Introduction to Turkish Business Laws

Navigating the complexities of Turkish business laws is a crucial step for foreigners looking to establish or expand their businesses in the Turkish market. Turkey, with its strategic location between Europe and Asia, presents a lucrative opportunity for foreign investors due to its growing economy and favorable business environment. However, understanding the local regulations and compliance requirements is essential to avoid any legal or financial pitfalls.

Understanding business entities in Turkey

Foreigners have several options when it comes to setting up a business in Turkey. The most common types of companies include the limited liability company (Ltd. Şti.), joint stock company (A.Ş.), and branch offices of foreign companies.

• A limited liability company (LLC) is a popular choice due to its lower capital requirement and limited liability. An LLC can be established by one person, with a maximum of 50 shareholders, and requires a minimum capital of 50,000 TL. This structure is ideal for smaller to medium-sized businesses and offers the advantage of being a separate legal entity from its owners.
• A joint stock company (A.Ş.) is more suitable for larger enterprises and requires a higher capital. It is also a separate legal entity and can be established with a minimum capital of 50,000 TL, although this can vary depending on the industry and specific regulations.
• Branch offices of foreign companies are another viable option, allowing foreign companies to operate in Turkey without the need to establish a separate legal entity. However, they must comply with all relevant Turkish laws and regulations.

Registration and legal requirements

The process of establishing a company in Turkey involves several steps. First, foreigners must determine the type of company they wish to establish and prepare the necessary documents. These documents include a passport or ID card, authorized signatory circulars issued in the home country, notarized translations of documents certifying the company’s establishment or representatives, and documents indicating the company’s establishment process and capital structure.

The next step is to register the company with the Turkish trade registry through the MERSİS system, where the company’s articles of association are created. Additionally, a tax number must be obtained from the tax office, and a signature circular from a notary is necessary to open a bank account.

Foreigners may also need to obtain a work permit or residency permit depending on their role within the company. If a foreigner serves as the director of a limited liability company or a board member of a joint-stock company and plans to reside or work in Turkey, they must apply for a work permit. This permit not only grants residency rights but also allows for unrestricted travel in and out of the country.

Taxation in Turkey

Understanding the tax landscape in Turkey is critical for foreign investors. The corporate income tax rate in Turkey is 25%, although it is 30% for banks and companies established under Law No. 6361. Branches of foreign companies are also subject to a 25% corporate income tax rate, plus an additional 10% tax on after-tax profits remitted to the foreign head office, subject to treaty relief.

In 2024, significant tax amendments were introduced under Law No. 7524. One key amendment is the introduction of a “Domestic Minimum Corporate Tax,” which ensures that the calculated corporate tax cannot be less than 10% of the corporate profit before any discounts and exemptions. This rule applies to earnings obtained in 2025 and subsequent periods.

Additionally, a “Global Minimum Corporate Tax” has been introduced for multinational enterprises with annual consolidated revenue exceeding the Turkish lira equivalent of EUR 750 million. This norm is applicable to the 2024 and subsequent years, with Turkish resident entities required to file their global minimum corporate tax return by the end of June 2026.

Incentives and exemptions

Turkey offers various incentives to attract foreign investment. For instance, companies established after 27 March 2018 can exclude foreign exchange gains/losses realized on cash capital contributions from abroad in foreign currency until the end of the year following the establishment year, provided they obtain an Investment Incentive Certificate.

The New Investment Incentive (NID) is another significant incentive, allowing companies to benefit from a reduced corporate tax rate. The NID rate is 75% of the increases in share capital made on or after 26 October 2021 that are funded with cash from abroad. However, this incentive is not available for companies operating in the finance, banking, and insurance sectors, or public economic enterprises.

Compliance and reporting

Compliance with local regulations is paramount. Companies must prepare financial statements according to International Financial Reporting Standards (IFRS) if they operate in regulated industries or are subject to independent audit under the Turkish Commercial Code.

Certain disclosures must be made in the footnotes attached to the statutory financial statements submitted to the tax office, along with the corporate income tax return. The Turkish Commercial Code also contains a general anti-avoidance rule (substance over form), which must be adhered to.

Work permits and residency

For foreigners who plan to work or reside in Turkey, obtaining the necessary permits is crucial. A work permit allows foreigners to reside in Turkey, work, and travel freely. To qualify for a work permit, the company must meet specific criteria, such as hiring a certain number of Turkish employees or depositing a specified amount into the company bank account.

Residency permits are also necessary for foreigners who plan to stay in Turkey for extended periods. These permits are issued once the business is operational, and the application process can be facilitated through consultancy services.

Examples and case studies

Several international companies have successfully navigated the Turkish business laws to establish thriving operations in the country. For example, companies in the automotive and textile industries have leveraged Turkey’s strategic location and favorable business environment to expand their global reach.

Recommendations

• Choose the right business entity: Select a business structure that aligns with your business goals and size. Limited liability companies are often preferred for their flexibility and limited liability.
• Comply with registration requirements: Ensure all necessary documents are prepared and submitted correctly to avoid delays in the registration process.
• Understand tax obligations: Familiarize yourself with the current tax laws and amendments to maximize benefits from incentives and exemptions.
• Obtain necessary permits: Secure work permits or residency permits as required to ensure smooth operations and compliance with immigration laws.
• Seek professional advice: Consult with local experts to navigate the complexities of Turkish business laws and ensure full compliance.

Conclusion

Navigating Turkish business laws requires a thorough understanding of the local regulatory environment, tax obligations, and compliance requirements. With the right guidance and preparation, foreigners can successfully establish and grow their businesses in the Turkish market.

Turkey’s attractive business environment, coupled with its strategic location, makes it an ideal destination for foreign investment. By adhering to the regulations and leveraging the available incentives, foreign investors can capitalize on the opportunities presented by the Turkish market and contribute to the country’s economic growth.

In conclusion, while the process of establishing a business in Turkey involves several steps and compliance requirements, the potential rewards make it a worthwhile endeavor. With careful planning, professional advice, and a deep understanding of Turkish business laws, foreigners can navigate the Turkish market with confidence and success.