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Subsidiary vs. Branch in Turkey

Subsidiary vs. Branch in Turkey

Updated on Thursday 14th May 2020

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Many foreign investors who want to start doing business in Turkey choose to open a branch or a subsidiary of their parent-company. There are important differences between the two types of companies and the most important one is that the branch depends on the parent-company and the subsidiary is a total different company that could be formed as a limited liability company or a joint stock company. The limited liability company, that can be private or public, is preferred by most investors because it is simple to incorporate and operate. Our lawyers in Turkey can explain the differences between subsidiaries and branch offices. We can guide representatives of foreign companies who want to open branches and subsidiaries in Turkey.
 

The Turkish Company Law on branches and subsidiaries

 

The main law to provide for the opening of a company in Turkey is the Company Law. Under it, both local and foreign natural persons and companies have the right to establish businesses in Turkey. The main types of structures are the sole proprietorship, the partnership which can be general or limited and which in Turkey is known as the commandite company, the co-operative, which in Turkey is used for agricultural activities which is why it is quite spread and the structures which can be employed by foreign companies: the subsidiary, the branch office and the liaison office. Apart from these, foreign companies can enter into joint ventures with Turkish companies Foreign companies will usually choose between the subsidiary and the branch in Turkey because they can decide on the share capital of the business and play in important role in making decisions in the company. Our lawyers in Turkey can offer more information on the subsidiary and branch office establishment requirements.
 

The Turkish subsidiary company

 

As mentioned in the beginning of this article, the subsidiary can be registered as a local company by taking the form of a private or public company. However, the Turkish subsidiary will also benefit from the same treatment as Turkish companies, compared to the branch office which is not granted the same status. The Turkish subsidiary can be characterized as it follows:
 
  •  it will have full independency from the parent company, as the foreign company will only be a shareholder in the subsidiary;
  •  it can complete the same activities as the parent company, however, it can also undertake other activities;
  •  the licensing procedure of the subsidiary will be completed just like in the case of any other local company;
  •  from a taxation point of view, the subsidiary will be treated as a local company and will be taxed on its worldwide income;
  •  the subsidiary will have access to Turkey’s double taxation agreements which can prove quite beneficial for the parent company.

 

The registration of a subsidiary company in Turkey is not complicated, however, it can prove more expensive than the incorporation of a branch office because of the shareholding requirements. With a vast knowledge of the corporate regulations, our Turkish lawyers can guide foreign investors in choosing the right structure for their affairs. 

 

Documents and capital share for the subsidiary

 

The subsidiary is required to pay the corporate tax calculated on its total income per year. Its capital comes from the parent-company, but the managers, who are appointed by it, can decide on their own and they don’t need the consent of the parent-company. The tax on profits is to be paid in the country of origin for the parent-company. For opening a subsidiary in Turkey, you need a minimum capital share that is different in accordance to the type of company you choose to set up. For a limited liability company, the minimum capital share is 50,000 TRY if it is public and 10,000 TRY if it is private. You will also need at least one founder, a board of directors and the decisions will be taken in the general meeting of the shareholders.
 
At the incorporation with the local Trade Register, you will need a few documents, such as the articles of association, copies of the passports of the managers, specimen signature of the manager etc. Our Turkish lawyers will help you drafting the documents required by the local laws. Here is an infographic with details about branches and subsidiaries in Turkey:
 
Main differences between Turkish subsidiary and branch1.png

 

The branch office in Turkey

 

Foreign companies may also open branches in Turkey. This structure is not a legal entity and it depends mostly of the parent company that is liable for all the obligations of the branch. The branch must be registered with the Trade Register, like an ordinary company, and then the activity can start. You will need a special permit from the Turkish Ministry of Industry and Trade and you can obtain this document after you fill in an application. Only after you obtain this permit, you can go to the Trade Register in order to incorporate the branch.  Compared to the subsidiary, a Turkish branch office will have the following characteristics:
 
  1. it is fully dependent of the parent company, which means the foreign entity will have full decision rights over the activities and management of the branch;
  2. the branch office is restricted to complete the same activities of the parent company;
  3. the branch office is subject to specific licensing regulations, according to the Turkish law;
  4. from a taxation point of view, the branch will be taxed on the incomes generated in Turkey alone;
  5. branch offices can be deemed as permanent establishments under Turkey’s double taxation conventions.

 

Choosing between the branch office and subsidiary is a matter in which our Turkish law firm can help, which is why we invite you to get in touch with us and find out more about these two business forms.

 

Documents related to opening a branch in Turkey

 

The following documents need to be filed with the Turkish Companies Register when registering a branch office:
 
  • information about the parent company, such as its name, address in the home country, the share capital and the date of incorporation;
  • information about the branch office, such as the address in Turkey, the capital and the activity it will undertake;
  • information about the representative of the parent company in the Turkish branch, accompanied by a power of attorney which grants him or her the right to represent the parent company;
  • the decision of the foreign company to open the branch office in Turkey.

 

We invite you to watch a video about opening a subsidiary or a branch in Turkey:
 

 

Taxation of subsidiaries and branches in Turkey

 

Taxation is one of the most important aspects considered by foreign companies seeking to expand in Turkey. Choosing between the branch and the subsidiary will definitely impact the taxation of both the Turkish structure and the parent company. The corporate tax rate in Turkey is 22% and it applies to the whole income generated by a subsidiary and on the income obtained in Turkey by the branch office. Provided that the foreign company will be subject to a lower or higher corporate tax in its home country will impact the decision of opening one or the other business form in Turkey. We invite you to talk to our lawyers in Turkey on the tax legislation applicable to companies in this country. Our team can help you register for VAT in Turkey.

 

A brief comparison between the branch and the subsidiary in Turkey

 

Foreign companies which need to choose between a branch and a subsidiary must be aware of the following facts:
 
  • the subsidiary is an independent entity which can carry out other activities than the parent company, compare to the branch office which must undertake the same activities as the foreign company;
  • from a taxation point of view, the subsidiary is considered a Turkish tax resident and will be taxed on the global income, while the branch will be taxed only on the profits earned in Turkey;
  • it is cheaper to register a branch office than a subsidiary in Turkey, as the subsidiary also implies depositing a share capital;
  • foreign companies registering branch offices in Turkey can also set up sub-branches which fall under the responsibility of the main branch office.

 

When having to choose between opening a branch or a subsidiary in Turkey, the foreign company will need to consider the activities it wants to complete and if it wants to expand these activities. From this point of view, it is useful to know that branches are usually employed by financial companies and banks, while subsidiaries are used for trading and other commercial purposes. Also, the start-up and annual maintenance costs should be considered when choosing between a branch and a subsidiary in Turkey. At last, the control over the Turkish company will weigh a lot when deciding between the two types of structures.
 
If you need more information or legal assistance for opening a branch or a subsidiary of your company in Turkey, you may contact our law firm in Turkey that will handle the entire procedure.