a. For Corporate Income Tax:

Liaison offices are granted permission with the aim of not conducting income-generating activities in Turkey (as liaison offices cannot engage in commercial activities in Turkey). Therefore, since there is no commercial profit due to the absence of commercial activities, there will be no taxation. Various Council of State decisions and rulings have been issued on this matter at different times. Liaison offices, for payments other than those mentioned in Article 94 of the Income Tax Law (payments under Article 23/14 of the Income Tax Law), are required to withhold and pay tax. Liaison offices established and operating in accordance with the above conditions and not falling under the scope of Article 94 of the Income Tax Law do not have a tax liability. Based on this explanation, liaison offices are not obliged to keep mandatory records in the balance sheet method under the Tax Procedure Law.

b. For Value Added Tax:

According to Article 1 of the Value Added Tax Law No. 3065, transactions and services carried out within the framework of commercial, industrial, agricultural activities, and liberal professions in Turkey constitute the subject of value-added tax. Therefore, for VAT liability to be discussed, it is necessary to conduct commercial, industrial, agricultural, or liberal profession activities. Since liaison offices are established without engaging in any form of commercial activity, there is no need for them to establish VAT liability. There are numerous rulings on this matter.

c. For Income Tax Withholding:

According to Article 23/14 of the Income Tax Law, ‘Payments in foreign currency for services rendered by employees to employers subject to limited taxation, whose legal and business headquarters are not located in Turkey, for the gains earned abroad by the employer are exempt from income tax.’ Therefore, payments of salaries to personnel employed in liaison offices are exempt from income tax, subject to certain conditions under Article 94 of the Income Tax Law, which requires withholding by the employer. These conditions are as follows:

1. Salary payments will be made based on the gains earned abroad by the limited taxpayer employer. In other words, personnel salaries will be covered by the foreign parent company and sent to Turkey. It is more accurate for these transfers to be sent to the liaison office’s bank account for proof purposes.
2. Salary payments will be made in foreign currency or in Turkish Lira indexed to foreign currency.
3. Of course, it is mandatory to obtain and keep the necessary documents (bank receipts, foreign exchange purchase documents, overseas transfer receipts, etc.) for the control of these conditions.

Except for the salary payments mentioned above, liaison offices are obliged to withhold income tax for payments specified in Article 94 of the Income Tax Law, such as rent payments made by liaison offices, freelance payments made to accountants or translation offices.

d. For Stamp Duty:

Before July 8, 2006, there was no provision exempting stamp duty from salary payments made to personnel working in liaison offices, as there was no provision exempting salary payments from taxation. However, as of this date, with Article 8 of Law No. 5535 and Article 23 of the Income Tax Law, salaries exempt from income tax are also exempt from stamp duty. Therefore, stamp duty deduction will not be made for salary payments in liaison offices after this date.

e. Evaluation in terms of Social Security Legislation:

If the personnel working in the liaison office are Turkish, income tax will not be deducted from their salary, but SSK employee and employer premiums will be deducted and deposited with the social security directorates. According to Article 3 under the heading ‘Those Not Considered Insured’ of Law No. 506 on Social Security, the provision ‘foreign individuals paid in foreign currency by any institution established in a foreign country and sent to Turkey for a job’ is included. Foreign personnel working in liaison offices are individuals acting on behalf of the institution with their headquarters abroad. In order for these individuals not to be considered insured in Turkey, there must be a social security agreement between the resident country of the foreign personnel and Turkey. Secondly, a document from the relevant authorities of the foreign country stating that the person is insured in that country must be obtained, and this document must be approved by the SSK directorate to which it is affiliated. If the person can prove that they are subject to the social security institution in their own country as explained above, they will not pay SSK premiums in our country. If they are not subject to the social security institution in their country, they will pay SSK premiums in Turkey.

• If the company intending to establish a liaison office already has a separate company in Turkey, permission to establish an additional liaison office is not granted.
• Liaison offices established for market research purposes can obtain a maximum of a 3-year permit.
• If a liaison office is to be established as part of a regional management center application, the foreign company must have companies in multiple countries. An application for a regional management center cannot be made for a company operating solely in one country.

• A bank account denominated in foreign currency must be opened in the name of the liaison office, and cash from abroad should be deposited into that account. Liaison offices, except for closure and liquidation, are not allowed to transfer funds abroad. In other words, money received from abroad cannot be repatriated. Personnel salaries must be paid from the liaison office’s dedicated foreign currency account; otherwise, the income tax exemption cannot be applied. While personnel salary payments are exempt from income tax, there is no such exemption in relation to social security legislation.
• Notarization of the ledger is not required.
• Liaison offices are not subject to capital requirements.
• Turkish citizens with companies in foreign countries can establish liaison offices in Turkey if the conditions are met.
• All expenses incurred by the liaison office must be meticulously documented.
• When a liaison office in Turkey purchases goods or services, it is obligated to pay VAT. The refund of these paid value-added taxes is not possible.

• According to Article 6 of the Banking Law, the opening of branches by foreign banks in Turkey is subject to permission. The procedures and principles regarding the activities requiring permission of banks and the indirect ownership, according to Article 10 of the Regulation on Representation of Banks Abroad, state the following:

Article 10

(1) Opening a representation in Turkey is subject to the permission of the Board. Representations cannot accept deposits or participation funds, grant loans, engage in activities specified in Article 4 of the Law, or act as intermediaries in these activities. The procedures and principles regarding the activities of representations are regulated by the Board.

(2) Only one person with the title of representative can work in representations. Banks applying to open a representation must have a strong financial structure, their equity in their headquarters must not be less than the minimum paid-up capital required for banks to be established in Turkey, and they must have no restrictions on their activities and have been operating for a minimum of three years. If the bank applying for representation has been established through the merger of more than one bank, it is sufficient for one of the merging banks to have been in operation for a minimum of three years.

(3) The application letters of foreign banks established abroad to the Board for opening a representation in Turkey must include:

a) Financial reports proving that they have been in operation for a minimum of three years, along with audited activity reports,

b) Documents from the competent authority confirming that the bank is not prohibited from accepting deposits or participation funds, granting loans, or engaging in banking activities specified in Article 4 of the Law in the country where it is established, and that there are no restrictions on its activities,

c) Decisions of the authorized committees regarding the opening of a representation in Turkey,

d) A detailed report showing the reasons for opening a representation in Turkey, including the types and volumes of transactions with resident banks and other individuals and legal entities in Turkey,

e) A report on the bank, if any, prepared by rating agencies,

f) Information and documents about the organization and structure of the bank, as well as its activities in international financial markets,

g) A letter of commitment from the bank stating that the required documents requested by the Board will be provided, subject to the legislation of the country where the bank is established.

(4) In the event of a significant change in the capital structure of a foreign bank with representation permission in Turkey, or if another bank takes over this bank, or in case of a change in the name, information about these matters is reported to the Board.

(5) If a foreign bank with representation permission in Turkey transfers all its rights, receivables, debts, and obligations to another bank without representation permission, the acquiring bank must obtain permission from the Board to continue the representation’s activities. The acquiring bank must apply to the Board within six months with the documents specified in the third paragraph. Until the necessary permits are granted to the acquiring bank, the permission granted to the transferring bank for representation expires. If the necessary application is not made within this period, the representation permission granted to the transferring bank becomes invalid.

(6) The address, phone, and fax numbers of the representation permitted by the Board must be reported to the Board within fifteen business days following the opening date. This obligation is also valid if there is a change in this information.

(7) Information about closed representations must be reported to the Board. If a bank that has reported the closure of its representation wishes to open a representation in Turkey again, it is mandatory to apply to the Board for permission.

(8) Representation permission may be canceled by the decision of the Board if, within six months following the permission granted by the Board, it is not reported to the Board that the representation has been opened, if the permission was obtained with false statements, if the activities of the bank in the country where it is established are restricted, stopped, or the operating permit is revoked, if bankruptcy or liquidation is decided, or if it is determined that the representation is engaged in prohibited activities, or if the information and documents requested by the Board are not sent by the representation or the affiliated bank within the specified periods.

The procedures and principles regarding the activities of representations in Turkey are outlined in the framework of the communiqué that must be followed in our transactions. The relevant provisions of the communiqué that we need to implement are as follows:

Scope of Activities

Article 4 – (1) In representations, only the activities of promoting the bank and the services it offers on behalf of the affiliated bank, strengthening relations with credit institutions or financial institutions established in Turkey, conducting market research, and reporting the collected information to the headquarters are carried out. No activities generating income or incurring expenses other than donations can be performed.

Notification to the Board

Article 5 – (1) Representations inform the Board about their activities, including meetings with residents of Turkey, within six-month periods in terms of the 4th article. The notification process is made within one month following the end of the relevant period.

(2) Within these periods, information is provided to the Board about the list of people who visited the representation from the affiliated bank or another bank or financial institution and the purpose of their visit. If a report addressed to the representation or by the representation to these individuals has been prepared, information about the content of this report is provided to the Board.

Personnel

Article 6 – (1) It is mandatory for the personnel, including the representative, working in representations to be resident in Turkey. Except for personnel performing support services such as cleaning and security, the identity information, resumes, and addresses of the personnel working in the representation are reported to the Board within fifteen business days from the date of employment. In the event of the departure of these individuals, information is provided to the Board within fifteen business days from the date of departure.

Covering Operational Expenses

Article 7 – (1) All expenses of representations are covered by the affiliated bank. For the purpose of covering the salaries and similar payments of the personnel, including the representative, and other representation expenses, a deposit or participation fund account is opened only in a credit institution established in Turkey. Transfers from the deposit or participation fund account opened in the scope specified by representations to the affiliated bank are not allowed.

Retention of Documents

Article 8 – (1) Representations keep a confirmed summary of the deposit or participation fund account opened in accordance with the 7th article and information about the details of the expenses incurred for at least ten years on a monthly basis.

Prohibitions

Article 9 – (1) In representations, deposits or participation funds cannot be accepted on behalf of the affiliated bank or another bank or financial institution, loans cannot be granted, and other banking activities listed in Article 4 of the Law cannot be carried out. No documents or wallets for these prohibited activities can be kept, and no personnel can be employed.

(2) Authorization transfer such as the allocation of credit or borrowing on behalf of the affiliated bank or another bank or financial institution to the representative, including the representative and the personnel working in the representation, cannot be made, and access cannot be provided to the information systems of the affiliated bank or another bank or financial institution in a way that could be considered as data entry or recording for prohibited activities defined in the first paragraph.

(3) Transactions are carried out in accordance with Article 150 of the Law, and the Board notifies the competent authorities of the country where the headquarters of the bank, on whose behalf the representation is operated, is located if it is determined that representation activities are carried out without the necessary permits from the Board.

Please note that the translation may not capture legal nuances, and it’s advisable to consult with legal professionals for precise interpretations and implications.

Application Procedures and Required Documents for Contact Offices

Applications to the Ministry will be made with the following documents:

Required Documents:

• Application form
• Declaration (Annex-7) stating the scope of activities to be carried out by the contact office and the undertaking that the office will not engage in commercial activities, along with a document indicating the signatory authority of the foreign company official who signed the declaration
• Authenticated Activity Certificate prepared in accordance with the Convention on the Abolition of the Requirement of Legalization for Foreign Public Documents, which is either from the relevant Turkish Consulate or within the framework of the Hague Conference on Private International Law
• Activity Report or balance sheet and income statement prepared for the foreign company
• Authorization document for the person(s) appointed to carry out the activities of the contact office
• Power of attorney if the establishment procedures of the contact office are carried out through another person

These documents should be apostilled if they are coming from abroad, and the documents should be translated into Turkish and notarized.

If the original documents of these papers and the documents submitted to the Directorate General for Foreign Investment and Promotion during the activity period of the contact office are presented, a copy of the document will be approved by the Directorate General and returned to the applicant.

In addition, requests from foreign companies to open a contact office for the purpose of operating in specialized areas with specific regulations such as financial markets, insurance, etc., are evaluated by the competent institutions authorized within the framework of the relevant special legislation.

If deemed necessary, the Ministry may conclude the applications of foreign companies to open a contact office in sectors where permission, license, or similar authorities must be obtained for activities, by obtaining the opinions of the relevant institutions or organizations that grant such permits or licenses.

Additionally, for the authorization of the Banking Regulation and Supervision Agency (BDDK), the following documents are required:

a) Financial reports proving that the bank has been in operation for a minimum of three years, along with audited activity reports b) Document confirming that the bank is not prohibited from accepting deposits or participation funds, granting loans, or conducting banking transactions, as per the regulations of the country where the bank is established c) Sample decisions from the authorized committees regarding the opening of a representation in Turkey ç) A detailed report showing the reasons for opening a representation in Turkey, including the types and volumes of transactions with resident banks and other individuals and legal entities in Turkey d) Report prepared by rating agencies, if available e) Information and documents about the organization and structure of the bank, as well as its activities in international financial markets f) Detailed resumes, including information on whether the designated representative has worked in a financial institution in the last ten years g) A commitment letter from the bank stating that the requested documents will be provided, subject to the legislation of the country where the bank is established.

The representative must be resident in Turkey.

Attorney M. Talha Arslan

Attorney Cansel Aksoy

Kaynakça:

1. https://www.mevzuat.gov.tr/MevzuatMetin/1.5.5411.pdf

2. https://www.mevzuat.gov.tr/anasayfa/MevzuatFihristDetayIframe?MevzuatTur=7&MevzuatNo=10746&MevzuatTertip=5#:~:text=(10)%20T%C3%BCrkiye%27de%20kurulu,amac%C4%B1yla%20yukar%C4%B1da%20belirtilen%20i%C5%9Flemleri%20yapamazlar.

3. https://www.mevzuat.gov.tr/mevzuat?MevzuatNo=12060&MevzuatTur=9&MevzuatTertip=5