Subsidiary Company In Turkey

Key Guide to Establishing a Subsidiary Company in Turkey

Establishing a subsidiary company in Turkey has become an attractive option for foreign businesses looking to expand into the Turkish market. Turkey's strategic location, dynamic economy, and business-friendly environment make it an ideal destination for international corporations. A subsidiary company in Turkey offers foreign investors numerous advantages, including full control over operations, access to local tax incentives, and limited liability protection.

This comprehensive guide covers the definition, legal framework, benefits, and taxation of subsidiary companies in Turkey. Whether you are considering setting up a subsidiary in Turkey for your global business or looking to understand its operations, this guide provides valuable insights.

What is a Branch vs Subsidiary Company in Turkey?

A subsidiary company in Turkey is a legal entity that is partially or wholly owned by a parent company. It operates as a separate business unit but remains under the control of the parent company. A subsidiary can take on various legal forms, such as a limited liability company (LLC) or a joint-stock company (JSC). The key characteristic of a subsidiary is its legal independence from the parent company, which means it can enter into contracts, own assets, and be sued in its own name.

In Turkey, subsidiaries are governed by the Turkish Commercial Code (TCC), which lays out the regulations for establishing and operating companies. Foreign investors are allowed to own up to 100% of the shares in a Turkish subsidiary, making it a popular structure for multinational businesses looking to expand their operations.

Key Legal Forms of Turkish Subsidiary Companies

In Turkey, a subsidiary can be formed as one of several legal entities. The two most common structures are:

1. Limited Liability Company (LLC) – Known as a "Limited Şirket (LTD)" in Turkish, an LLC is the most popular choice for setting up a subsidiary due to its flexible structure and simple formation process. It requires a minimum of one shareholder, a minimum capital of TRY 50,000, and one director. The liability of the shareholders is limited to their share capital.
2. Joint-Stock Company (JSC) – Also referred to as "Anonim Şirket (A.Ş.)," a JSC is more suitable for larger-scale operations, especially those planning to issue shares to the public. It requires at least one shareholder and a minimum capital of TRY 250,000. The shareholders' liability is limited to their contributions, and a JSC can issue both common and preferred shares.

Benefits of Establishing a Branch Company in Turkey

Setting up a subsidiary company in Turkey offers a range of advantages for foreign investors:

1. Limited Liability: Shareholders of a subsidiary company enjoy limited liability, meaning their financial exposure is limited to the amount of capital they have invested in the subsidiary.
2. Full Control: Foreign investors can own up to 100% of the shares in a Turkish subsidiary, giving the parent company full control over the subsidiary's operations, management, and business decisions.
3. Separate Legal Entity: A subsidiary operates as a separate legal entity from the parent company. This allows the subsidiary to enter into contracts, own property, and conduct business independently, providing the parent company with protection from legal or financial risks associated with the subsidiary's operations.
4. Access to Local Incentives: Subsidiaries in Turkey can benefit from a wide range of tax incentives, particularly if they operate in free zones or technology development zones. Additionally, Turkey offers incentives for research and development (R&D) activities and export-oriented businesses.
5. Simplified Market Entry: Establishing a subsidiary provides foreign companies with easier access to Turkey's large domestic market and its customs union with the European Union, facilitating trade and operations in both Turkey and Europe.
6. Flexibility in Business Activities: A subsidiary can engage in various types of business activities in Turkey, including manufacturing, sales, distribution, and services. This allows the parent company to adapt its business strategy to local market conditions.

Steps to Establish a Subsidiary vs Branch in Turkey

Setting up a Branch subsidiary in Turkey involves several steps, which must comply with the Turkish Commercial Code and other local regulations. Here is a step-by-step overview of the process:

1. Choose a Legal Structure: Decide whether to establish the subsidiary as an LLC (Limited Şirket) or a JSC (Anonim Şirket), depending on your business needs.
2. Register the Trade Name: The first step is to select and register the trade name of the subsidiary with the Trade Registry Office. The name must be unique and comply with Turkish naming regulations.
3. Draft the Articles of Association: Prepare the articles of association (AoA), which outline the subsidiary's structure, purpose, and management. These must be submitted to the Trade Registry for approval.
4. Appoint Directors and Shareholders: Appoint the board of directors (in the case of a JSC) or a managing director (for an LLC). At least one shareholder and director are required, and their details must be included in the registration.
5. Deposit Share Capital: For a JSC, you must deposit the minimum required share capital (TRY 250,000). An LLC requires no minimum capital, though it's common to contribute capital for operational purposes.
6. Register with the Trade Registry: Once the above documents are prepared, submit the registration package to the local Trade Registry Office. This includes the AoA, shareholder information, and capital proof.
7. Obtain a Tax Identification Number: After registration, you need to apply for a tax identification number with the local tax office. The subsidiary will also be required to register for VAT, corporate tax, and other relevant taxes.
8. Get Register to Social Security Institution: After registration, you need to apply for a SSI identification number with the local tax office. The subsidiary will hire any employees must be send Social Security Decleration Form periodcially
9. Open a Bank Account: Open a corporate bank account for the subsidiary in Turkey, where the initial share capital can be deposited.
10. Obtain Necessary Permits and Licenses: Depending on the subsidiary's business activities, you may need to apply for additional permits or licenses from relevant Turkish authorities.

Need more detail about Company Registration in Turkey? Click the link.

Taxation of a Subsidiary Company in Turkey

Subsidiary companies in Turkey are subject to the same tax regulations as local Turkish companies. This includes corporate income tax, VAT, withholding tax, and other applicable taxes. Here are the key tax considerations:

1. Corporate Tax: As of 2024, the corporate tax rate in Turkey is 25%. The subsidiary will be taxed on its worldwide income if it is a tax resident in Turkey.
2. Withholding Tax: Dividends distributed by the subsidiary to the parent company may be subject to withholding tax. The standard rate is 10%, but this can be reduced if Turkey has signed a double taxation treaty with the parent company's country. Additionally, rent and self-employment payments are subject to a 20% withholding tax.
3. Value-Added Tax (VAT): The standard VAT rate in Turkey is 20%, with reduced rates for certain goods and services. Subsidiaries involved in sales or services must register for VAT and file regular VAT returns.
4. Tax Incentives: Subsidiaries operating in free zones or technology development zones(Technoparks) can benefit from tax exemptions or reductions on corporate tax, VAT, and other levies.
5. Double Taxation Treaties: Turkey has signed numerous double taxation treaties with various countries, allowing foreign investors to avoid being taxed twice on the same income. These treaties provide relief for dividends, interest, and royalties.

Need more detail about Turkish Tax System? Click then.

Management and Reporting Requirements

Once a subsidiary is established, it must comply with Turkey's corporate governance and reporting requirements. These include:

• Annual Financial Statements: Subsidiaries must prepare and file annual financial statements with the Trade Registry Office.
• Audit Requirements: Larger subsidiaries may be subject to mandatory audits, depending on their size, turnover, and workforce.
• Tax Filings: The subsidiary is required to submit corporate tax returns annually, along with periodic VAT returns and other tax filings.
• SGK Declerations: The subsidiary is required to submit SGK decleration form monthly, for hired employee's

Setup a Subsidiary in Turkey For Your Parent Company

Establishing a subsidiary company in Turkey is a strategic move for foreign businesses looking to enter the Turkish market. With full ownership rights, limited liability, and access to a range of local incentives, a subsidiary offers an attractive opportunity for international companies to expand their operations. By understanding the legal framework, tax obligations, and formation process, businesses can successfully navigate the requirements of setting up a subsidiary in Turkey and position themselves for success.

When considering forming a Subsisiary VS Branch Company in Turkey, it is crucial to consult with Turkish Tax Advisors to ensure compliance with Turkish laws and to optimize the company's operations for success.

A&M Consulting Co. is a Turkish Accounting and Tax Consultancy company specialized in providing end-to-end company establishment services for especially global investor and foreign entrepreneurs which wants to walk into to Turkey's market

We continue to offer cost-effective solutions to global and individual entrepreneurs who want to enter the Turkish market smoothly and quickly, to ensure their full compliance with local legislation and to facilitate their access to tax exemptions and incentives.

FAQs About Subsidiary Company in Turkey

1. What is the difference between a subsidiary and a branch in Turkey?

A subsidiary is an independent legal entity owned by a parent company, while a branch is an extension of the parent company, not considered a separate legal entity in Turkey..

2. Which entity has more legal independence, a subsidiary or a branch?

A subsidiary has more legal independence, as it operates as a separate legal entity, whereas a branch operates under the legal framework of the parent company.

3. What are the tax implications for subsidiaries and branches in Turkey?

Subsidiaries are taxed as separate entities on their global income, whereas branches are taxed only on income generated within Turkey.

4. Which entity is easier to set up, a subsidiary or a branch in Turkey?

Setting up a branch may be simpler and faster, as it doesn't require the establishment of a new legal entity, but subsidiaries offer more control and flexibility.

5. Can a branch company engage in the same activities as the parent company in Turkey?

Yes, a branch can engage in the same activities as the parent company but is restricted to operations defined in the parent company's registration.

6. Is a subsidiary liable for its own debts in Turkey?

Yes, a subsidiary is liable for its own debts as a separate legal entity, unlike a branch, where the parent company assumes full liability.

7. Are there differences in financial reporting for subsidiaries and branches in Turkey?

Yes, subsidiaries must submit their own financial reports, while branches consolidate their financial results with the parent company's financial statements.

8. Which is more advantageous for foreign investment: a subsidiary or a branch?

Subsidiaries offer more flexibility, autonomy, and legal protections, while branches may be preferable for companies seeking a simpler structure with direct control from the parent company.

9. Can a branch in Turkey hire local employees?

Yes, a branch can hire local employees, but the employment contracts and labor laws will apply under the branch's legal framework tied to the parent company.

10. Which entity faces higher administrative and compliance requirements in Turkey?

Subsidiaries generally have more administrative and compliance obligations since they are separate legal entities, while branches may have fewer reporting requirements.

11. Can a foreign company set up a subsidiary remotely in Turkey?

Yes, the registration process of a subsidiary is available remotaly through power of attorney.

12. Is a local partner required to establish a subsidiary in Turkey?

No, a local sponsor or partner is not required to establish a subsidiary in Turkey.

How long does it take to register the subsidiary?

The registration process will take around 3 days if all necessarry documents are redy.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.