- February 21, 2025
- Posted by: admin
- Category: Blog
Expanding your business internationally is a significant milestone and Turkey presents a compelling opportunity for foreign investors. With its strategic location bridging Europe and Asia, a dynamic economy, and a business-friendly environment, Turkey has become an attractive destination for global enterprises. This comprehensive guide will walk you through the essential steps, legal requirements, benefits, and considerations for establishing a subsidiary in Turkey
Though we have already addressed this heading earlier with Can My Company be A Shareholder to a Company in Turkey? article now you can find more updated information as of 2025.
Understanding Subsidiaries in Turkey
A subsidiary in Turkey is a legally independent entity owned partially or wholly by a foreign parent company. Operating under Turkish law, the subsidiary can engage in commercial activities, enter contracts, own assets, and is liable for its obligations. This structure offers the parent company limited liability protection and control over the subsidiary’s operations.
Subsidiary vs. Branch: Key Differences
It’s crucial to distinguish between a subsidiary and a branch: For more informaion about branches in Turkey please read our articles,
Subsidiary: An independent legal entity separate from the parent company. It has its own management structure, financial accounts, and is subject to Turkish corporate taxes on its worldwide income.
Branch: Not a separate legal entity but an extension of the parent company. A branch operates under the parent company’s name and is taxed only on income generated within Turkey. The parent company holds full liability for the branch’s obligations.
Choosing between a subsidiary and a branch depends on your business objectives, desired level of control, and liability considerations.
Legal Structures for Subsidiaries in Turkey
Foreign investors can establish a subsidiary in Turkey under various legal forms. The most common structures include:
1. Limited Liability Company (LLC) – Limited Şirket (Ltd. Şti.)
Shareholders: Minimum of one, maximum of 50, which can be individuals or legal entities.
Minimum Capital: TRY 50,000.
Liability: Shareholders’ liability is limited to their capital contributions.
Management: Managed by a board of directors appointed by the shareholders.
LLCs are favored by small to medium-sized enterprises due to their flexible structure and relatively low capital requirement.
2. Joint Stock Company (JSC) – Anonim Şirket (A.Ş.)
Shareholders: Minimum of one, with no upper limit.
Minimum Capital: TRY 250,000.
Liability: Shareholders’ liability is limited to their share capital.
Management: Governed by a board of directors and a general assembly of shareholders.
JSCs are suitable for larger enterprises, especially those considering public offerings or operating in regulated sectors.
Steps to Establish a Subsidiary in Turkey
Setting up a subsidiary involves several key steps:
1. Determine the Appropriate Legal Structure
Assess your business needs to choose between an LLC or JSC. Consider factors such as the number of shareholders, capital investment, and future growth plans.
2. Prepare the Articles of Association
Draft the Articles of Association (AoA) outlining the company’s purpose, structure, and operational guidelines. The AoA must comply with the Turkish Commercial Code.
3. Obtain a Tax Identification Number (TIN)
Before registration, obtain a TIN for the subsidiary from the local tax office. This number is essential for all financial and legal transactions.
4. Register with the Trade Registry
Submit the necessary documents to the Trade Registry Office, including:
Notarized AoA.
Proof of capital deposit (at least 25% of the capital must be deposited prior to registration).
Identification documents of shareholders and directors.
Declaration of establishment.
Upon approval, the subsidiary’s registration is published in the Turkish Trade Registry Gazette.
5. Open a Bank Account
Establish a corporate bank account in Turkey to deposit the initial capital and facilitate financial operations.
6. Register for Taxes and Social Security
Enroll the subsidiary with the local tax office for corporate tax purposes and register with the Social Security Institution (SGK) for employee-related obligations.
7. Obtain Necessary Licenses and Permits
Depending on the industry, additional licenses or permits may be required from relevant authorities.
Benefits of Establishing a Subsidiary in Turkey
Setting up a subsidiary in Turkey offers numerous advantages:
1. Strategic Location
Turkey’s unique position connects Europe, Asia, and the Middle East, providing access to a vast market and facilitating international trade.
2. Favorable Investment Climate
The Turkish government offers various incentives to attract foreign investment, including tax benefits, subsidies, and support for research and development activities.
3. Young and Skilled Workforce
Turkey boasts a large, young, and educated population, providing a dynamic labor pool for various industries.
4. Robust Infrastructure
With well-developed transportation networks, advanced telecommunications, and modernized logistics, Turkey supports efficient business operations.
5. Access to Regional Markets
As a member of the Customs Union with the European Union and free trade agreements with numerous countries, Turkey serves as a gateway to regional markets.
Taxation and Financial Considerations
Understanding the tax landscape is crucial for operating a subsidiary in Turkey:
Corporate Tax
As of 2025, the corporate tax rate in Turkey is 25%. Subsidiaries are taxed on their worldwide income if they are tax residents in Turkey.
Value Added Tax (VAT)
The standard VAT rate is 18%, with reduced rates of 1% and 8% applicable to specific goods and services.
Withholding Tax
Dividends, interest, and royalties paid to non-residents may be subject to withholding tax, with rates varying based on double taxation treaties.
Investment Incentives
Turkey offers various incentives, including:
Regional Investment Incentives: Tax reductions and exemptions based on the investment’s location.
Sectoral Incentives: Benefits for investments in priority sectors like technology, agriculture, and energy.
Research and Development (R&D) Support: Tax deductions and grants for R&D activities. For more information please review
www.invest.gov.tr
Employment and Labor Laws
When establishing a subsidiary, compliance with Turkish labor laws is essential:
Employment Contracts
Contracts can be indefinite or fixed-term and must outline job roles, compensation, working hours, and other employment terms.
Social Security
Employers must register employees with the Social Security Institution (SGK) and contribute to social security premiums covering health, retirement, and unemployment benefits.
Work Permits
Foreign employees require work permits, which the employer must obtain from the Ministry of Labor and Social Security.
Additional Considerations
Local Representation
While not mandatory, having local legal or financial advisors can facilitate smoother navigation of regulatory requirements and cultural nuances.
Intellectual Property Protection
Register trademarks, patents, and copyrights with the Turkish Patent and Trademark Office to safeguard intellectual property rights.
Compliance and Reporting
Adhere to regular financial reporting, auditing, and compliance obligations as stipulated by Turkish law to avoid legal complications.
Conclusion
Establishing a subsidiary in Turkey is a strategic move that offers access to a burgeoning market, a favorable business environment, and numerous growth opportunities. By understanding the legal structures, regulatory requirements, and cultural landscape, foreign investors can successfully navigate the process and capitalize on Turkey’s dynamic economy. Engaging with local experts and advisors can further ensure a seamless and compliant establishment of your subsidiary, positioning your business for long-term success in the region.
