This document is issued by HSBC Bank A.S. (the ‘Bank’) in Turkey. It is not intended as an offer or solicitation for business to anyone in any jurisdiction. It is not intended for distribution to anyone located in or resident in jurisdictions which restrict the distribution of this document. It shall not be copied, reproduced, transmitted or further distributed by any recipient. The information contained in this document is of a general nature only. It is not meant to be comprehensive and does not 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’). 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.

1. This publication is
a joint project with
Doing business in Turkey

2. Contents
Executive summary 4 Disclaimer
Foreword 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 intended
Conducting business in Turkey 14
for distribution to anyone located
in or resident in jurisdictions which
Taxation 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 in
Trade 38 this document is of a general
nature only. It is not meant to
Banking in Turkey 40 be comprehensive and does not
constitute financial, legal, tax or
HSBC in Turkey 42 other professional advice. You
should not act upon the information
Country overview 44 contained in this publication without
obtaining specific professional
Contacts 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. 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. 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 and
6

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 was
8

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 an
10

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
2008
12

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. 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. 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 in
18 establishing a liaison office.

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 business
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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 participation
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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.
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