1. Introduction
In a globalizing world economy, investors’ need to access new markets has paved the way for the emergence of different legal structures. For foreign companies that are interested in the Turkish market but have not yet made a direct investment decision, the establishment of a liaison office stands out asa low-cost and flexible option.
Liaison offices are units established by companies incorporated under the laws of foreign countries to carry out limited business and transactions such as market research, promotion, communication and technical support without engaging in commercial activities in Turkey. This structure allows foreign companies to explore the Turkish market without incurring large financial obligations and long bureaucratic processes.
2. Legislation
The establishment and activities of liaison offices in Turkey are regulated by the Foreign Direct Investment Law No. 4875 and the Implementation Regulation of the Foreign Direct Investment Law (Implementation Regulation) issued based on this law.
3. Areas of Activity
Liaison offices to be established in Turkey are prohibited from engaging in commercial activities; in this respect, liaison offices shall not conduct commercial business or transactions. The activities that liaison offices may carry out are limited by the Implementing Regulation . These limited types of activities are listed below:
- Representation and hospitality:
Representation of the foreign company before sectoral organizations and related organizations, coordination and organization of business contacts of foreign company officials in Turkey, meeting their office usage needs
- Control and audit of suppliers in Turkey in terms of quality and standards and supplier procurement:
Inspection of the companies that have production made on behalf of the foreign company within the framework of the quality standards of the foreign company, supply of the product and producer demands of the foreign company)
- Technical support:
Providing training or technical support to distributors, providing support services to supplier manufacturers to increase their quality standards
- Communication and information transfer:
Collecting and transferring information on market developments, consumer trends, sales status of competitors and distributors, performance of the distributor company, etc. to be communicated to the foreign company that has a business relationship with Turkey
- Regional administrative center
Providing coordination and management services for the foreign company’s units in other countries, such as formulation of investment and management strategies, planning, promotion, sales, after-sales services, brand management, financial management, technical support, R&D, outsourcing, testing of newly developed products, laboratory services, research and analysis, training of employees
4. Establishment of the Liaison Office
Foreign companies wishing to establish a liaison office in Turkey must apply to the General Directorate of Incentive Implementation and Foreign Capital (General Directorate) of the Ministry of Industry and Technology. Accordingto the Implementing Regulation , the documents to be submitted in the application are as follows:
- Application form
- Declaration containing the scope of the works to be carried out by the liaison office and the commitment that the office will not carry out commercial activities and the document showing the signature authority of the foreign company official signing the declaration
- Certificate of activity of the foreign company, issued by the relevant Turkish Consulate or the authorities of the country to which the foreign company is subject to the law and certified with Apostille
- Annual report or balance sheet and income statement prepared about the foreign company
- Authorization certificate to be given to the person appointed to carry out the activities of the liaison office
- Power of attorney in case the establishment procedures are carried out through a proxy
The Ministry will evaluate the applications of newly established companies by taking into account factors such as the company’s field of activity, capital and the number of personnel employed, and may also require that at least one year has elapsed since the establishment of the company. Provided that the requested documents are complete and complete, the period envisagedby the Implementing Regulation for the finalization of the applications is fifteen business days.
5. Areas Subject to Special Legislation
Pursuant to the Implementing Regulation, the requests of foreign companies to open a liaison office in order to operate in financial areas with special legislation such as money and capital markets and insurance are evaluated by the institutions or organizations authorized under the relevant special legislation (e.g. the Capital Markets Board).
If deemed necessary, the Ministry may finalize the requests of foreign companies to open a liaison office in other sectors where permits, licenses or similar authorizations are required to operate, by taking the opinions of the institutions or organizations granting such permits or licenses.
- Obligations After Establishment
Liaison offices are obliged to send the tax office registration certificate and a copy of the lease agreement of the liaison office to the Directorate General within one month at the latest starting from the date of the establishment permit. If there is a change in the address of the liaison office, the office official(s) or the title of the foreign company, these changes must also be notified to the Directorate General within one month at the latest from the date of the change.
In addition, liaison offices are obliged to send the Information Form on the Activities of Liaison Offices and the attached documents to the Ministry about the activities of the office in the previous year by the end of May each year at the latest. In the event that the said form and its annexed documents are not sent to the Ministry, the Ministry will not take into consideration the requests for extension of time. In case the form is not submitted, the Ministry has the right to revoke the existing activity permits.
The Ministry may audit whether the liaison offices carry out their activities in accordance with the legislation and the subject of activity specified in their permits. Liaison offices that are found to be operating outside the scope of the permit will be given thirty days to apply for a permit for the activities actually carried out. This thirty-day period may be extended for an additional thirty days upon the liaison office’s justified application. If the liaison office does not apply for an activity permit as a result of the period granted to the liaison office for application, the activity permit of the relevant liaison office shall be canceled by the Ministry.
If it is determined that the liaison office carries out commercial activities as a result of the audit conducted by the Ministry, the Ministry shall revoke the activity permit of the relevant liaison office. The Ministry shall also notify the relevant authorities about the decision regarding the revocation of the liaison office’s operating license.
7. Duration of Activity and Extension
Liaison offices are permitted for a maximum period of three years for initial applications and limited to the activities declared in the application. An extension may be requested by applying to the Directorate General before the end of the activity period. However, the activity periods of the offices authorized for market research or promotion of the products and services of the foreign company shall not be extended.
The extension periods for other types of activities are determined as follows: Five years for representation and hospitality activities and supplier control, supervision and procurement; five years for technical support, communication and information transfer; and ten years for regional management center activities. The Directorate General evaluates the extension requests within the framework of the previous year’s activities of the office, the foreign company’s business plan for Turkey, the amount of expenditure and the number of personnel employed.
8. Conclusion
A liaison office is a low-cost and flexible legal structure that allows foreign companies to familiarize themselves with the Turkish market without conducting commercial activities. The scope ofactivitiesof the liaison office is limited by the Implementing Regulation, and if these limits are exceeded or the obligationsto be complied with after establishment are violated , there is a risk that the liaison office will lose its license to operate. Inthis respect, whilea liaison office is astrategic stepprior to direct investment , its sustainability depends on careful and careful compliance with the obligations stipulated in the legislation.
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