We would like to explain main features and procedures of establishing a company in Turkey.
Turkey’s foreign investments policy is based on the principle of equal treatment which entitle foreign investors to have the same rights and liabilities just like domestic investors.
Foreign Investors( ”FI”) could establish any form of company set out in the Turkish Commercial Code(”TCC”). The code is published in 2012 which offers investors up to dated international regulations, transparency, fast and e-based establishing procedure. In addition regulations in the Code, the Foreign Direct Investment Law No. 4875 is an another significant part of legal procedure. According to TCC, companies can be seperated two groups: Corporate Forms and Non-Corporate Forms. Non-corporated companies are not suitable for everyone.These types of companies just like the rest of the World are usually establishing for a specific projects and has some disadvantages. Corporate companies may establish as a Joint Stock Company(JSC, A.Ş(in Turkish), Limited Liability Company(LLC, LTD(in turkish)) and cooperatives.
Joint Stock and Limited Liability are the most common types of companies. JSCs generally can be used for large-scale operations. LLCs are suitable for small and medium sized businesses. We think that Limited Liability Company is good and proper for your concerns and goals. Although some financial requirements and company’s organisation differ from each other,basically procedures for establishing are the same.
The limited liabilitiy companies have a minimum of 10.000.-TL. It should be established with capital and at least one partner. (TRY hereinafter referred to as TL.)
It is mandatory that the title of the limited liability company and the activity subject be shown in the title to be determined in Turkish.
The minimum capital must be 25 TL. Or multiples of 25TL.
Why We Offer a Limited Liability Company ?
- EU Repatriation Rights, free legal provisions, right to arbitrate
- Right to Employ Foreign Personnel(not limited)
- Has multiple uses( LLC can be used fort he most of financial and trading activities)
- Subsidiaries of foreign companies can also take the form of an LLC in Turkey
We don’t want to confuse the issue by writing all the process and documents work but for the purposes of clarification, i want to categorise mainly all the procedures.
- Drafting memorandum and articles of association which includes( shareholders,company name,capital,boards,liabilities, communication means etc.)
- Register To MERSIS ( Central Registry Record System which carrying out investment process and store all the data electronically.) MERSIS gives entity number to legal entities. All process are operating the online sysytems.
- Filling the documents which is requested by the Trade Registry Office
Deposit a %0.04 percent of company’s capital as a charge to the account of trade registry Office.
Have the company’s statutory documents drafted and notarized by a public notary; should be noted that all the neccessary documents will be issued and executed in your country.Turkey or turkish consulate must be notarized and apostilled.Original documents must be translated and notarized by a turkish notary,too.
- Registering for taxes, VAT and for social security with the tax authorities;obtain potential tax number( easy to obtain, documents process are fast and easy)
- Applying for business licenses(if neccessary) and work permits ( online register)
We know tax rates and legislation are very significant element fort he investment. We know that tax policy must be noticeably clear,objective and of course easy to pay for taxpayers.
Turkish taxes could be classified under 3 main category:
- Income Taxes ( Personal or Company’s income)
Person’s income means total net amount of all earnings and revenues within a single year.
This tax rates vary from %15 to %35. (scale of 18,000 TRY(about 3,500 USD)- 150,000 TRY(about 40,000 USD) Company’s Income Taxes is standardized which is levied on company profits is %20 in 2019)
- Taxes on Expenditure
- Value added Tax(VAT) ratios are set %1,%8,%18.
- Special Consumption Tax(some products are subject to this taxes.)
- Petroluem products,natural gas,lubricating oil,solvents are subject to SCT. Unlike Vat,SCT is charged only once.
- Banking and Insurance Transaction Tax( applies income earned in banks especially interest)
- Stamp Duty
- Taxes on Wealth
- Property Taxes
- Motor Vehicle Tax
- Inheritance and Gift Tax
Also you may see the summary of the taxation processes under Turkish tax legislations and also the agreement between Turkey and United States of America to avoid of double taxation treaty for self-employment (freelance) operations that is more by personal efforts than equity capital which you wish to prevent a service to Turkish based firms.
1. A Taxation for Limited Taxpayer for Personal Entity with Establishing a Tax Incumbency (Net Earnings Procedure)
As a basis of the net earning method, The taxation can be made through the net profit which is the amount of deferred costs of the service sold in Turkey. With another description is that, on behalf of you, the tax number will be taken from the Turkish Taxation Authorities in order to declare your earnings in Turkey. After that you will have an obligation to create an accounting ledger and give a decleration. To simplify those obligations, there is a must to give a declaration properly every month. Also there is a must to give an annual income tax decleration which includes the year. Please read the example for this procedure.
Total Annual Earnings for FY20: 1.200.000 TL
Total Annual Expenses for FY20: (200.000) TL
Net Earnings for FY20: 1.000.000 TL (Tax base)
Tax Payable: 355.780 TL
Net Earning Tax Ratio: 35,58%
2. Taxation Regime Under the Conditions of Establisihing a Firm in Turkey
According to the Turkish Trade Law,a foreign entrepreneurs can establish a corporation and limited company in Turkish Territories. The entitiy excises from all of the earnings which gathered in Turkey or abroad.
The entitiy has an obligation to creating an accounting ledgers and performing a decleration properly. To simplify those obligations, there is a must to give the declarations everymonth and give a corporate tax for fiscal year as well. Corporate tax is calculated by the net profit. Entities pay 20% percent of corporate tax from the profit. Earnings earned during the year are declared quarterly by three months and subject to advance tax at the same rate which is 20 %. At the end of the year, the prepaid taxes deffer from the corporate tax amount. In process of profit share after the corporate tax, a profit share amount is liable to a witholding tax which is 15 %. (witholding tax for dividends)
In an example we can simplify this case like;
Total Annual Earnings for FY20: 1.200.000 TL
Total Annual Expenses for FY20: (200.000) TL
Net Corporation Earning for FY20: 1.000.000 TL (Tax base)
- Corporate Tax Payable
Entity is obliged for pay the corporate tax which is 200.000 TL (1.000.000*20%)
- Calculating the Tax for Sharing Profit With the Dividends
- Net Profit: 1.000.000 TL (Tax Base)
- Corporate Tax: (200.000) TL
- Franked Dividends (Distributable Profit): 800.000 TL
- Dividend Tax: 120.000 TL (800.000*15%
- Net Bonus: 680.000 TL (800.000-120.000
- Total Tax Obligation: 320.000 TL
- Ratio to Net Earnings: 32%
Dividend tax rate is calculated as 15%. The tax rate on dividend income is 15% since a lower rate is foreseen in Turkish legislation. According to the avoiding the double taxation agreement between Turkey and USA the tax amount which has been paid in Turkey, can be deducted in USA.
3. In Case of Providing the Services Without Coming to Turkey
Article 14 says that in the avoiding double taxation between Turkey and USA; a person who is a resident in USA will perfom any operation without coming to Turkish Territories, can be taxed by US Authorities. Thus, for that case US Authorities have the rights for taxation. It means that there will be no taxation in Turkey for the earnings from the operations. A Certificate of Residence indicating full taxpayer status in the scope of the Double Taxation Avoidance Agreement should be submitted and taken for avoiding from the double taxation. You must present this document to the firm that you have sold your service with its orginal hard-copy or a example of the certificate with its notarised approval with its translations to Turkish language with its approvals by Turkish embassies.
Unless, the certificate will not on demanded, You have to be taxed according to the Turkish Tax Legilations,
- While you will provide that certificate to Mega Company you will have a right to take all of the amount of the invoice that will be created by yours. In example; if the invoice amount will be 1m USD you can collect all of the amount without any deduction under the conditions of providing the certificate of fiscal residence.
- While you will not provide the certificate of fiscal residence to Mega Company, On behalf of you, Mega will pay your tax obligation which is 20% after the tax you can collect the rest of them. As a calculation; if you will create an invoice with its amount of 1m USD, without the certificate of ficscal residence, 200k USD will be deducted and you can collect 800k net.
For this reason, this certificate of fiscal residence has very significant role.
4. Taxation in the USA
According to the conversations which i made with businessmen who are a resident in US, as i understood that there are two types of taxes for earnings. Those are Federal Income Tax and Stante Income Tax. Addtionally they implied me that, the one of the most higest tax rates are in New York State where you are locating at the moment. Income tax is relating to the amount of income in federal level, marriage status and another factors. However, as we learned that in some states includes Florida has no income tax application. Also in some states there are different tax rates and in some states they use the same income tax rate. Except this; we have learned that, there are some advantages to estabish a LLC in Nevada. It seems that, there are more advantages to create a company there for cost of tax. Lastly, in Delaware state, there is no tax for non-US based earnings. Nevertheless those informations must be checked by yours.
Things to do for setting up a L.L.C
Preparing the feasibility study, taking preliminary permits required. Its foreign cannot do any work in Turkey. It may be necessary to obtain some permission for the business line to be made.
Preparation of the main contract. Main contract will be Turkish.
Application for establishment of the Ministry of Industry and Trade.
Execution of trade register and registration and announcement process. (A financial consultant is needed or accountant.
Application to the Tax Office.
Approval of books that should be used legally. (Notary with accounter)
Within 3 months following the date of the incorporation, the company shall be established in the manner specified in Article 5 and the Turkish Trade Registry Gazette and the Foreign Shareholder’s capital (50.000 USD for each foreign partner) This document contains the following information: (a) The name and address of the bank; (b) The name and address of the bank; 2 of the Foreign Capital Framework Decision), must be submitted to the Undersecretariat of Treasury General Directorate of Foreign Investments and the document must be issued.
- According to the Turkish Commercial Code, investors and institutions residing in the dormitory must obtain a permission document from the General Directorate of Foreign Investments of the Undersecretariat of Treasury of the Anonymous or Limited Company in order to invest in Turkey and carry out commercial activities. It is necessary to prepare FEASIBILITY REPORT.
For the permission document to be taken, the following documents must be submitted to the Undersecretariat of Treasury General Directorate of Foreign Capital.
It belongs to non-residents abroad;
- Company main agreement
- Investment decision
- Balance sheet for the last two years
- Action document.
It belongs to resident people abroad;
- Passport example
- Detailed information with commercial and industrial curriculum vitae and documents certifying them.
To take the necessary capital for the subject that the resident or establishment in the dorm wants to produce.
- Application form.
- The draft contract of the company to be established.
- Proforma invoices, prospectuses and catalogs of the machinery, equipment and fixtures imported for investment and a global list of three copies of the FOB (Country of Origin), FOB ($), CIF (TL) and Customs taxes and illustrations.
- If it is desired to benefit from the investment incentive instruments, 0,1% of the total amount of customs bonded investment shall be secured by T.C. Receipt of receipt of payment to the Export Promotion Fund at the Central Bank.
- It will be given by the founders of the person who will carry out the authorization transactions.
- Other information and documents which may be of interest when added
The Feasibility Report and other required documents are requested by the General Directorate of Foreign Investments of the Undersecretariat of Treasury in addition to a petition. The General Directorate of Foreign Investment gives or denies the necessary permission after reviewing the investments in the economic policy and plan of the country. After obtaining the necessary permission from the General Directorate of Foreign Investments, the Ministry of Industry and Trade is applied for the establishment of the company.
- The only difference between the preparation of the articles of association for companies with foreign capital and the Articles of Association prepared for companies with 100% of the capital is found in Aim and Subject. The aim and topic of the company with foreign capital are;
‘Şirketin Amaç ve Konusu T.C. Başbakanlık Hazine ve Dış Ticaret Müsteşarlığı Yabancı Sermaye Genel Müdürlüğü’nün …/…/……. tarih ve ………….sayılı izin belgesi çerçevesi içeresinde yürülükteki ithalat-ihracat rejimleri ve diğer mevzuata riayet etmek kaydıyla………………………………….şeklinde olmak kaydıyla;’
It must be deducted.
- Transactions with the Ministry of Industry and Trade
Documents to be submitted to the Ministry of Industry and Trade are listed below:
- Company’s main contract (6 copies must be attached)
- Permission certificate obtained from General Directorate of Foreign Investments.
- Foreign Currency Purchase Document (In Turkish :Döviz Alım Belgesi DAB) indicating that the foreign capital’s cash capital has come to Turkey.
- If the commitment of foreign share capital equals the same; Written by the Prime Ministry Undersecretariat of Treasury General Directorate of Foreign Investments on the registration and registration of the same capital to my country.
- Founding foreign citizen is resident in Turkey and does not need foreign exchange or not. It is written by the Prime Ministry Undersecretariat of Treasury and signed or notarized by the residence permit document.
- Other Actions
After obtaining the required permission document with the documents we have listed above and applying, please apply to the Ministry of Industry and Trade with the documents listed above and obtain permission to establish the company. The application is made to the Ministry of Industry and Trade of Ankara for the permission of establishment.
After obtaining the necessary institutional permission, the company’s main contract and other documents are registered, announced and registered in the Trade Registry and the establishment process is completed.
The documents to be given to the trade registry are the same as the documents to be given to a company with Turkish capital. As of the registration date, the tax office number is obtained by applying to the Tax Office where the company address is located and the books which are required to be kept mentioned in the Tax Procedure Law are approved.
ACCOUNT RECORDS FOR ESTABLISHMENT PROCEDURES
Accountancy is needed.!( Attorney’s opinion)
Accounting procedures for the establishment of a foreign-funded company appear to be carried out during the establishment process of the joint-stock companies and limited liability companies.
T.C. Prime Ministry Undersecretariat of Treasury:
FOREIGN CAPITAL LEGISLATION; General Directorate of Foreign Capital;
Mentioned above documents have to be approved by the competent authorities of the country concerned and the Turkish Consulate and must be submitted in Turkey with a Sworn Translator translation. The operation document and the lifting of the obligation of ratification of the foreign official documents prepared in the framework of the relevant Turkish Consulate or the Hague Special Administrative Conference of the passport sample must be certified according to the contract provisions. It is also sufficient that a passport prefix is certified by a notary public in Turkey.
Estimated Cost Items:
|Ankara Chamber of Commerce Announcement Fee for Foundation||: 750 – 900TL|
|Annual Fee (According to Amount of Capital)||: 190 TL – 375 TL|
|Notary expenses||: 650 TL – 1500 TL|
|Tax Office Costs:
(May vary according to the guarantor status and the rent price line)
|: 100 TL – 200 TL|
|Printing Expenses||: 200 TL|
|Competition Board Payment||: 20 TL – 30 TL|
|Blocking ¼ of the capital in the bank||: It depends on the capital. Once the company is established, it can be withdrawn from the bank again.|
TOTAL: Costs between 1.190,00TL – 3.205,00 TLare incurred.