Company Formation in Turkey
Turkey is located at a close proximity to Europe, The Middle East and the Caucasus. Turkey benefits from its location as a bridge between Europe and Asia. It also acts as an energy corridor connecting these two continents. Turkey entered a customs union with the EU in 1996 and has been an EU accession country since 2005. This has resulted in the expansion of trade relations with Europe, which now accounts for 47% of Turkey’s foreign trade. Turkey offers an accessible, skilled and cost-effective workforce, providing the fourth largest labour force amongst the EU members and accession countries. Turkey ranks as one of the most sought after country to invest in, due to its geographical location, natural resources abundance, agricultural heartland, heavy industry and favourable relations with other countries. As a plus, foreign investment is highly valued as the government offers a welcoming environment as well as incentives for investors. Privatization programs in fields of energy, telecommunications, infrastructure, education and health are available for foreign entrepreneurs wishing to invest in Turkey.
Advantages of doing business in Turkey
The Turkish government provides various tax and nontax incentives to foreign investors, in line with those provided to domestic companies. These include customs and VAT exemptions on various imported or locally delivered goods as well priority regions offering incentives such as free land and energy support. Investors are also able to benefit from R&D support and market research with the aim of encouraging exports and increasing the competitiveness of firms in international markets.
The Turkish government has also introduced flexible exchange rate policies and liberal import regulations in order to promote and sustain foreign investment.
In recent years Turkish banks have taken an increasingly large role in financing project finance deals, benefiting in many cases from increasingly liquid balance sheets.
The Turkish legal framework offers a level playing field to foreign investors and domestic companies. Foreign ownership is unrestricted, with no pre-entry screening requirements.
A new commercial code is currently with the General Assembly of the Parliament for approval. The Code aims to integrate the Turkish Commercial Code with EU law to improve transparency, protect minority rights and strengthen corporate governance principles.
Tax Regime in Turkey
The Turkish standard tax rate is 20% but certain incentives are granted, for example, the incomes provided by software development are exempt from paying taxes until January 2024. Also major reductions may be granted for operating in certain regions. The Turkish VAT is usually 18%, but there are incentives granted to basic foodstuff, pharmaceutical products and others, which are subject to an 8% rate and to the newspapers, magazine and some farm products which are subject to a VAT of 1% rate. Under Turkish tax system all taxable companies are subject to the dividend withholding tax applied at 15% to profits.
Types of Entities
Depending on the object of activity and size of the Turkish company, there are a lot of incentives which encourage investment. In Turkey entrepreneurs prefer to establish limited liability companies, or joint stock companies.
Limited Liability Company: The Turkish limited liability company is the most used type of business in Turkey, mostly for small to medium sized businesses, because of a relatively easy registration process, low corporate taxes and a lot more advantages. A limited liability company is founded by at least 2 members, natural persons, or legal entities and they are held liable for the company’s losses and debts only to the extent of their contribution. The minimum required capital that has to be provided is 5.000 YTL (New Turkish Lira). Limited companies cannot issue stock certificates.
Joint Stock Company The Turkish joint stock company is designed for business at a larger scale and it is not as common as limited liability companies. Nevertheless a lot of limited companies evolve into joint stock companies, or become shareholders of one. A joint stock company can be established by at least 5 persons or legal entities and the minimum required capital is 50.000 YTL. The shareholders liability is limited with the share capital. A joint stock company can issue stock certificates, unlike limited companies.
Partnership An ordinary partnership is set by at least two members entering into an agreement. All partners have the same rights and obligations and are jointly and severally liable for debts and obligations of the partnership. A partnership does not require a minimum capital and it doesn’t have legal entity.
General Commercial Partnership Any commercial partnership, general or limited is a legal entity with an independent legal personality. A general commercial partnership can be set by at least two members who are general partners, and who share unlimited liability for the obligations and debts of their partnership. Also they have the right to take management decisions and to direct the profit as they think best.
A Limited Commercial Partnership The limited commercial partnership in Turkey also has legal entity and can be founded by at least two members. The difference between the two partnerships is that members of a limited partnership are differentiated by their level of liability. At least one member is a limited partner which means he or she is liable to the partnerships’ debts and obligations to the extent of his or her contribution and at least one partner is general and has unlimited liability.
Turkish Branch, Subsidiary or Representative Office Any foreign company is able to set up branch entities in Turkey. These can be set up as separate entities from the parent company (Turkish companies having the foreign company as shareholder) or extensions of the parent-company in Turkey.
The incorporation process is very short, making it appealing for foreign investment. Registering with the Trade Registry is completed in 2 days, and simultaneously notification of the Tax Authorities and publication in the National Gazette being completed. The remaining procedures are completed in the same day, or the next day from the application. A Turkish company is set up in approximately one week, but may take a less depending on the company type and its activities