What is a Liaison Office? How to establish ? What are the advantages?
Companies in the world can open a liaison office within the borders of another country for only promotion and market research without any commercial activity. For these purposes, the liaison office activities of foreign companies in our country, which positively affects the increase of foreign investments, are carried out in accordance with the procedures and principles determined within the framework of the "Liaison Offices Implementation Regulation within the Scope of the Foreign Direct Investments Law with No.4875" and dated 5/6/2003.
The main activities of the Liaison Office is to monitor investment opportunities and the execution of market research and feasibility studies on behalf of foreign companies in Turkey market.
For this reason, the liaison office is not allowed to carry out any commercial activity.
Establishment of Liaison Office in Turkey
Foreign companies must obtain permission from the Ministry of Industry and Technology, the General of Foreign Investment Promotion and Application Directorate for establishing a Liaison Office in Turkey.
Industry and Technology Ministry can give establishment permission to each of the foreign companies in turkey by the condition that company is engaged in one of the five different branch.
These fields of activity are as follows:
-Representation and entertainment
-Control of suppliers in Turkey in terms of quality standards and providing suppliers,
-Technical Support,
-Communication and Information Transfer
-And Regional Management Center.
Representation and Hospitality
This type of activity for 5 years allows foreign company to be represented in its sector and in related organizations. In addition, this activity makes possible that foreign company executives should coordinate and organize business contacts in Turkey and ensures this person to have ability to meet the needs of office use. In this way, foreign company officials can conduct their job interviews in these offices and develop various business policies.
Control of suppliers in Turkey in terms of quality standards, providing suppliers
This type of activity permission is given by the Ministry of Commerce for 5-year term. The aim of this activity is to secure controls of companies by the foreign firms authorized persons who manufacture in Turkey. The purpose of this control is to make the production in accordance with the quality standards of the foreign company.
In addition, the supply of foreign companies' product and manufacturer demands is also included in this field of activity.
Technical Support
The aim of technical support is to secure training or technical support for distributors in Turkey and providing support services for increasing the quality standards of the manufacturer and suppliers. In this way, foreign companies will be able to increase its effectiveness in Turkey. This type of activity permission is given for 5 years.
Communication and Information Transfer
It is aimed to convey the information collected to the foreign company about developments in the market, consumer trends, sales status of competitors and distributors, the performance of the distributor firm and similar issues. Thus, although foreign companies are far away from Turkey, They can collect data in Turkey's market. The establishment permit is given for a period of 5 years.
Regional Management Center
Permission in this field of activity is given for 10 years.
The aim of this activity is to constitute investment and administration strategies of foreign company for the operations at other countries.
For this purpose, planning, promotion, sales, after-sales services, brand management, financial management, technical support and coordination and management services regarding activities such as Research & Development, external procurement, testing of newly developed products, laboratory services, research and analysis, and training of employees of the parent company will be provided by the office in Turkey.
Required Documents for Establishment
- Application petition, original of the certificate of activity which is Turkish translated, notarized and apostille certified (or translated into Turkish and approved by the Turkish consulate).
- The most recent annual report or balance sheet and income statement of the parent company translated into Turkish with notarization and apostille approval (or translated into Turkish and approved by the Turkish consulate)
- Notarized translation of the power of attorney given to the liaison office manager
- Notarized translation of the power of attorney issued for the person conducting the establishment procedures
- Authorization certificate given to the appointed person for carrying out the activities of the liaison office,
- Power of attorney if establishment procedure of the liaison office is carried out by another person.
The Status of Liaison Offices before Turkish Tax Laws
Evaluation in Terms of Corporate Tax
Liaison offices are required to give their commitment not to engage in commercial activities in Turkey. Therefore, due to the lack of commercial activity, there will be no commercial gain, so it will not be taxed.
Evaluation in Terms of Value Added Tax
According to the article 1 of clause 1 of Value Added Tax Law No. 3065 delivery and services made in Turkey in the framework of commercial, industrial, agricultural and self-employed activities constitute the subject of the value added tax.
Accordingly, commercial, industrial, agricultural or self-employment activities must be carried out in order to be able to talk about VAT obligation. Since liaison offices are established on the condition that they do not engage in commercial activities in any way, they do not need to establish a VAT liability.
Evaluation in Terms of Income Tax Withholding
The biggest tax support provided to liaison offices is the exemption from income tax for the wages paid to employees. In our country, the income tax withholding is progressive and increases from 15% to 40%.
If we compare the cost of a staff with a monthly salary of 2,500 USD to a company and a foreign liaison office, the calculations will be as follows:
FOR COMPANY |
||||
Net Wage |
Social Security Premium |
Witholding Tax |
Stamp Tax |
Total Cost |
2.500,00 |
985,00 |
1.010,00 |
30,00 |
4.525,00 |
FOR LIAISON OFFICE |
||||
Net Wage |
Social Security Premium |
Witholding Tax |
Stamp Tax |
Total Cost |
2.500,00 |
955,00 |
- |
- |
3.455,00 |
As can be seen from the above calculations, tax and social security premium difference on payroll is 1.070 USD.
As can be seen, when it is compared the cost of a foreign liaison office employee with an employee in a different company, it is less $ 1,070 per month and $ 12,840 per year at the same net wage. With a simple calculation, while 2 personnel with a fee of 2.500 dollars can be employed in the company, you can employ 3 personnel in the liaison office with the same total cost.
Since the income tax has a progressive rate of up to 40%, we can easily say that as the wage increases, the advantage will increase more.
Evaluation in Terms of Stamp Tax
In the Stamp Tax Law, the wage of the personnel working in a liaison office is not subject to stamp tax.
Evaluation in Terms of Social Insurance Legislation
Liaison office employees are subject to a 37,5% insurance premium, 15% on behalf of the employee and 22,5% on behalf of the employer. However, if the insurance debts are paid on time, there is a 5% discount from the employer's share. In other words, the insurance premium is 32.5% in total.
At the same time the insurance premium is not calculated in Turkey after a certain fee. As of 2020, no insurance premium is calculated for wage payments over 22.072 TRY (2.950 USD approximately). In other words, as of 2020, the maximum insurance cost is 22.072 * 0.325 = 7.173 TL. There is no insurance premium cost for wages paid above this.
Conclusion
The path to follow, the advantages and risks related to the establishment of a liaison office require a technical and comprehensive study. For this reason, we advise you to consult an expert on the subject in order not to be exposed to penalties due to misconduct and to obtain detailed information about the establishment of the liaison office, its operation and extension applications.
We are always ready to support you in this regard.