Especially in recent years, Turkey has become one of the countries where foreigners and foreign companies want to operate, thanks to the facilitating legal regulations. Foreigners who want to move to Turkey and expand their business here must first establish a company. In this article, we will explain the legal and practical processes that foreigners should follow to start a business and establish a company in Turkey.
The legislation and the basis regulating the company establishment by foreigners in Turkey is Law No. 4875 on Foreign Direct Investments. The following provisions in this law ensure that foreign investors, companies or individuals can start a business and establish a company in Turkey:
- “Foreign investors are free to make foreign direct investments in Turkey.”
- “Foreign investors are treated equally with local investors.”
Accordingly, international investors can establish all types of companies specified in the Turkish Code of Commerce.
First of all, it should be noted that starting a business and establishing a company in most business areas are not subject to any pre-approval. However, companies that will operate in the following areas have to obtain pre-approval from the ministry before they are established and determined their articles of association:
- Insurance companies
- Incorporated companies established as holdings
- Companies that operate exchange offices
- Financial leasing companies
- Factoring companies
- Consumer finance and card services companies
- Independent audit companies
- Surveillance companies
- Technology development zone management companies
- Companies establishing and operating the Free Trade Zone
- Asset management companies
- Companies working for general warehousing
- Companies working for licensed warehousing of agricultural products
- Commodity exchange companies
Now let’s look at what foreigners should do in the establishment processes for different types of companies.
Company Establishment with Foreign Capital
It is possible to say that foreign real person or legal entity partners are subject to the same procedures as Turkish entrepreneurs in terms of establishing a company in Turkey. Only, in addition to the documents requested from the Turkish partners, a notarized version of the sworn translation of the passport of the foreign real person partner is required. And for the foreign legal entity partners, the decision of the authorized body showing the real person who is the authorized officer of the legal entity and a notarized version of the sworn translation of the current trade registry records of the legal entity are required.
Establishment of a Company with Foreign Partners
The procedure to be followed by both local and foreign investors to establish an incorporated company in Turkey is almost the same. Company establishment is initiated electronically via MERSIS (central registration) system. The person who will establish the company or his/her authorized representative creates a free and online membership to the MERSIS and can initiate the establishment of the company.
What are the Advantages of Companies with Foreign Partners?
Due to its rapidly growing young population, qualified workforce, geographical and geopolitical location, Turkey is one of the countries preferred by foreign investors. Foreigners making direct investments will be able to benefit equally from the opportunities provided to local investors and the facilities provided by the state. They will also be able to benefit from tax reductions and similar government incentives.
How Can Foreigners Establish a Sole Proprietorship?
According to Article 7 of Law No. 4817 on Work Permits of Foreigners; foreigners who will work independently can be granted an independent work permit by the Ministry of Labor and Social Security, provided that they have resided in Turkey legally and uninterruptedly for at least five years. This permit allows an individual to open a sole proprietorship as a self-employed person.
Foreign real persons can’t establish a sole proprietorship without a work permit. In addition, a residence permit alone is not sufficient for foreigners to establish a sole proprietorship in Turkey. A sole proprietorship can be established after residing with a 5-year residence permit only if they apply for a work permit.
The regulation regarding the establishment of a company is made in the relevant article of the law as follows: “Unless otherwise stipulated in bilateral or multilateral agreements to which Turkey is a party and by reserving the rights of foreigners who were granted an indefinite work permit before 11/4/2014; those who have a long-term residence permit under the Foreigners and International Protection Law dated 4/4/2013 and numbered 6458, or foreigners who have stayed in Turkey for at least eight years uninterruptedly or who have had at least eight years of legal work, and foreigners, whose education level, professional experience, contribution to science and technology, and operation or investment in Turkey has a significant impact on the country’s economy and employment, can be granted an indefinite work permit.”
For this reason, foreigners who want to establish a sole proprietorship must provide documents proving that their activities will contribute to the national economy and whether they have sufficient income for the operations they will do.
An “Independent Work Permit Application Document” is given to foreigners who are found eligible for an independent foreign work permit. With this document, the company establishment process must be initiated within three months. Establishing a sole proprietorship is not very advantageous for foreigners as the procedures and legal proceedings will take a long time, hence there are not many examples.
Since most foreigners apply for Turkish citizenship after 5 years they establish a sole proprietorship as a Turkish citizen without the need for an independent work permit.
Establishment Procedures of Incorporated, Limited, Unlimited, Commandite, and Cooperative Companies
The establishment of companies by foreign real persons and legal entities in Turkey is subject to the same rules as local investors. During the establishment phase, the title of the company, the scope of its field of activity, its headquarters, the manager and representative, capital and shares, and management are determined. Afterward, articles of association should be prepared under the regulations of the legislation on incorporated, limited, unlimited, commandite, and cooperative companies. The articles of association are prepared by the partners or their deputies in the Central Registry System (“MERSİS”) and sent to the approval of the relevant trade registry manager, an appointment is made for the establishment procedures with the application number defined by MERSIS. After preparing other necessary documents, they should attend to the relevant registry office on the date and time of the appointment. Considering that the documents are issued outside of Turkey it should be checked if there is an apostille equivalence agreement with the country where the relevant document is issued. If there is an equivalence, the apostille annotation must be obtained and approved by the consulate or notary public. Otherwise, the relevant documents must be issued by a Turkish sworn translator at Turkish consulates abroad.
0.04% of the company’s capital should be transferred to the bank account of this institution as “Competition Authority Share”. For incorporated companies, 25 percent of the shares committed in cash must be deposited into a bank account opened in the name of the company.
Upon the application of the founders or persons authorized by proxy to the registry office with the relevant documents, the trade registry office completes the registration process In addition, in the establishment of incorporated and limited companies and cooperatives, the commercial books they will keep are certified by the trade registry directorate. The company acquires a legal entity upon registration in the trade registry. Afterward, a work permit is required for foreign partners and officials who want to operate their company by residing in Turkey.
What are the Incentives Provided to Foreign Investors?
These incentives and supports are regulated by different laws and regulations. The most known of them are;
- Decision on State Aids in Investments No. 2012/3305, published in the Official Gazette dated 06.2012 and numbered 28328,
- Notice on the Implementation of the Decision on State Aids in Investments numbered 2012/1
- Decision on Granting State Aid to Project-Based Investments No. 2016/9495, published in the Official Gazette dated 11.2016 and numbered 29900,
- Supporting Investments within the Scope of Attraction Centers Program No. 2018/11201,
- Technology Development Zones Law No. 4691
Within the scope of those above, investment incentive systems, project-based investment incentive implementations, attraction centers, and technology development zone implementations and incentives and aids by those implementations are provided. Also, VAT exemption, customs duty exemption, tax reduction, and R&D incentive are some of the facilitations provided to foreign investors.
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