Types of Legal Entity
As a result of Turkish foreign investment legislation’s principles of non-discrimination and equal treatment, international investors enjoy the same status as local ones. A company can be established with 100% foreign capital without any capital or management contribution from Turkish participants. The structuring and organization of companies are subject to regulations set forth in the new Turkish Commercial Code, Law No. 6102 enacted in 2011.
All corporate forms are open to foreign investment; joint stock or limited liability companies are generally preferred by international inventors, along with branches and liaison offices.
Joint Stock Company
The company’s stock capital is divided into shares and the liability of the shareholders is limited to the subscribed capital and paid by the shareholder. A joint stock company can be established for any economic purpose that is not prohibited by law.
There must be at least one shareholder (a real person or a legal entity) and a minimum capital of TRY 50.000 is mandatory. The initial capital in non-public joint stock companies with a registered capital system cannot be less than TRY 100.000; value per share in both cases cannot be less than TRY 0,01. At least 25% of the nominal value of the shares subscribed in cash must be paid before registration with the Trade Registry.
Articles of association should include the trade name, list of shareholders, address and business purpose, the amount of capital and the amount subscribed by each shareholder, the amount of share capital, the nominal value of each share, the mode and terms of payments, the mode of convening the general meetings, dates and times of meetings, and conditions concerning voting. Articles of association either must be signed by the shareholders in the presence of trade registry officer or approved by a notary.
Annual meetings must be held within 3 months of the end of the financial year and the board of directors calls the meeting. The quorum for an ordinary annual general meeting is 25% of shareholders, unless otherwise stated in the articles of association.
Joint stock companies with more than 250 shareholders, or who issue stocks and bonds that are quoted in the stock exchange, are subject to the provisions of the capital market.
Limited Liability Company
A limited liability company is established with at least one shareholder (a real person or a legal entity); the liability of shareholders is limited to the subscribed capital and paid by the shareholder. The number of shareholders may not exceed 50. A limited liability company can be established for any economic purpose that is not prohibited by law.
A minimum capital of TRY 10.000 is mandatory and value per share cannot be less than 25 TRY. All of the capital should be committed unconditionally by shareholders.
Articles of association should include the trade name, list of shareholders, address and business purpose of the company, the amount of capital and the amount subscribed by each shareholder. Articles of association must be signed by the shareholders in the presence of trade registry officer.
A limited liability company is governed by managers. At least one member of the partners must have the right to legally represent the company. The legal entity can be a manager, but must be represented by a real person, who must be registered. The responsibilities of manager start with legal establishment of the company. There are no restrictions on nationality or residence of managers.
The annual partners’ meeting must be held within 3 months of the end of the financial year.
A limited liability company cannot be opened to public. Comparisons with a joint stock company are shown in Table 1.
Table 1. Comparison of limited liability company and joint stock company.
|Table 1. Comparison of limited liability company and joint stock company.|
|Limited liability company||Joint stock company|
|Liability of shareholders||Limited by share capital, except for tax liabilities||Limited by share capital
(Board of Directors have unlimited liability)
Real person or
Real person or legal entity
allowed to be director
|Board of minimum
allowed to be director
|Equity||Minimum total capital
requirement = TRY 10.000,00
Minimum TRY 25 per share regardless of tax residency status.
|Minimum total capital requirement
= TRY 50.000,00
regardless of tax residency status
subscribed in cash must be paid
|Control||Partners assembly meeting||General assembly of shareholders
|Legal||Independent – considered as a Turkish company||Independent – considered as a
|Taxable status||Liability to taxation on worldwide income.
|Liability to taxation on worldwide
|Corporate income tax||Mainstream corporate income tax at 22%||Mainstream corporate income
tax at 22%
|Dividend withholding tax||Not applicable unless profits are distributed to individual and foreign corporate
|Not applicable unless profits are
distributed to individual and foreign corporate
|Listing on stock exchange||Not allowed||Allowed|
|Transfer of shares inside/outside Turkey||Allowed||Allowed|
A foreign company is required to obtain permission from the Ministry of Commerce and Industry to establish a branch in Turkey. A branch of a foreign entity is not a separate entity. Therefore, a branch has the same articles of association as its parent company, indicating the scope of activity of the Turkish branch.
Every branch should use the name of the parent company and include the term ‘branch’. The branch is represented by a representative or branch manager with full authority, who resides in Turkey either as a Turkish citizen or as a foreigner with the appropriate work and residency permits.
There is no minimum capital requirement for the establishment of a branch. While it must be funded by head office and is governed by the parent company’s internal regulations, a branch can act with some autonomy in its external relations.
A branch is subject to corporate tax only for income generated in Turkey due to limited liability status. Furthermore, withholding tax is levied on after-tax branch profits remitted to headquarters.
Liaison offices are not allowed to carry on any commercial activities in Turkey. Their activities are limited to non-commercial activities, such as collecting information about investment opportunities in Turkey; preparing feasibility and market research studies within the Turkish market; gathering information on the Turkish economy; and providing information about the parent company and its products.
Permission to establish a liaison office is required from the Foreign Investment Department under the Turkish Prime Ministry. Permits are granted for a period of up to 3 years, at the end of which extension applications can be made.
A liaison office is not subject to income tax because it is not permitted to generate any income from its activities. All the expenses generated by the liaison office must be paid abroad with foreign currency. There is withholding tax exemption for employees of liaison office if salaries are paid in foreign currency or foreign currency indexed Turkish Lira.