Pwc+hsbc doing business in_turkey 2011


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constitute financial, legal, tax or
other professional advice. You
should not act upon the information
contained in this publication without
obtaining specific professional
advice. This document is produced
by the Bank together with
PricewaterhouseCoopers (‘PwC’).
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and under no circumstances will
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Pwc+hsbc doing business in_turkey 2011

  1. 1. This publication isa joint project withDoing business in Turkey
  2. 2. ContentsExecutive summary 4 DisclaimerForeword 6 This document is issued by HSBC Bank A.S. (the ‘Bank’) in Turkey.Introduction – Doing business in Turkey 8 It is not intended as an offer or solicitation for business to anyone in any jurisdiction. It is not intendedConducting business in Turkey 14 for distribution to anyone located in or resident in jurisdictions whichTaxation in Turkey 20 restrict the distribution of this document. It shall not be copied,Audit and accountancy 32 reproduced, transmitted or further distributed by any recipient.Human Resources and Employment Law 34 The information contained inTrade 38 this document is of a general nature only. It is not meant toBanking in Turkey 40 be comprehensive and does not constitute financial, legal, tax orHSBC in Turkey 42 other professional advice. You should not act upon the informationCountry overview 44 contained in this publication without obtaining specific professionalContacts 46 advice. This document is produced by the Bank together with PricewaterhouseCoopers (‘PwC’). Whilst every care has been taken in preparing this document, neither the Bank nor PwC makes any guarantee, representation or warranty (express or implied) as to its accuracy or completeness, and under no circumstances will the Bank or PwC be liable for any loss caused by reliance on any opinion or statement made in this document. Except as specifically indicated, the expressions of opinion are those of the Bank and/ or PwC only and are subject to change without notice. The materials contained in this publication were assembled in November 2010 and were based on the law enforceable and information available at that time.
  3. 3. Executive summary A member of the G-20, Turkey Indeed, the economy remains • he Turkish legal framework T was the world’s 16th largest vigorous. Inflation is currently offers a level playing field to economy in 2010. Powered in single figures and public foreign investors and domestic by private consumption debt is below 50%, although companies. Foreign ownership and supported by robust challenges remain in the is unrestricted, with no pre- macroeconomic policy form of Turkey’s sizeable entry screening requirements. framework, the Turkish economy current account deficit has expanded substantially over and geographic inequality • oreign investors may freely F the past decade. The country in wealth distribution. start up businesses in saw a 187% increase in GDP company, branch office between 2002 and 2007, Many economists forecast or liaison office forms. while annual average economic that over the next decade growth over the same period Turkey’s growth will match • ssues such as transfer pricing I was 7%. or exceed that of any country and thin capitalisation are except China and India. formally regulated and classified Increasing stability, thanks to Others predict it could in line with Organisation for restructuring of the banking become the world’s tenth Economic Co-operation and sector and enforcement of tight biggest economy by 2050. Development (OECD) guidelines fiscal policy in the wake of and worldwide applications, the 2001 crisis, as well as the These factors, together allowing international businesses public administration reform, with Turkey’s advantageous to comply with the local policies the EU accession process (in geographical position, young, with a relative ease. addition to the customs union rapidly growing population with the EU) and attractive tax and ever-increasingly qualified • urkey has signed a Customs T regimes, have made Turkey a workforce, mean it is likely Union Agreement with the magnet for foreign investment in to remain an attractive target EU and customs practices recent years. The global financial for investment well into are in line with World Trade crisis did impact investment the future. Its key sectors Organization member countries. inflows in 2009 but, GDP growth (including construction, rebounded in 2010, reaching a automotive, energy and record high of 8.9%. utilities, transportation and logistics, healthcare and banking) are therefore likely to continue to grow. Other factors attracting investors to Turkey can be summarised as follows:4
  4. 4. Foreword With its population of 74 m, local know-how, make us Martin Spurling Turkey is the 16th largest very well suited to provide Chief Executive Officer economy in the world in terms the unique set of services HSBC Turkey of GDP size and the population required by our customers. of Istanbul alone is larger The wide global reach of HSBC than that of 19 EU countries. supports the demands of an More than half of the Turkish increasingly inter-linked world, population are below the age including those related to of 28 and the country has Turkey’s strategic location the fourth largest number of in major energy corridors Facebook users in the world, between the East and West. highlighting a favourable demographic profile and unique In 2010 we celebrated our growth potential. This young 20th anniversary in Turkey and population is one of the in this time we have built a very principle reasons behind the successful bank with a network fast growth of the Turkish of 334 branches in 62 cities economy over the past decade. that serve over 3 m customers. Turkey’s GDP growth in 2010 Our 20th year in Turkey outpaced the US and all of was marked with awards the EU, putting it alongside for the ‘Best Debt House in the world’s fastest growing Turkey’ and ‘Best Corporate emerging economies. FDI Internet Banking in Turkey’ inflows to the country remain from Euromoney and Global high, reaching US$8.9 bn Finance respectively, further in 2010. demonstrating the success of our business. In the aftermath of the global crisis, the importance of In order to provide the best emerging market economies service to our customers has been emphasised and and business partners, growth levels in these HSBC, in collaboration with economies are likely to PricewaterhouseCoopers, outpace those of the has produced the Doing developed world for the business in Turkey guide foreseeable future. At HSBC, to help you gain valuable insight we are very well positioned about the Turkish market and to the sustained growth the wide range of financial and emergence of the services and investment Turkish economy. opportunities that exist. HSBC’s global footprint On behalf of HSBC, I would like extends to 87 countries and to take this opportunity to wish territories around the world and you success in your businesses this global connectivity, coupled in Turkey and beyond. with our talented team and6
  5. 5. Introduction Doing business in Turkey Driven by private consumption Foreign Direct Investment Key attractions of Turkey benefit from R&D support affected by the ongoing global and supported by a stable (FDI) inflows to Turkey and market research with credit turmoil (i.e. increasing macroeconomic policy declined in 2009 from a high • urkey is located at a close T the aim of encouraging CPI due to rising oil and food framework, the Turkish of US$22 bn in 2007. FDI proximity to Europe (two-three exports and increasing the prices). During the peak of the economy has grown remained low in 2010 at hours’ flight to major European competitiveness of firms global crisis in 2009, the Turkish significantly since the country US$8.9 bn, although this destinations), the Middle East in international markets. Central Bank’s prime lending emerged from the 2001 was sufficient for Turkey and the Caucasus. Turkey rate was as high as 16.75%, financial crisis. Between to be ranked 15th globally. benefits from its location as • he Turkish government T compared with 6.25% in 2002 and 2008, Turkey’s GDP a bridge between Europe and has also introduced flexible July 2010. experienced an annual average Since the 2001 crisis the Asia. It also acts as an energy exchange rate policies and growth of 5.8%, versus 1.8% economy has been buoyant. corridor connecting these liberal import regulations in • here is a split between the T in the EU. Due to global turmoil It remains two notches below two continents. order to promote and sustain east and the west of the in 2009, Turkey’s GDP declined investment-grade credit rating foreign investment. country; economic development, to US$614 bn, but rebounded but inflation is in single figures • urkey entered a customs T investment opportunities, in 2010, reaching US$729 bn and the economic outlook is union with the EU in 1996 • n recent years, Turkish banks I infrastructure and skilled staff and making Turkey the 16th promising. Public debt is below and has been an EU accession have taken an increasingly are concentrated in the west. largest economy in the world. 50%. Turkey is knocking on candidate since 2005. This large role in financing project the door of the BRICs club of has resulted in the expansion finance deals, benefiting in • lthough Turkey is moving A Restructuring of the banking emerging giants and today it of trade relations with Europe, many cases from increasingly towards adopting International sector, monetary discipline is perceived as ‘Europe’s BRIC’ which now accounts for 44% liquid balance sheets. Financial Reporting Standards based on independence or ‘the China of Europe’. Some of Turkey’s foreign trade. (IFRS), this is still a work of the Central Bank and a economists suggest that over • he Turkish legal framework T in progress. In practice, floating exchange rate regime, the next decade, Turkey’s • urkey offers an accessible, T offers a level playing field to accounting standards vary tight fiscal policy, public growth will match or exceed skilled and cost-effective foreign investors and domestic from company to company. administration reform, and that of any country except workforce, providing the fourth companies. Foreign ownership the EU accession process with China and India. Others predict largest labour force amongst is unrestricted, with no pre- • urkey suffers from rising T reform packages enacted by it could become the world’s EU members and accession entry screening requirements. energy prices. Up to 90% of its the Parliament all contributed 10th biggest economy by 2050. countries. It boasts a large oil and 97% of its gas resources to the transformation of the population of over 74 m people, • new commercial code nr. A are imported from Russia and country after the 2001 crisis. with an average age of 29, over a 6102 is currently published the Middle East. decade lower than the EU figure. in the Official Gazette on 14 February 2011. The Code • he country’s current account T • he Turkish government T aims to integrate the local deficit is large. In recent years it provides various tax and applications with EU law, has been comfortably financed non-tax incentives to foreign improve transparency, protect by foreign direct investment, investors, in line with those minority rights and strengthen but long term this could lead provided to domestic corporate governance (as it has in the past) to inflation companies. These include principles. The new Turkish and currency instability. customs and VAT exemptions Commercial Code comes into on various imported or locally effect from 1 July 2012. • n spite of interest rates I delivered goods, including swiftly shrinking down to machinery and equipment, Challenges are important record low levels, they are as well as priority regions still high in comparison to offering incentives such as • hile Turkey did not have a W most European countries. free land and energy support. subprime mortgage issue, like Investors are also able to other emerging markets, it was8
  6. 6. Key industries in Turkey export volume in 2010. There • etween 2002 and 2008, B vehicles produced in Turkey are annual rate of 6.0% between • L interest rates have T are more than 35,000 textile the Turkish construction passenger cars. Passenger cars 2009 and 2023. Therefore, decreased consistently since • ravel and tourism is one T and clothing companies in sector experienced a significant and trucks account for more the government is looking for September 2008 due to a of Turkey’s most dynamic Turkey and the country is compound annual real growth than 90% of the total number investment in this industry. The series of rate cuts by the industries. This industry a major player in the world of 6.3%, higher than Turkey’s of vehicles produced. Turkey total amount of investments to Central Bank (CBT). As a result defied the economic crisis in clothing industry. The Turkish GDP growth in the same anticipates becoming the third be made to meet the energy of the macro uncertainties and 2009, and is booming in 2010, clothing industry is the second- period. In 2010 expenditure largest producer of motor demand in Turkey until 2023 is increasing credit risk after the largely on the back of the Arab largest supplier to the EU. It in the construction sector vehicles in Europe by 2015. estimated at around US$130 bn. credit crisis, banks are reluctant Spring, with Turkey benefiting has a share of 4.6% in global increased by 17.1%, with to reflect the CBT’s rate cuts from decreased tourism to its woven clothing exports and respect to the same term in • t present, Turkey’s energy A • ince transportation and S to their loan rates as fast as Middle Eastern neighbours. ranks in the top five exporting the previous year. Key drivers and utilities sector is attracting logistics is one of the main the decrease in the cost of Tourist numbers in the first five countries worldwide. The include increased housing significant interest from pillars of both national and deposits. Given the maturity months of 2010 were already Turkish textile and clothing needs, eased housing credits foreign investors, following the international trade, the Turkish mismatch on bank’s balance up 14.56% over January-May industry is competitive on a allowing people to upgrade split of Turkey’s main energy government is making ongoing sheets with deposits having 2010. The depreciation of the global scale thanks to its high their homes, an increase in the provider into many regional investments to create a new one and half month maturity Turkish lira (TL) against the quality and wide product range. number of large-scale Turkish companies. The government infrastructure. According to versus an average of one year US dollar, as well as generally contracting firms, and the has been privatising these ‘Strategic Plan 2009-2013’ asset duration, the decline in competitive prices, made • ince the start of the new S growth of the building materials companies, providing significant by the Ministry of Transportation, interest rates helped to improve Turkey a favourable destination millennium, in particular, sector. Turkey is currently opportunity for investment, highways are given the utmost the Bank’s net interest margin for foreign tourists. Turkey Turkey has attracted foreign a market leader in terms of however, there is some public importance and will be subject in the past 2 years. Strong was visited by 27.3 m and direct investment. This positive cement exports and is in strict opposition. The government to an important amount asset structure and high CAR 28.5 m tourists in 2009 and economic development was competition with Egypt to be plans to complete the sell off of of investment. (Capital Adequacy Ratio) due 2010, respectively. With this felt more intensely in certain the ruling cement producer of distribution companies by the to the close monitoring of the number of tourists, Turkey industries – retail in particular. the whole Mediterranean basin. end of 2010. It should be noted • espite the uncertainties D requlatory bodies, resulted was ranked the seventh The Turkish retail industry still Turkey’s crude steel production that the share of private sector caused by its being in a in Turkey’s banks being in a most-visited country in the featured a traditional structure in 2010 reached 29.1 m tonnes, interest in electricity distribution transition period, the Turkish secure position in the financial world. However, while tourist until the beginning of the a growth of 15.2% over the was only 20.1% in 2008. healthcare sector offers great crisis. Soundness of the Turkish numbers continue to increase, 2000s; its modernisation previous year. Accordingly, Additionally, Turkey wants to opportunities for the private economy and the finance revenue has shrunk, dropping period then began and gained Turkey is ranked tenth generate 5% of its electricity sector, which is forecast to sector has been proved during from US$21.3 bn in 2009 momentum, with a tremendous worldwide for unprocessed from nuclear energy by 2020 be a significant contributor of the financial crisis, and the to US$20.8 bn in 2010. The positive effect on the national steel production. while the share of renewable growth going forward. A total financial sector has acted as the tourism sector aims to reach economy. According to Planet energy by 2023 is targeted at of 13 significant deals took growth engine of the economy. the top five countries in the Retail’s report, consumer • he automotive industry is very T 20%. Currently, hydropower place between 2007 and 2009 world in terms of both tourist expenditure in Turkey is important. At present, Turkey is accounts for approximately in the healthcare industry, • n the back of the recovery O numbers and tourism revenue expected to rise to 948 bn the largest producer of buses one-third of the electricity with a total announced deal in economic activity in 2010, by 2023. Turkish lira in 2013. Retail sales, in Europe. It is also responsible generated in Turkey. The value exceeding US$850 m. inflation has increased and is which stood at 23 bn Turkish for more than 7% of Europe’s country is heavily reliant on Financial and strategic forecast to be 6.9% at year-end • extiles and clothing is one of T lira in 1998, grew to 128 bn motor vehicle production. imported fuel supplies for the investors search for investment 2011, above the target of 5.5%. the most important industries Turkish lira in 2003, 329 bn Turkey’s automotive exports remainder of its power needs. opportunities in the Turkish The CBT has decreased of the Turkish economy and Turkish lira in 2008, and 317 grew by 20% in 2010, reaching healthcare market due to one-week repo rate (the policy the country’s foreign trade. bn Turkish lira in 2009. In line US$15.9 bn. The total number • he Turkish Electricity T growth prospects and the rate) to a rare low of 6.25% in These industries have an annual with rising GDP, retail sales of vehicles produced was in Transmission Company growing number of people who June 2011. production value of US$14.6 bn are expected to reach 448 bn the region of 1.094 million in estimates that Turkey’s demand can afford private healthcare. and had a 13% share in total Turkish lira in 2013. 2010. More than half of the for electricity will increase at an10
  7. 7. • dditionally, the fact that A enhance financial stability, Incentives for non-tax incentive. The principal maturities of liabilities are it will be useful to differentiate Foreign Investors prerequisite for benefiting shorter than those of assets the required reserve ratios from state aids is to obtain an in the Turkish banking sector for different maturities of TL The Turkish government Investment Incentive Certificate exposes the sector to liquidity deposits in order to encourage provides investment incentives (IIC) which is granted to and interest rate risk, which longer-term funding and to – so-called State Aid – in order investors for their investments increases the sensitivity of widen the scope of the to eliminate inter-regional by the Undersecretariat for the banking system to shocks. reserve requirements. economic imbalances, to the Treasury. In this regard, starting from facilitate a larger capital the year 2011, the Turkish • he main challenge for the T contribution by the public and Turkish investment incentive lira required reserve ratio, Turkish Banking Sector is foreign investors to the capital legislation is formed of three which is currently at 6%, is the decreasing interest build-up of the country and also separate types of incentives: differentiated according to the margins due to the rate to support activities that have a maturity structure of deposits cuts by CBT. In a low interest positive effect on employment. 1. General investment and set as higher for short-term rate environment, banks focus The investment incentives incentive regime. maturities and lower for on commission generation. scheme is continuously 2. Incentives for large-scale long-term maturities. Volume growth, expanding being amended to encourage investments. insurance and asset investments in manufacturing 3. Region and sector-based • n this respect, a lower interest I management businesses, and services, the energy sector incentives. rate, combined with higher and the introduction of new and exports. Local and foreign required reserve ratios would financial instruments will be investors have equal access to The graph opposite illustrates serve as a more effective the main trends in this investment incentives. Generally the FDI net inflows of Turkey policy mix. Moreover, with environment in the year 2011. speaking, state aid can be according to the World Bank: regard to policy measures to classified as either a tax or a FDI net inflows of Turkey 25,000,000,000 20,000,000,000 15,000,000,000 10,000,000,000 5,000,000,000 0 1970 1972 1974 1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 200812
  8. 8. Conducting business in Turkey Forms of business The Turkish legal framework It should be noted that the Company offers a level playing field to Turkish Parliament has approved foreign investors and domestic the New Turkish Commercial A company is an incorporated companies. Foreign ownership Code (the ‘New TCC’), on entity with a legal status is unrestricted, with no pre- 13/01/2011 and it has been separate and distinct from entry screening requirements. published in the Official Gazette its owners that allows it to sue Since 2003, foreign investment on 14 February 2011. The New and be sued in its own name. has been regulated in a more TCC has introduced various The TCC provides several liberalised manner under different provisions and new company structures in Turkey: Foreign Direct Investment Law legal concepts to the existing joint stock companies, limited No.4875. Under this law foreign legislation. Although the New liability companies, collective investors may freely start up TCC is to be entered into force companies, partnerships limited businesses in company, branch as of 12/07/2012, the significant by shares and cooperative office or liaison office forms. changes introduced by this code associations. The legal Law No. 4875 has significantly in term of business formation differences between those simplified the establishment structures have been pointed company structures mainly process for all business forms. out in this section. concern the allocation of The incorporation process of liability and the legal form these types of companies is a Business Formation of the entity. However, largely simple procedure and normally Structures due to the favourable position does not take more than concerning the liabilities borne four weeks. Foreign investors that need by shareholders, joint stock to have a physical presence companies and limited liability Companies established by in Turkey may choose between companies are the corporate foreign shareholders are a company, branch and liaison structures in Turkey most entitled to all the rights available office at the formation stage. commonly chosen by foreign to Turkish companies under investors, along with the other the Turkish Commercial Code business setup forms of branch (TCC). However, commercial offices and liaison offices. activities and/or ratio of foreign shareholding of such Two types of companies, companies, particularly those namely joint stock companies operating in the civil aviation, (JSC) and limited liability maritime transport, media, companies (LLC), are those etc. sectors are currently in which shareholders are restricted and acquisition not liable for the debts of ownership and/or limited of the company in terms real rights on real estate by of their personal assets. referred companies are subject There are some basic to pre-evaluation by the differences between these relevant authorities. two types of companies.14
  9. 9. Setting up a business An LLC can be incorporated it also includes the audit of Branch Liaison Office Liaison offices are granted Registration Formalities by at least two individuals or groups of companies. Moreover, operation permits of three corporations and the number an unaudited financial A branch is a legal entity A liaison office, often also years at most. For extensions, Company of the shareholders cannot statement shall be legally null registered with the Trade called ‘representative office’, successive extensions of a In order to establish either exceed 50, while a JSC can and void as per the New TCC. Registry and represented is primarily established to maximum of three years each a JSC or LLC, all documentation be incorporated by at least by a representative/branch provide preparatory and may be granted by taking into regarding the incorporation shall five individuals or corporations. There is a legal provision manager. Even though a branch auxiliary services. (i.e. gathering consideration the activities be notarised and translated A JSC can issue debentures, regarding the collection of has separate capital, which information on the Turkish of previous years and plans into Turkish, the incorporation while a LLC is prohibited from public receivables stating that is allocated by the head office, economy, customers, suppliers and objectives for the future. shall be registered before the doing so. A JSC can go public if such receivables pertaining it may not have a separate and competitors); performing Liaison offices of banks are Trade Registry corresponding while a LLC cannot offer its to the last five years cannot articles of association and surveys on markets and regulated by the Banking to the company’s headquarters shares to the public. A statutory be collected from LLCs, such consequently must act within the activities of distributors, Regulation and Supervision and registered before the auditor is required for a LLC, receivables can be collected the same field of activity agents or licensees; following Agency (BRSA) and are subject corresponding Tax Office only if and when it has more from the personal property as that of its head office. developments and changes to special rules and reporting in order to obtain a tax than 20 partners, while it is of its shareholders in the Even though the branch is in the local regulations and requirements determined number and therefore enable required for a JSC regardless ratio of their share, whereas dependent on its head office (if necessary) lobbying; by BRSA. the company to conduct of number of shareholders. shareholders of JSCs do not in internal relations, it may surveying the possibility commercial activities. The have any personal liability act independently and trade of establishing a branch Foreign Investment Directorate According to the New TCC, against debts of their in its own account in external or incorporation in Turkey, (FID) shall be notified with on the other hand, both JSCs companies. relations. It is considered to providing information relating respect to the establishment and LLCs can be incorporated have separate tax personality to the activities of the head of the company. The minimum by one individual or corporation. It has been observed that, than that of its head office. office and representing its capital requirement for an Furthermore, The New TCC in some cases, having the products to suppliers or LLC is TRY5,000 while a offers a fundamental system form of a JSC may have A branch should be represented customers as long as this does JSC shall be established with change with a reformist advantages when compared by a representative/branch not constitute active solicitation, minimum capital of TRY50,000. understanding and a to a LLC from the commercial manager with full authority, etc. for its head office. It is Special rules apply for certain contemporary evolution in practice perspective. Financial who is residing in Turkey. prohibited from carrying out fields of business (e.g. the auditing of JSCs and LLCs. institutions usually find the To this end, either a Turkish any kind of ‘commercial banks, brokerage, portfolio JSC structure more reliable citizen or a foreigner who has activities’ in Turkey. management, insurance In this sense, instead of a and prestigious when they work and residence permits leasing, financing, asset statutory auditing mechanism, are acting as creditors. may be appointed branch Liaison offices may not act for management companies, etc.). independent auditing has been Furthermore, in certain tenders, representative. However, the profit, although they are entitled established by the New TCC. formation in the form of JSC representatives of legal entity to employ liaison officers and The New TCC introduces In other words, JSCs and might be required in order to licensees having full authority rent office accommodation, additional procedures for LLCs are vested with the qualify as a bidder. Moreover, to manage and represent their activities are curtailed company establishment obligation for their financial in certain fields of business the entity have to be Turkish with certain limits. A liaison, procedures. In this respect, statements to be audited (e.g. finance) it is obligatory citizens. Every branch shall office cannot issue any invoices a JSC or LLC shall be deemed by independent audit firms to use the JSC type. use the parent company name and cannot negotiate contracts as established when the pursuant to International and by indicating that it is a branch. with potential customers articles of association are Turkish Accounting Standards. The branch model is more in a binding manner on notarised. However, a JSC It should be noted that audit frequently used, especially in behalf of its head office. As or LLC shall have a legal under the New TCC’s system, banking, and in certain fields such, they are deemed as personality upon the registration as opposed to the current TCC, of business (e.g. brokerage, commercial activities and/or formalities realised before is not limited to the audit of a portfolio management, etc.) a materially internal element the Trade Registry. single capital stock company; it is not allowed. of a commercial activity.16
  10. 10. At this point, the New TCC shall be made with the Trade Ongoing filing requirements Repatriation of Profit In LLCs, the shareholders Branch and Liaison Office regulates that the founders Registry, where the branch are liable for public debts. of a JSC or a LLC shall prepare office is located and the tax Branches shall submit to There is no restriction on A non-shareholder director The rights and liabilities arising a ‘Founders’ Declaration’ in office, as well. Furthermore, the FID the information an Turkish subsidiaries repatriating of a LLC is not personally out of the activities of a branch which they should declare the the FID shall be notified with their capital and operations, profits, except for certain legal liable unless the public debt office/liaison office belong to resources of company’s capital, respect to the establishment in accordance with the ‘FDI reserve requirements and taxes. occurs due to his fault. In the parent company. In general, the reasons for such capital of the branch office, within Operations Data Form’, on an A branch may also repatriate JSCs the members of the the parent company will be resource subscriptions, material a certain period. There is no annual basis, at the latest by the profits to the parent BoD have the objective liable towards third parties undertakings given by the minimum capital requirement the end of May every year and company, subject to taxation. liability for public debts for the transactions realised company and benefits granted for branches. In practice, head information on the payments which means that it is their by the branch/liaison office to founders. In addition to this offices allocate a minimum of made to their equity accounts, Liability obligation to prove that they in Turkey. In principle, in case declaration, an audit report to US$1,000 as the branch capital. in accordance with the ‘FDI are not faulty or negligent, as the branch/liaison office be issued by an auditor should Special rules apply for certain Capital Data Form’, within one Company well as that the public debts representative misuses his/ be provided by the founders fields of business (e.g. banks). month following the payment. The directors of a LLC and did not occur due to their her authorities, the parent before the Trade Registry the members of the Board intentional fault or negligence company would be responsible concerning the establishment Liaison Office According to the New TCC, of Directors (BoD) of a JSC (causality). This responsibility towards a bona fide third party. procedure. For medium- and the branch manager of a are not personally liable for of the members of the BoD In case of tort, the branch/liaison small-sized JSCs that are not In order to realise the liaison foreign entity shall announce the transactions and contracts is considered as a secondary office representative would be publicly held, this report may office establishment, an in the Turkish Trade Registry concluded on behalf of the responsibility which means personally liable to third parties. be issued by one sworn auditor application shall be made Gazette the branch’s financial company. They shall be, that the government should or certified public accountant. to the FID. The establishment statements, summaries of however, jointly and severally demand its receivables from permit can be granted for the financial statements and liable towards the company, the company first. If they According to the New TCC, up to a period of three years annual reports belonging to shareholders and the creditors cannot collect its receivables the minimum capital and can be extended at the its parent company and the of the company if the payments from the company, then requirement for JSCs is expiration. However, the FID holding company (if any), within made by shareholders on the government would regulated as TRY50,000. has the right to terminate the 6 months as of the relevant account of the price of shares have the right to demand Furthermore, since the New establishment permit of the approvals required as per the are not exact or, the dividends its receivables from the TCC enables the non-publicly liaison office whenever any national law applicable to the distributed and paid are members of the BoD. If the held JSCs to have registered kind of breach of the legislation parent company are obtained. fictitious or, the books to be members of the BoD pay the capital system, the initial capital is ascertained. Applications kept in accordance with the receivables, although they are requirement for such JSCs of foreign companies to Liaison offices shall send the law are non-existent or kept not responsible for the public is accepted as TRY100,000. establish liaison offices, so as ‘Data Form for Liaison Office irregularly or, the resolutions debts, then they have the Finally, the minimum capital to operate in sectors subject Activities’ to the FID every of the general meeting are not right of recourse against requirement for LLCs is to special legislation, will be year, at the latest by the end executed properly or, the other the company. TRY10,000 as per the assessed by authorities and of May, so as to inform the duties incumbent on them New TCC. institutions authorised by the FID about their activities of in accordance with the law Although the circumstances related special legislation. previous years. Documents or the articles of association leading to liability for a BoD Branch For instance, BRSA rules certifying that the previous are not fulfilled intentionally member or a LLC director apply for banks which set forth year’s expenses of the office or through neglect. are almost the same under In order to set up a branch certain approval requirements have been covered by foreign the New TCC, the several of a foreign company in Turkey, at the establishment stage. currency transferred from liability of such persons are the approval of the Ministry After the completion of the abroad, have to be enclosed abolished and BoD members of Industry of Commerce of establishment procedure, an as well. Special filing and LLC partners are to be the Republic of Turkey (‘the application shall be made to the requirements apply for banks. liable in proportion of their Ministry’) has to be obtained. relevant tax office. There is no fault or negligence. Afterwards a registration foreign capital requirement in18 establishing a liaison office.
  11. 11. Taxation in Turkey Corporation Income Tax Corporate Income Tax headquarters of a company The last date of submission of • econd-level legal reserves S • revious years’ losses, provided P are located outside Turkey, the corporate income tax return The second-level reserves that they have not been carried Corporate income, as adjusted the company is regarded as a is the 25th of the fourth month correspond to 10% of profits forward for more than five for exemptions and deductions non-resident entity. If either of following the fiscal year end. actually distributed after the years (on the condition that and including prior year losses them is located within Turkey, The advance tax return should deduction of the first-level legal loss corresponding to each year (tax losses may be carried the company is regarded as be submitted at the latest by reserves and the minimum is specified in the corporate forward for five years but a resident entity. Resident the 14th of the second month obligatory dividend pay-out income tax return); losses may not be carried entities are subject to tax following the quarter period. (5% of the paid-up capital). back) is subject to corporate on their worldwide income, Second-level legal reserves • ll of the donations made for A income tax at a rate of 20%, whereas non-resident entities Payment of Tax amount to approximately 1/11th construction of dormitories, irrespective of the legal form are taxed solely on the income of the profit to be distributed. nursery schools, rest homes (i.e. JSC, LLC, branch office). derived from activities Corporate income tax must There is no ceiling for second and rehabilitation centres, in Turkey. be paid by 30 April of the year legal reserves and they are subject to certain conditions; Dividend distributions to of filing; taxable income is accumulated every year. individual and non-resident Advance Corporate declared on a quarterly basis • osses incurred in foreign L corporate shareholders are Income Tax as advance tax on the 14th of According to the Turkish jurisdictions (subject to subject to withholding tax the second month following Commercial Code, if the legal certain conditions); (WHT) at a rate of 15%. Corporations are required to each quarter, and is payable on reserves exceed 50% of the This rate may be reduced for pay advance corporate income the 17th of the same period. paid-up capital, they shall be • epreciation of fixed assets; D foreign shareholders if a tax tax based on their quarterly Advance corporate tax paid used to cover losses, maintain treaty is present. Please note profits at the rate of 20%. is offset against the final business activities in the case • epreciation and expenses D that dividend distributions to Advance corporate income corporate tax calculated in the of poor business conditions, of company cars provided to resident entities and branches taxes paid during the tax year annual tax return. prevent unemployment or employees (Please note that of non-resident entities are not are offset against the ultimate offset the negative effects company cars are not subject subject to dividend WHT. For corporate income tax liability Legal Reserves of unemployment. to income tax as they are non-resident entities operating of the company, which is classified as fringe benefits in Turkey (i.e. branches, determined in the related year’s Under the Turkish Commercial Calculation of Corporate to employees); other type of permanent corporate income tax return. Code, Turkish companies are Income Tax Base establishments such as The balance of advance tax can required to set aside first and • ocial security contributions; S permanent representatives/ be refunded or used to offset second level legal reserves out eductible expenses D agents) WHT will only be other tax liabilities. of their profits. Please note that In principle, general expenses • ompensation paid or losses C applicable on the portion of the a branch is not subject to the incurred for the generation and incurred in line with contracts profit that is transferred to the Tax Returns legal reserve requirements. maintenance of commercial or court rulings, provided that headquarters/principal, in other income are allowed as they are related to the words repatriated from Turkey. Resident and non-resident • irst-level legal reserves F deductions for corporate business; and The rate of WHT is 15% but entities having a permanent Joint stock and limited income tax purposes. can be reduced by a tax treaty. establishment in Turkey are companies are required to set • ravel and accommodation T obliged to file annual corporate aside 5% of their net profits Deductible expenses, inter alia, expenses related to, and Corporate Residence income tax and quarterly each year as a first-level legal include the following: commensurate with, the advance corporate income tax reserve. The ceiling on the first- volume of business. According to Turkish tax returns (on a calendar year level legal reserves is 20% of • tart-up costs (these costs S legislation, corporate income basis unless permission to the the paid-up capital. The reserve are to be either expensed or taxation differs significantly contrary is specifically obtained requirement ends when the capitalised at the discretion based on the taxpayer’s from the Ministry of Finance). 20% of paid-up capital level of the taxpayer); place of residence. If both has been reached. the legal and the business20
  12. 12. Non-deductible expenses • he portion of expenses T line method. However, the In addition to the interest paid Anti-Tax Haven Provisions in the capital or dividends or In general, non-deductible items incurred that is considered maximum applicable rate for or accrued, foreign exchange voting rights are considered are limited to those types of being in violation of transfer declining-balance method is losses and other similar All sorts of payments made to be CFCs, provided that the expenditures that either cannot pricing regulations; and 50%. On the other hand the expenses calculated over to corporations (including conditions below are fulfilled: be properly documented or declining balance method the loans that are considered branches of resident that are regarded as abuses in • he portion of expenses T cannot be used for some as thin capital are treated as corporations) that are • 5% or more of the gross 2 respect to ‘business-related’ incurred that is considered items. For example, goodwill is non-deductible for corporate established or operational in revenue of the foreign or ‘business-promoting’ criteria being in violation of thin depreciated within five years in income tax purposes. The countries which are regarded subsidiary must be composed (e.g., excessive entertainment, capitalisation rules. equal instalments and leasehold interest paid or accrued and by the Turkish Council of of passive income; representation and travel improvements are depreciated similar payments on thin capital Ministers to undermine fair expenses). Needless to say, Depreciation methods over the rental period at a are reclassified at the end tax competition due to tax • he CFC must be subject to an T disallowable expenses increase flat rate. of the relevant fiscal year as and other practices, may be effective income tax rate lower the corporate income tax Fixed assets acquired after dividend distributed from the subject to taxation in Turkey than 10% for its commercial burden of companies since such 1 January 2004, are subject to Related-party Transactions perspective of the borrower at a rate of 30% irrespective profit in its home country; and expenses are not eligible for depreciation over rates to be and as dividend received from of whether the payments in deduction from the corporate determined by the Ministry of In principle, transactions the perspective of the lender, question are subject to tax or • ross revenue of the CFC G income tax base. Disallowable Finance, based on their useful between related parties must and as repatriated profit for not, or the corporation receiving must exceed the equivalent expenses, inter alia, can be life. Note that rates announced be carried out on an arm’s non-resident taxpayers. the payment is a taxpayer or of TRY100,000 in a foreign listed as follows: differ from 2% to 33%. Fixed length basis. There are specific not. However, there are certain currency in the related period. assets acquired before rules in this respect in Turkish • Transfer Pricing exemptions. Moreover, as • nterests, foreign exchange I 1 January 2004 are depreciated tax legislation, as explained in Corporate income tax law of today, the Turkish Council The CFC’s prorated profit losses and other financial under the previous rules, in detailed below. includes transfer pricing of Ministers has not yet would be included in the expenses on capital and on loans which the maximum rate regulations which are adopted determined which countries corporate income tax base that are regarded as thin capital; applicable was 20% per year. • hin Capitalisation T from the OECD’s guidelines. receiving payments shall be of the controlling resident According to the thin If a taxpayer enters into considered as ‘tax havens’. corporation at the rate of the • ines and penalties and other F Depreciation may be calculated capitalisation regulation, transactions regarding the shares controlled, irrespective indemnities arising from the by applying either the straight- if the ratio of the borrowings sale or purchase of goods and Treatment of Group of whether it is distributed or breach of the tax laws; line or declining-balance from shareholders or from services with related parties, Companies’ Entities not, in the fiscal period covering method, at the discretion of the persons related to the in which prices are not set in the month of closing of the • egal reserves; L taxpayer. All tangibles, except shareholders exceeds three accordance with the arm’s Consolidation of the accounts according of CFC. for land, and intangible assets times the shareholders’ equity length principle, the related of group companies’ entities • onations to foundations D are depreciable over a minimum of the borrower company at profits are considered to be for tax purposes is not allowed The Control rate is considered (that are granted a tax of five years. Under the previous any time within the relevant distributed in a disguised in Turkey, since each company as the highest rate owned in exemption by the Council of rules, buildings were an year, the exceeding portion manner through transfer entity is regarded as a separate the related fiscal period. Ministers) or to government exception and were depreciated of the borrowing will be pricing. Such disguised profit taxpayer unit for tax purposes institutions exceeding 5% at a rate of between 2% and considered as thin capital. distributions through transfer in Turkey. The CFC’s profit that has of corporate profit; 10% per year, over a minimum Excluding loans received pricing are not accepted as tax- already been taxed in Turkey of ten or fifty years, depending from credit institutions that deductible for corporate income Controlled Foreign as per this article will not be • xpenses recorded through E on the type of building. provide loans only to their tax purposes. The methods Corporation Rules subject to additional tax in severance pay provisions related companies, the loans prescribed in the law are the Turkey in the event of dividend (Severance pay shall be Generally, assets are considered received from related banks traditional transaction methods Corporations established distribution; whereas the accepted as tax deductible to be placed in service when and similar institutions alone described in the OECD’s abroad and controlled directly portion of the profit distributed only when actual payments they are capitalised and ready will not be considered thin transfer pricing guidelines. or indirectly 50% or more by that had not been previously are made to employees); for use. The applicable rate capital until the amount of the tax-resident companies and taxed in Turkey will be subject for declining-balance method borrowing exceeds 6 times real persons by means of to taxation. is twice the rate of straight- the shareholders’ equity. separate or joint participation22
  13. 13. Taxes that the CFC pays over international Turkish holding to obtain an IIC, the minimum In general, activities such development (R&D) activities expenditure on failed projects its profit in the related foreign company can also be exempted amount of total investment as manufacturing, storage, in Turkey. The three primary can be expensed immediately. country will be offset from the from corporate income tax should be at least TRY1,000,000. packing, general trading, R&D incentives include tax calculated for the same exemption, but subject (For the investments in some banking, and insurance and significant advantages granted Companies with separate R&D income in Turkey. to certain pre-conditions. less developed areas minimum trade, may be performed in to investors planning R&D centres employing more than amount of total investment Turkish free trade zones. activities in science, software 500 R&D personnel can, in Tax incentives Investment incentives should be at least TRY 500,000.) Goods moving between and technology in special addition to the aforementioned Turkey and the zones are zones known as ‘techno- deduction, deduct half of any The major corporate income The Turkish government The advantages of an IIC can treated, for all purposes, as parks’, cash subsidies from increase in R&D expenditures tax incentives available are provides investment incentives be summarised as exemption exports or imports. However, the Scientific and Technological over similar money spent in the as follows: (state aids) to eliminate inter- from customs duty, RUSF operations within the zones Research Council of Turkey previous period. regional economic imbalance, and VAT. are subject to the supervision (TÜB TAK) and corporate tax • articipation exemption P facilitate a larger capital of the zone management (and deductions. In April 2008, a Any unutilised R&D deduction for dividends contribution by public and On the other hand, from an customs authorities), to whom new R&D law was enacted can be carried forward for There is an unconditional foreign investors to the capital income tax perspective, the regular activity reports must to broaden incentives. One an unlimited period of time, corporate tax and dividend build-up of the country and legislation related to investment be submitted. Consequently, of the objectives of the law indexed to the revaluation rate, WHT exemption for dividend support activities that have a incentives has changed there is a requirement for is to attract foreign investors which is an approximation of income that the Turkish resident positive effect on employment. substantially. zone users to maintain full with significant R&D activities the inflation rate. company and/or Turkish Generally speaking, state aid accounting records (in Turkish) abroad to invest in Turkey, permanent establishment of can be classified as either a There are six main with respect to their activities. by enabling non-resident Income tax exemption a foreign company receives tax or a non-tax incentive. components of the new These accounting requirements companies with a subsidiary from another Turkish resident investment regulation: extend to inventory records. or branch in Turkey to benefit 80% of the salary income company, except investment The principal prerequisite Customs duty is levied on any from R&D tax incentives. of eligible R&D and support funds and companies. If for benefiting from state 1. Reduced corporate tax rate. unexplained inventory losses The main incentives introduced personnel is exempt from a Turkish company has a aid, except the investment 2. VAT exemption. as though the goods had been by the new R&D law were: income tax. However, this shareholding in a foreign allowance, is to obtain an 3. Exemption for social imported into the country. rate is increased to 90% company, dividend income can Investment Incentive security premium R&D deduction for personnel with a be exempted from corporate Certificate (IIC). The IIC (employer’s portion). The right to operate in a doctorate degree. income tax but subject to is a document granted to 4. Customs duty exemption. free zone is conferred by an All eligible innovation and certain pre-conditions. investors for their investments 5. Interest support. operating licence obtained R&D expenditures made in Social security premium support by the Undersecretariat for 6. Allocation of land for from the Undersecretariat for technology centres or R&D • apital gains exemption C the Treasury. It allows utilisation investments. Foreign Trade, which reviews centres, which must employ The Ministry of Finance will A corporate tax exemption is of the said benefits. The import the application for conformity at least 50 full-time equivalent pay half the employer portion applicable for 75% capital gains of machinery and equipment Free trade zone with the objectives and R&D personnel, or R&D and of social security premiums generated from the sale of (excluding raw materials, types of activity specified innovation projects supported for R&D and support personnel participation shares in a Turkish intermediate and operating Free trade zones are special by the Economic Affairs by foundations established for five years. resident company, and/or real products) is exempt from sites that lie geographically Coordination Council. by law or international funds property that is held for at least customs duty and Resource within the country, but are can be deducted from the Stamp tax (stamp duty) exemption two years, as long as such Utilisation Support Fund (RUSF) deemed to be outside the Research and development corporate income tax base exempted gain is reserved in payments. In addition, a VAT customs territory. In these (R&D) activities at a rate of 100%. The same Documents prepared in relation special reserve account within exemption is also applicable regions, the normal regulations expenditures can also be to R&D activities are exempt the equity and not distributed on the importation of eligible related to foreign trade and In the last decade, the Turkish capitalised and expensed from stamp tax. for five years. 100% of capital machinery and equipment. other financial and economic Parliament has enacted through amortisation over five gains from the sale of foreign According to investment areas are either inapplicable, several regulations to provide years in the case of successful participation shares by an incentive legislation, in order partly applicable or superseded incentives for research and projects, whereas the R&D by new regulations.24