How to establish a foreign company in Turkey?

 

The foreign investment legislation is based on the principle of equal treatment for the domestic and foreign investors. Generally foreign investors have the same priviliges and obligations as the domestic capital.

 

Foreign capital companies established in Turkey have the same rights to acquire a real estate as domestic investors. Foreign real persons may own a real estate according to the principle of reciprocity.

 

Foreign Investors are also entitled to freely transfer profits, dividends, proceeds of sale and liquidation, license, know-how, technical assistance fees and interests arising from foreign loans through bank or special financial institutions.

 

Foreign capital entities can employ foreign personel in Turkey, provided that the work permits are obtained from Ministry of Labour and Social Security.

 

 

Comparison of the three most common types of Legal Presence

 

 

 

Incorporation Procedures of Limited Liability & Joint Stock Companies

 

 

 

 

EMPLOYEMENT LAW

 

According to Turkish Labour Law employment agreements can either be definite or indefinite period. Agreements can also be classified as full-time, part-time and with trial periods.

 

In a full-time employement agreement, the employee works for standart hours, which is 45 hours pursuant to the Labour Law. 45 hours can be divided into 5 or 6 working days in a week.

 

Overtimes are other important subject. Overtimes can not exceed 3 hours a day, 270 days a year. When the employee agrees to work overtime he is paid 1,5 times the regular hourly salary. If it is weekends or public holidays, payments are made 2 times the regular hourly salary.

 

Holidays : Employees who have worked for a minimum of 1 year are entitled to paid annual vacation. Vacations vary on seniority.

 

 

In addition Turkey has 7 public holidays; Festival of Sacrifice (Eid al-Adha)( 4,5 days); National Children’s Day, April the 23rd; Labour Day, May the 1st; Youth and Sports Day, May the 19th; Victory Day, August the 30th; Republic Day, October the 29th(1,5 day); Ramadan (3,5 days); New Year’s Day, Januray the 1st.

 

Sick Leave and Maternity Leave: An employee is granted paid sick leave for up to three consecutive working days, not to exceed a total of 5 days in a month otherwise the employer may require a health report.

 

Women are entitled to be paid maternity leave for 8 weeks before and another 8 weeks after the birth, if she requires, after the maternity leave she has the right to get a unpaid leave of 6 months.

 

Termination: Either the employer or the employee may terminate the indefinite term contract by giving the required notice. The applicable notice periods are based on the term of the employement as below.

 

 

There are also circumstances that the employer is not granted with right of notification.

 

Seniority Payments : If an employer terminate the indefinite contract of an employee worked more than a year, he has to pay him seniority.

 

WORK PERMIT

 

A foreign employee should obtain a work permit in order to work inTurkey. Work permits granted to the foreigners are classified as Temporary Work Permit, Permenant work permit, permit for independent work and permit for exceptional situations.

 

Temporary Work Permits are granted for a duration of 1 year and it can be extended for 2 more years considering that the employee remains in the same place of business and within the same proffession. At the end of the first period of 3 years employement period may be extended for another 3 years without the obligation to work for the same employer. Spouses and children of the foreign employee may get a resident permit to stay with him if required.

 

Permenant Work Permit is granted to those who have been in Turkey as legal residents for at least 8 years without any interuption or have been legally working for a total period of 6 years.

 

Evaluation of the Work Permits:

 

There are certain criteria to be fullfilled in order to employ foreigners in Turkey.   

 

  1. It is mandatory to employ 5 Turkish citizens for each foreigner to be employed.
  2. Paid Capital of the company should be at least TL. 100.000 or Gross Sales at least TL.800.000 or a USD 250.000 of export sales required in the previous financial calender.
  3. If company partner requires work permit, he should at least hold 20% of the shares worth at least TL.40.000
  4. It is required that the salary of the employee declared should meet his competence. The least salary should be calculated in accordance with the current base Gross Salary ( TL. 837 till end of year)  and followings should be taken into account.
    • 6,5 times of the Gross salary for Senior executives
    • 4 times of the Gross salary for Branch Managers or equivalent
    • 3 times of the Gross salary for Specialists
    • 1,5 times of the Gross salary for Sales, Marketing, Import-Export personnel or others

 

Applications and documents :

 

Work Permit applications can be submitted in two ways.

  1. Applications in the Origin or Domicile country

Application is submitted to Turkish Embassy or equivalent along with a contract

  1. Applications in Turkey

 

Application can only be made if the person has a valid resident permit of at least 6 months. Permits given for educational purposes are not accepted!

 

It is important to know that after the application of the employee, employer should provide all the documents to the Ministry of Labour and Social Security in 10 days.

 

Documents required are as follows:

 

  1. On-line Application form
  2. Employee’s Application form
  3. The latest Registry Gazette notifying Capital and Shareholding structure
  4. Latest Income Statement and Balance Sheet approved by Tax Office or a Certified Audit
  5. Residence Permit / Contract or a document approving his partnership in the Company
  6. Passport copy translated and approved by Turkish Authorities
  7. Diploma, certificates or others’ copy translated and approved by Turkish Authorities
  8. More can be required if needed

 

Social Security :

 

Foreigners are applied to same Labour Law (5510) as Turkish citizens do. For those who are sent over to Turkey to follow up business in the name of a foreign company that are employed and secured in the Origin or Domicile country are not subjected to Labour Law if they prove their condition with documents.

 

TAXATION

 

Turkish taxation system consist of two main taxes; income tax and corporate tax. A real person is subjected to Income tax while a company is to Corporate tax.

 

Income Tax:

 

Income tax is derived on the income and earnings of real persons. In the application of Income tax, partnerships are not deemed to be independent entities and each partner is taxed individually on their shares of profit. Some business profits, agricultural profits, salaries and wages, income from independent personal services, income from movable or immovable property and rights (rental income) are all taxable income.

 

The individual tax rates vary from 15% to 35 %

 

Corporate Tax

 

Corporate Tax is derived on the income and earnings of corporations and corporate bodies. Capital companies and similar foreign companies, cooperatives, public enterprises, enterprises owned by foundations, societies and associations and joint ventures are the corporate tax payers.

 

Corporate Income tax rate is 20% and paid quarterly in May, August, November and February

 

Witholding Tax

 

Certain taxes are collected by witholding payments from tax payers to secure the collection of taxes. Taxes withheld include income tax on the salaries of employees, lease payments to individual landlords, independent proffesional service fee payments to resident individuals, and royalty, licence and service fee payments to non-residents.