum one member. The directors are elected at the general assembly meeting of shareholders. Foreigners may be elected as members of the board of directors without restriction.
The activities and transactions of a limited liability company are carried out by the managers  appointed among shareholders or non-shareholders.

How is possible the transfer of profits, dividends and capital shares?

Further to payment of corporate tax in accordance with the prevailing tax legislation, from the profits and dividends corresponding to the shares of foreign shareholders, the net amount can be transferred abroad via banks freely. In the case that shares of foreign shareholder of enterprises with foreign capital are either partially or wholly sold to the persons and legal entities resident in Turkey, the amounts received or liquidised in case of liquidation, will be transferred through banks concerned, provided that the permission for sale or liquidation is obtained from GDFI.
In addition to these legislative features, Turkey has been a party to several international organizations and bilateral and multilateral agreements to provide a more securable investment environment for foreign investors.

What are the Liaison Offices?

Liaison Offices are the smallest unit that can be established in order to employ personnel and make representation of a company in Turkey.

What activities may “Liaison Offices” carry out ?

Liaison Offices may be established in Turkey, for representation, researching the market potential and gathering of information. They are not allowed to engage in any kind of activity that results in generating income. They may not issue invoice and thus, may not carry trading activity

How is the establishment of a Liaison Office made ?

Application to set up a Liaison Office is made to the Ministry of Economy by submitting a feasibility report. The Ministry generally grants permission for a three to five year period, which may be renewed, at expiry.

How the funding of Liaison Offices is made ?

A Liaison Office's expenses must be funded by the parent company domiciled outside of Turkey, since the Liaison Office is not allowed to generate revenues in Turkey.

Is there any tax imposed on a Liaison Office ?

Basically, none. Liaison Offices are not subject to corporate income tax and VAT. Salaries of employees working in a Liaison Office are exempt from Income Tax and thus, this creates an advantage for both employer and employee. Nevertheless, the social security premium is contributed by employer and employee.

Are Liaison Offices required to keep legal records ?

Although not subject to any corporate tax, they have to maintain proper accounting records and file the necessary documentation to submit public authorities when required.

How the wage income is taxed?

The personal income tax is applied to wages earned in Turkey. Individuals residing in Turkey are liable for personal income tax. Calendar year is basically tax year for individuals. Personal income tax is a progressive tax system and the rate applied varies between 15% - 35% for wage income. Employees earning only salary income do not make individual tax declaration at year-end. Their income tax is withheld, declared and paid by their employer company.

Is there a minimum wage in Turkey?

Yes, a minimum monthly wage is announced by the government and updated every year. It generally floats around USD 500 per month.

How does social security system work in Turkey?

SSocial security legislation requires that all employees should be covered by the social security system and pay social security contributions (SSK premium). The system requires contribution from employer side and includes benefits employees for industrial accidents and sickness, health insurance, maternity, disability, old age and death. It also covers almost all costs of a modest level of medical care.
SSK premium contributions are made by employees and employers as a percentage of gross salary. The general contribution rates are 15% for employee and 21.5% for the employer (these rates may vary depending on the industry's risk factor) limited with a ceiling figure (floating round USD 3250), which is amended semi-annually.
For citizens of countries with which Turkey has bilateral social security agreements, it is possible to stay within their own national social security schemes.

Is it possible in Turkey to employ expatriates?

Yes, the employment of foreign personnel is possible in Turkey. In order to be salaried in Turkish entity, all non-residents must obtain work and residence permit.

What are the working regulations affecting foreigners?
( i.e. residence visas, local hiring )

In order to be able to work and reside in Turkey, all non-residents must first obtain a work permit from the Ministry of Labour and parallel with this permit a residence permit from the Ministry of Internal Affairs. Work permit applications only can be made by the company which wants to employ a non-resident. A real person cannot make an application by himself. There exist some limitations on job categories for foreigners.
The applications are evaluated according to specific criteria where the qualifications of the personnel and the performance of the company are taken into account. After the work permit is issued, a working visa must be obtained from a Turkish Consulate in abroad. With this work visa, local security offices issue the residence permit. 

How salaries are adjusted?

Salaries are normally reviewed on annual basis. The salary increase depends essentially on  inflation rate. Companies do evaluate another increase on merit basis.

What is the amount of indemnity in case of a dismissal?

Under existing labour law, a company is required to make lump sum indemnity payments to employees whose employment is terminated due to retirement or for reasons other than resignation or misconduct. Severance pay is calculated at one month's salary up to a maximum amount determined by law, per year of service. This maximum amount (ceiling figure) is adjusted twice a year and it is floating around USD 1,500 per year of service. The employer has no obligation to provide severance payment if the employee resigns.

How the statutory books are kept?

Statutory books and records of a commercial entity in Turkey must be kept in accordance with Turkish Procedural Tax Code (Law 213). There are quite a lot of rules defined in relation to preparation and recording of statutory books such as numbering, pre-usage and after usage notarization, language, monetary unit etc.

What is Uniform Chart of Accounts?

It is an accounting plan defined in the Turkish Procedural Tax Code and required to be adhered by the taxpayers in keeping their official accounting books throughout in Turkey.

How important the invoice is in Turkish Tax Legislation?

Invoice is considered as a valued paper in accordance with Turkish tax legislation and its printing is made by authorized imprinting houses. Its content is defined by the Turkish Procedural Tax Code. Companies do have to use these invoices pre-numbered and bearing the seal of Ministry of Finance. 

What is e-invoice?

E-invoice is a very new application that will commence in 2014. It is basically required for companies having sales exceeding TRY10 million and TRY 25 million depending on their purchases of mineral oil and alchoholic and tobacco products from companies announced by the decree. Companies that are meeting

Are debit and credit memo’s allowed?

Credit memo’s are not allowed to be issued, instead return invoice is used. Invoice is used for all transactions. Nonetheless, one can reflect expenses paid on behalf of another company, by using debit memo’s.

For the goods movement, Goods Dispatched Notes (GDN’s) are used. GDN’s are also imprinted by official printing houses authorized for this task by the Min of Finance. (similar to invoice). GDN’s must accompany goods dispatched note. There is also invoice with GDN application for companies issuing immediately the invoice; these companies do not use GDN.

Can the Financial Year be determined freely?

Fiscal year is generally calendar year. But, special fiscal years are allowed for foreign companies (We have clients having FY ending by March 31, June 30 and Sept 30). So, depending on needs of your head office, you can chose and change the calendar year. The annual Corporate Tax Return is filed within April (until 25th) for companies having FY as Dec 31. Special FY companies do file within 4th month following their year-end. The Prepaid Corp. Tax is filed 4 times (May, Aug. Nov and Feb 14th)  a year and the tax paid for Prepaid Corp Tax is netted from Annual Corp Tax filed at year-end.

How is the fixed asset Depreciation provided?

Depreciation rates to be used in statutory accounts are announced by the Ministry of Finance by communiqués making part of the Turkish Procedural Tax Code. There are different depreciation rates applied for different classes of assets, set basically based on useful lives. Depreciation charges applied different than these lists are not recognized as tax allowable expense. Depreciation is mainly provided on annual basis (one can provide full year charge even for an asset bought in December) with exception for company cars that are depreciated only by pro-rate depreciation.

Is there a limit for fixed asset capitalization?

Capitalization limit for fixed assets is generally the invoice issuing limit (TRY 800 for 2014) which is around USD 350. In other words, companies may charge to expense small fixed assets below TRY 800 and have to capitalize all assets acquired above this figure.

How is the Corporate Income Tax applied?

Corporate Income Tax (CIT) Law 5520 is applied to all statutory corporate income, subject to taxation which is determined in accordance with Procedural Tax Code (Law 213). CIT rate is 20% and the related tax return is filed within 4th month following the year-end.

What is the Prepaid Corporate Tax and how is it applied?

Prepaid Corporate Tax (PCT) is basically application of CIT on quarterly terms. Accordingly, corporate income subject to CIT is calculated at every quarter end and PCT return is filed by 14th And paid by 17th of May, August, November and February for the respective 1st through 4th quarter results. Rate of tax applied is the same with CIT as 20%.

Can Prepaid Corporate Tax be netted-off from Corporate Income Tax ?

Yes, cumulative amount of PCT paid during the year is netted-off from CIT calculated as final tax. Difference, if any, is paid by CIT accrual by April 30th.  

How are losses treated under CIT?

Corporate tax losses can be carried forward for a maximum of five years, following the year in which tax losses were incurred.

What is Withholding Tax and does it apply to dividend distribution?

Withholding tax (WHT) is the application name of Turkish Income Tax (Law 193). It has many applications but primarily, dividends distributed by resident companies to resident real persons, non-resident corporations and persons are subject to withholding tax at 15%. Dividend distribution by resident companies to resident corporations is not subject to WHT.

Is there possibility of receiving dividend with reduced rate of Withholding Tax?

Yes, it is possible. We will be pleased to examine your case.

What is disguised capital in Turkish Tax Laws?

If the ratio of borrowings from shareholders of a company or from its related parties exceeds three times of its total equity at any time in a financial year, the exceeding portion of the borrowing will be considered as disguised capital.

What are other applications of Withholding Tax?

Depreciation rates to be used in statutory accounts are announced by the Ministry of Finance by communiqués making part of the Turkish Procedural Tax Code. There are different depreciation rates applied for different classes of assets, set basically based on useful lives. Depreciation charges applied different than these lists are not recognized as tax allowable expense. Depreciation is mainly provided on annual basis (one can provide full year charge even for an asset bought in December) with exception for company cars that are depreciated only by pro-rate depreciation.

How does Transfer Pricing works?

Yes, any interest paid or accrued, foreign exchange losses and other similar expenses calculated over disguised capital are all treated as non deductible expense for corporate tax calculation purposes.

Are there any implications of Disguised Capital?

All transactions (sale, purchase or any kind of service) with shareholders of a company and with its related parties must be treated with arm’s length principle. Any substantial pricing difference than market may lead consideration to profit distribution in a disguised manner through transfer pricing. Such applications are not accepted as tax deductible for corporate income tax purposes. Annual corporate income tax returns include information to be declared about such transactions.

What is stamp duty?

Stamp duty is a charge widely applied by the governmental authorities is many different transactions from any kind of agreement to salaries. It is applied over the total of the transaction amount at varying percentages from 0.002% to 0.0095% and also applied by straight figures (on the tax returns).  

What are the main characteristics of VAT application?

In Turkey the general rate for Value Added Tax (VAT) is 18%. However, there are two more rates in application. 1% rate is applied for fundamental food products, grain (wheat, corn, barley etc), pulse vegetables (chickpea, lentil etc.) fresh legumes and fruits together with investment material leased from a leasing company. 8% rate is applied mainly for the textile products, apparel, books, health, education and cultural expenses. In normal way of business monthly purchase VAT’s are netted-off from sales VAT’s and the difference, if any is filed by VAT return and paid to tax office.

Can VAT not deducted through sales invoices be claimed from tax office?

In case sales VAT’s are not enough to cover purchase VAT’s the difference which is carried among assets of the company can not be claimed from tax office. 

How is the accounting profession defined by Law 3568 ?

Law 3568 defines two categories of professionals; the independent accountant (serbest muhasebeci mali müşavir) and the certified financial consultant (yeminli mali müşavir). The law requires that all tax returns to be submitted to tax authorities (within certain defined limits) have to be examined and signed by either an independent accountant or the companies must have to make annual certification agreement with a certified financial consultant

What is the benefit to make a certification agreement with a certified financial consultant ?

Although not compulsory, companies making an annual certification agreement with a certified financial consultant will not be required their tax returns to be signed by an independent accountant. In addition, the advantage of obtaining certification from a certified financial consultant is that your Company's financial statements will be considered as “examined document” by tax authorities and will have rare possibility of re-examination.