Turkey | MHR & Partners

Establishing a Limited Company or Opening a Branch in Turkey

MHRPartner — Sat, 31 Aug 2024 11:40:53 +0000

Mehmet Akif Özmen | Sworn Financial Advisor - CPA | Founder, CEO

Establishing a company in Turkey is both a strategic step for foreign investors and a necessary process that opens the doors to a vast market. Turkey offers an attractive destination for investors with its dynamic economy, young and educated population, developing infrastructure, and strategic location. Foreign investors must follow specific legal and administrative procedures during this process to establish a limited company or open a branch in Turkey.

This article details the rules that apply to foreign investors regarding establishing a “limited company” or opening a branch, which is the most preferred type of company in Turkey.

Foreign Investors Establishing a Limited Company in Turkey

Foreign (i.e., non-Turkish) natural and legal persons can establish limited companies in Turkey and become board members in these companies. Foreign natural and legal persons establishing a company in Turkey are subject to the same rules as domestic investors.

The total paid-in capital of a limited company must be at least 50,000 TL (Fifty thousand Turkish Lira), and there must be at least 1 (one) shareholder for a limited company.

The nominal value of the principal capital shares can be determined as at least twenty-five Turkish Lira or multiples thereof. The entire capital brought in cash can be paid within twenty-four months after the registration of the company. The payment schedule can be arranged in the company agreement or determined by the directors.

Obtaining a Turkish Tax Identification Number for Foreign Partners and Foreign Managers of a Limited Company

Establishing a limited company and preparing its articles of association are carried out through the Central Registry System (“MERSIS”). Users start the company establishment process by creating a free membership via the MERSIS website.

In this system, Turkish shareholders and managers are identified with Turkish Identification Numbers, while foreign natural or legal persons are identified with Turkish Potential Tax Identification Numbers. A Turkish Potential Tax Identification Number must be obtained and registered in the MERSIS database for foreign natural or legal persons. The Turkish Potential Tax Identification Number does not define a tax liability; however, it allows foreign persons to be registered in the state database and to perform official transactions.

Documents Required to Obtain a Potential Tax Identification Number

The documents required to obtain a potential tax identification number are listed below:

i. The foreign legal person must have a trade registry summary (a document indicating the company’s capital, address, and authorized signatory). This document must be notarized and apostilled in the country abroad.

ii. The power of attorney authorizes the attorney to obtain a Turkish Potential Tax Identification Number. These documents must be notarized and apostilled in the relevant country abroad.

iii. The foreign company’s legal representative / authorized person from which the potential tax identification number will be obtained must also have a Turkish Potential Tax Identification Number. There are two ways to get a Turkish Potential Tax Identification Number for foreign natural persons.

The first method is to obtain a Turkish Potential Tax Identification Number online by entering the necessary information. Suppose a foreign individual has previously entered the Republic of Turkey’s borders with a passport. In that case, the essential information is automatically obtained from the police department’s system and can be easily obtained by entering information such as tax identification number, passport number, parents’ names, place of birth, telephone number, and address.

If it cannot be obtained online, a power of attorney and a copy of the passport must obtain a Turkish Tax Identification Number on behalf of the foreign individual. Both documents must be notarized and apostilled abroad.

iv. After obtaining a Turkish Potential Tax Identification Number for the foreign legal entity and its legal representative, these records will be added to the MERSIS system.

Required documents and information for this stage:

Power of attorney for establishing a company in Turkey and Turkish Potential Tax Identification Number – notarized and apostilled in the relevant country abroad.
Trade registry summary – notarized and apostilled in the relevant country abroad.
An attempt will be made to obtain a Turkish Potential Tax Identification Number online for the company’s representative abroad. To follow this method, a scanned copy of the representative’s passport, parents’ names, birthplaces, phone numbers, and address information will be needed.
If the overseas company’s representative cannot obtain a Turkish Potential Tax Identification Number online, a draft power of attorney, notarized and apostilled, will be provided. The representative’s passport must also be notarized and apostilled.

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Preparation of the Articles of Association of a Limited Company in the Central Registry System (MERSİS)

The articles of association of a Limited Company must include the following articles and information.

Founders (Shareholders) of the Limited Company
Title (Trade Name) of the Limited Company

Note: A similarity determination will be made after determining the trade name. The use of the expressions “Turkish,” “Turkey,” “National,” and “Republic” in the trade name requires a Presidential Decree.

Objectives and Fields of Activity of the Limited Company
Registration of Headquarters

Note: The newly established company must be a party to the lease agreement after the establishment procedures are completed. However, specifying the property address to be rented during the establishment phase is sufficient.

Capital of the Limited Company
Appointment of the Manager/Managers of the Limited Company
Signing of the Articles of Association in the Presence of the Trade Registry
Completion of the Establishment and Announcement of the Establishment in the Turkish Trade Registry Gazette

Types of Companies Subject to Permission for Establishment of a Company with Foreign Partners

The Foreign Direct Investment Law No. 4875 states that foreign persons can establish any company in the Turkish Commercial Code. On the other hand, if a company with foreign partners is to be established, in addition to all the necessary processes, permission must be obtained from the Ministry of Trade for some companies. In this context, the types of companies that are subject to permission to establish a company with foreign partners are as follows:

Banks,
Financial leasing companies,
Factoring companies,
Consumer finance and card services companies, asset management companies, insurance companies,
Holdings established as joint stock companies,
Companies operating foreign exchange booths,
Companies engaged in general retailing,
Licensed agricultural product warehousing companies,
Product specialized exchange companies,
Independent auditing companies,
Surveillance companies,
Technology development zone management companies,
Companies subject to the Capital Markets Law No. 6362 dated 6/12/2012,
Establishments of free zone founder and operator companies,

Read Advice

A guiding article for foreign investors who will do business in Turkey, who will establish a company or who will work in Turkey: Turkish Business Culture

Foreign Investors Opening Branches in Turkey

The branches of commercial enterprises headquartered outside Turkey are registered in Turkey as domestic commercial enterprises, provided that the provisions of the laws of their own countries regarding trade names are reserved. A fully authorized commercial representative located in Turkey is appointed for these branches. If the commercial enterprise has more than one branch, the branches to be opened after the registration of the first branch are registered as branches of domestic commercial enterprises.

Documents Required for Branch Registration

The documents that must be submitted to the relevant trade registry directorate for a foreign company to register its branch in Turkey are as follows:

A letter from the authorized authority indicating that the conditions sought by the law of the source country where the company headquarters is located for the business to open a branch have been met and the documents required to be presented for the registration of the branch and a copy of its Turkish translation
All documents required to be presented for the registration of the branch in the source country

Note: If the legal entity is a foreign national, this decision must be approved by the Consulate of the Republic of Turkey in the country where the company is located or by the provisions of the Convention on the Abolishing the Requirement to Legalize Foreign Official Documents and their notarized Turkish translations must be made.

A certified copy of the document containing the company’s current registry records and the company agreement and one copy of its Turkish translation
The original and one copy of the Turkish translation of the decision of the authorized body of the company regarding the opening of a branch and the appointment of a fully authorized representative resident in Turkey for the branch
The company’s trade name, type, business subject, type and amount of capital, date of establishment, registration number, the law it is subject to, whether it is a member of the European Union, website, the title of the branch and the amount of capital allocated to the branch, the name and surname of the person or persons who will represent the branch with full authority before private institutions and public institutions and organizations, including the courts, the identity number and place of residence, and the address of the branch, signed by the authorized persons of the center, and one copy of its Turkish translation.
If the person or persons who will represent the branch in Turkey with full authority before private institutions and public institutions and organizations, including the courts, and the authority granted to them are not specified in the decision to open a branch, the original and one copy of the Turkish translation of the power of attorney issued regarding these issues
Signature declarations of the persons who will represent the branch
For branches that are subject to the permission or approval of the Ministry of Trade or other official institutions, this permission or approval letter
In case a legal entity is elected as a director, a notarized copy of the authorized body decision of the legal entity manager, including the name-surname, address, nationality and Turkish Republic identity number (tax identity number or identity number specific to foreigners for foreigners) of the real person determined by the legal entity selected as the director and who will act on behalf of the legal entity together with the legal entity selected as the director (Trade Registry Regulation Art. 90/1-ç).
In case the natural person representative determined by the legal entity is a foreign national and resides in Turkey, a residence permit and a copy of the passport with a notarized Turkish translation.
If the manager/partner is a foreign legal entity, a document containing the current registry records of the legal entity.

This document must be certified by the Consulate of the Republic of Turkey in the country where the company is located or by the provisions of the Agreement on the Abolishing the Requirement to Legalize Foreign Official Documents, and a notarized Turkish translation must be made (Trade Registry Regulation, Article 32/2).

If there is a foreign legal entity partner / legal entity authorized person, the tax identification number must be specified in the company agreement.

What Can We Do For You?

As MHR & Partners, we are directly and indirectly active in more than 20 countries worldwide. We aim to operate with 10 branches in 100 countries in 10 years. We offer you end-to-end consultancy and support services in establishing a company, obtaining a residence permit, and in all operational processes abroad, primarily financial issues.

Our priority is to provide consultancy services to companies with a growth vision and business strategy abroad. We attach particular importance to the uninterrupted continuation of our services with the assurance of MHR & Partners (Mühür YMM AŞ) after the company establishment stages. Our core mission is to be a safe harbor and provide sustainable services.

We want to be a bridge to our customers’ business plans for growth and development, even in the most remote parts of the world.

To establish a business in Turkey or Europe (Germany, The Netherlands, Belgium, UK, Romania, Bulgaria, Montenegro), you can contact Sworn-in Certified Public Accountant Mehmet Akif Özmen directly (+90 542 830 3408 or akif.ozmen@mhrpartner.com).

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Striking Headlines for Those Who Want to Invest in Turkey

MHRPartner — Sun, 07 May 2023 07:51:54 +0000

Alper Şentürk | International Relations

Turkey has a strategic location at the intersection of Europe, Asia, and Africa, providing access to global markets. It is a bridge country between East and West, Middle East and Central Asia. Expanding markets, investment incentives, and developing infrastructure opportunities have made Turkey an attractive location for investors. In addition, with its young and educated population, growing dynamic economy, and developing technology, Turkey is becoming an increasingly preferred country for entrepreneurs who want to do business around the world.

Turkey also stands out with its many advantages such as innovative entrepreneurs, a competitive business environment, advanced logistics infrastructure, advanced technology, energy, and natural resources. Thanks to these features, Turkey draws attention among developing economies and offers high return potential for international and domestic investors who want to invest. In this article, we present brief information about Turkey’s investment climate and potential under the main headings for entrepreneurs who want to invest in Turkey, especially for international investors.

General Information About Turkey

Turkey’s official name, an intercontinental country, is the Republic of Turkey. The capital city is Ankara. Its official language is Turkish. The EU is a candidate country and its currency is the Turkish lira. It is part of NATO. Its surface area is 783,562 km². With a population of 85 million, Turkey is among the 20 most populous countries in the world. The country’s neighbors are Bulgaria, Greece, Syria, Iraq, Iran, Armenia, Azerbaijan, and Georgia. Istanbul, Ankara, Bursa, Izmir, and Antalya are among the most popular cities.

The international organizations that Turkey is a member of are the UN (United Nations), NATO (North Atlantic Pact), G-20, World Trade Organization (WTO), Organization for Economic Development and Cooperation (OECD), Council of Europe (COE), European Security and Cooperation Organization (OSCE), Organization of Islamic Cooperation (OIC), Interpol, Europol, and Organization of Turkish States.

Political Structure of Turkey

Türkiye is a republic and has been governed by a presidential system since the 2017 referendum. The president is the head of state. The country has a unitary structure.

There is a unicameral system and the Turkish Grand National Assembly is Turkey’s legislative body. It was established on April 23, 1920. General elections are held every five years. Those over the age of 18 are eligible to vote.

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General Economic Data for Those Who Want to Invest in Turkey

As of 2022, the Turkish economy ranks twenty-first in the world with GDP exceeding 940 billion USD. According to 2022 data, per capita income is just over 10,500 USD. Turkey is one of the few countries with the fastest growing economies among the OECD countries of which it is a member.

Turkey’s debt stock was announced as 4.487 billion TL. TL 1,688.5 billion of the debt stock is in TL, while TL 2,798.5 billion is in foreign currency. The ratio of foreign debt to national income is 51%. (The ratio of public debt to GDP in the Euro Area is 94.2%.)

Türkiye ranks 43rd in 2022 the Ease of Doing Business Index. It ranks 48th in the Human Development Index and 61st in the Global Competitiveness Index. It ranks 37th in the Innovation Index and 44th in the international quality of life ranking.

As of May 2023, annual consumer inflation was 44 percent and producer inflation was 48 percent. The monthly interest rates on commercial loans are just over 2.5 percent. Compared to annual inflation, real interest rates are negative. The minimum wage is 8,250TL. The cost of the minimum wage to the employer is more than the net wage.

Turkey is a free market economy. It has an open economy. With privatizations in the last 20 years, state-owned companies have decreased. Capital movements and foreign exchange regimes are free. It has a developed banking system and financial markets. Large international banks dominate the banking sector.

Export and Import in Turkey

According to TURKSTAT Foreign Trade statistics, in the January-December period of 2022, exports increased by 12.9% compared to the same period of the previous year. Exports reached 254 billion 172 million dollars. In contrast, imports increased by 34.0% and reached 363 billion 711 million dollars.

In the January-December 2002 period, the foreign trade deficit increased by 137.0% and rose from 46 billion 211 million dollars to 109 billion 539 million dollars. While the export-import coverage ratio was 83.0% in 2021, it decreased to 69.9% in 2022.

In the January-December period of 2022, the share of the manufacturing industry in exports according to economic activities is dominant at 94.6%. This is one of the most significant indicators showing Turkey’s manufacturing sector’s openness. In imports, the share of intermediate goods was 80.4%, the share of capital goods was 11.1% and the share of consumer goods was 8.4% in the January-December 2022 period. Turkey is a foreign-dependent country, especially in oil, natural gas, and intermediate raw material products.

Turkey exports to five countries:

Germany ($22 billion).
USA ($17 billion).
Iraq ($14 billion).
United Kingdom ($13 billion).
Italy ($12 billion).

Turkey imports the most from:

Russia ($58 billion).
China ($41 billion).
Germany ($24 billion).
Switzerland ($15.5 billion).
USA ($15 billion).

Foreign trade sectors include automotive, white goods, agricultural and food products, ready-made clothing and textiles, natural gas and petroleum, and electronics.

Foreign Direct Investment (FDI) Data for Turkey

While Turkey had 5,600 companies with international capital in the early 2000s, it reached 78,257 in 2022. While Turkey’s total FDI inflow was only 15 billion USD until 2002, it increased to 240 billion USD during the 2003-2021 period. In this respect, it ranks 38th among all countries. The country’s strategic geographical location, developed transport infrastructure, and relatively skilled workforce indicate foreign direct investment will increase in the future.

According to Ernest Young firm research, Turkey has risen two steps in Europe in 2021 with 264 projects and has become the fifth most sought-after International Direct Investment (FDI) destination, and its share of 3.7% in Europe-wide FDI in 2020 is seriously affected by Covid-19. Despite its effects, it increased to 4.5% in 2021. In addition, Turkey has become the most preferred FDI destination with a 27% increase in total FDI projects among developing European countries in 2021.

Finance (31.6%), the manufacturing industry (24.2%), energy (10.6%), and information technology (8.8%) are among the sectors that attract the most FDI in Turkey. The weight of foreign entrepreneurs draws attention to the Turkish banking sector, which has the service and technology infrastructure of European standards.

While most FDI inflows in Turkey have come from Europe, North America, and the Gulf countries in the last 18 years, the share of Asia has been increasing markedly. Netherlands, USA, Gulf countries, England, Germany, and Austria are among the countries with the highest share.

Reading Advice

What are the types of companies in Turkey? What does it take to set up a company and open a branch in Turkey? Where should foreign entrepreneurs and international investors start setting up companies in Turkey? Do a deep reading for the answers to all these questions!

General Tax Rates in Turkey

Turkey’s tax legislation is in line with developed European countries. Since tax legislation is comprehensive and highly technical, it is extremely critical to obtain consultancy and support from a certified public accountant or financial advisor in tax-related matters.

MHR & Partners, one of Turkey’s reputable certified public accountancy firms with 10+ years of corporate experience and 20+ years of experience in tax matters, provides audit and consultancy services in tax matters for domestic and foreign companies.

Income Tax Rates

Turkey has a progressive income tax system. For 2023, the income tax tariff according to progressive income brackets is stated in the table below.

Up to 70.000 TL	% 15
10.500 TL for 70.000 TL of 150.000 TL, more	% 20
26.500 TL for 150.000 TL of 370.000 TL (26.500 TL for 150.000 TL of 550.000 TL for wage income)	% 27
TL 85.900 for TL 370.000 of TL 1.900.000, (TL 134.500 for TL 550.000 of TL 1.900.000 in wage income), more	% 35
621.400 TL for 1.900.000 TL of more than 1.900.000 TL, (607.000 TL for 1.900.000 TL of more than 1.900.000 TL in wage income), more	% 40

Value Added Tax Rates (VAT)

%1 VAT rate

%8 VAT rate

%18 VAT rate

2023 Corporate Income Tax (Corporate Income Tax)

Corporate Tax Rate in Turkey is 20%. The withholding tax rate for dividend distribution is 10 per cent.

Turkey is also a member of the European Customs Union. For this reason, it generally applies EU Customs Union rules in customs duties.

Reading Advice

To start a company, invest or work in Turkey, it is extremely worthwhile to familiarise yourself with Turkish business culture.

Discover our article!

Turkey’s Population and Employment Data

With a population of 85 million, Turkey’s demographic is quite young. Its population is increasing and is expected to continue to increase. The most crowded cities are Istanbul, Ankara, Izmir, Bursa, Antalya, Konya, Adana, respectively.

According to studies conducted in Turkey, 90% of the population define themselves as Muslims, while 5% do not identify themselves as members of any religion. 5% are included in other scattered groups.

55% of Turkey’s employment is in the service sector, 21% in the industrial sector, 17% in agriculture and 6% in construction. Employment in 2023 rose to 33 million. The unemployment rate is 10%.

Turkey’s Natural Resources

Turkey has rich natural resources. These natural resources play a crucial role in the country’s economic growth. Here are Turkey’s leading natural resources:

Mines: Turkey is a very rich country in mineral deposits. Copper, chromium, mercury, zinc, boron, gold, silver, iron, boron, barite, borate, celestite, emery, limestone, magnesite, marble and clay.

It has many mineral resources such as lead and nickel. Turkey is one of the leading countries in the world, especially in terms of copper, boron and gold reserves.

Agriculture: Turkey is a very rich country in agricultural production. It is one of the rare countries that experiences 4 seasons at the same time. The agriculture sector has a major place in the country’s economy and Turkey is one of the world’s leading food producers. Turkey’s leading agricultural products include wheat, corn, cotton, tobacco, olives, hazelnuts, tea, sugar beets, and fruits and vegetables.

Water resources: Turkey has rich water resources. It is surrounded by the sea on 3 sides and has many gorgeous rivers and roses. There are many dams and hydroelectric power plants, especially in the eastern and southeastern parts of the country. These resources play a vital role in Turkey’s energy production.

Forests: Turkey is rich in forest areas. Forests are a valuable resource environmentally and economically. Forest products include timber, paper, furniture and other wood products.

Turkey’s natural resources contribute to the country’s economic development. These resources increase Turkey’s competitiveness in the domestic market and foreign trade.

Transport, Logistics and Telecommunication Infrastructure in Turkey

Road network: There are 66 thousand 887 km of highways in Turkey in 2019. 2 thousand 747 km of this is classified as highway, 27 thousand 758 km as state road, 16 thousand 136 km as provincial road and 20 thousand 246 km as village road.

Railway network: There are 12 thousand 740 km of railway lines in Turkey in 2019. Of these lines, 2,896 km are electrified and 9,844 km are conventional lines.

Maritime transport: Turkey’s 8335 km coastline provides an excellent advantage for maritime transport. There are 179 ports in the country. 10 of these ports operate as container ports, 17 as Ro-Ro ports and 6 as dry cargo ports.

Air transport: Turkey has 56 airports. 26 of these airports are open to international flights. In 2019, 233 million passengers travelled to Turkish airports.

Telecommunications: As of 2019, there are 82.4 million mobile subscribers in Turkey. Broadband internet access has become widespread in Turkey in recent years, and as of 2019, broadband subscribers have reached 79 million.

Logistics: As of 2019, Turkey ranked 39th among 160 countries in the World Bank Logistics Performance Index. The country acts as a crucial bridge between Asia and Europe and has substantial potential in the international logistics sector.

The above figures show that Turkey has significant potential in terms of transportation, logistics and telecommunication infrastructure and offers an attractive opportunity for investors. These infrastructure investments provide investors with a faster and safer trade opportunity and increase the competitiveness of investments in the country.

Sectors That Are Attractive to Foreign Investors

Turkey offers many opportunities for foreign investors in various sectors. These sectors include:

Energy: Turkey offers a very favorable environment for energy investments. In particular, investments in renewable energy sources have gained momentum in recent years.

Tourism: Turkey is one of the most popular tourist destinations in the world and the tourism industry still has significant potential. Foreign investors can invest in many different areas such as accommodation facilities, entertainment and event venues, travel agencies and touristic facilities. Antalya is the tourism capital of Turkey and the tourism season can be extended 10 months. Hosting more than 50 million tourists as of 2022, Turkey’s tourism income exceeded 46 billion USD.

Health: Turkey also has important health potential. Private health sector investments have increased in recent years.

Technology: Turkey is a rapidly developing technology country. Foreign investors can invest in software development, telecommunications and information technologies.

Food and agriculture: Turkey has rich potential in the agricultural sector and is a leading food producer worldwide. Foreign investors can invest in farmland, food processing plants and export companies.

Other sectors where Turkey is attractive include construction, automotive, chemicals, textiles and mining. Foreign investors can find many opportunities in these sectors. To learn more about investment opportunities in Turkey, visit the website of the Investment Office of the Presidency of the Republic of Turkey.

Selection of Settlements While Investing in Turkey

When investing in Turkey, the choice of location is a crucial factor affecting your investment success. The settlement selection criteria for foreign investors to consider when investing in Turkey are as follows:

Geographical Location: Turkey is a heartland bordered by three continents and surrounded by seas on three sides, and has a strategic geographical location. Therefore, geographical location is significant in choosing a settlement while investing. Several major cities such as Istanbul, Izmir, Ankara, Bursa, Adana, Gaziantep, Manisa, Denizli and touristic regions such as Antalya and Muğla are popular places to invest.

Transport Network: Türkiye has a wide transportation network. When investing, places close to ports, airports and railway connections may be preferred. Also, Turkey’s road network is well developed and highly valuable for investment.

Labor Market: Turkey has a large population and a young and educated workforce. When investing, it is imperative to choose a region with a workforce that meets qualifications.

Tax Advantages: Turkey offers many tax advantages. When investing, the settlement’s tax policies and incentives should be taken into account. It offers a lot of grants, incentives and supports for investments in development priority cities and regions in Turkey.

Infrastructure: Infrastructure is offered in a wide range in Turkey. Elements such as internet connectivity, energy resources, water and wastewater infrastructure are key factors when investing.

Ease of Management: Turkey provides many conveniences for investors. Bureaucracy in Turkey is generally investor friendly. Operations are simple and fast. While investing, the efficiency of local government and the ease of transactions should also be considered.

The factors to be considered in the selection of a settlement in Turkey are not limited to these. Investors can set different criteria according to the sector in which they invest. However, before investing, it is worthwhile to consider the region’s economic potential, local market conditions, competitive conditions, political and social stability.

Six Main Reasons to Invest in Turkey

We can list the 6 main reasons Turkey attractive for international investors as follows.

1- Dynamic Economy: According to 2022 data, Turkey’s economic size is over 940 Billion USD and per capita income is 10,500 USD. Turkey’s average growth rate in the last 5 years is around 4.5 percent. Its export is 250 Billion USD per year and its import is more than 360 Billion USD. As the world’s 21st largest economy, Turkey has a highly sophisticated, dynamic and vibrant domestic market.

2- Geographical Location: Turkey offers easy access to a population of 1.3 billion and a market worth 26 trillion USD, covering Europe, the Middle East and North Africa and Central Asia within a 4-hour flight distance. Surrounded by the sea on 3 sides, it is an excellent advantage to trade with all 3 continents by sea at affordable costs. Global companies choose Turkey as their center for production, export and management.

3- A Qualiified and Competitive Workforce: Approximately 15 percent of Turkey’s 85 million population is young. Half of the population is under 32. Turkey ranks 3rd in Europe in terms of qualified and educated workforce (35 million). Qualiified staff are easy to find. Labor costs are low compared to developed countries. Labor market legislation is in line with European Union laws.

4- Investment Climate: Turkey’s investment legislation, in addition to international standards and simplicity, treats all investors equally. Turkey offers investors the opportunity to do business at lower costs than other European countries. Very attractive incentives and support programs are in effect for domestic and foreign investors. Companies pay less tax than in European countries. Turkey has double taxation agreements with 81 countries.

5- Advanced Infrastructure: Turkey has a modern and high-tech banking and financial market. Telecommunications, logistics and transport infrastructures are being developed. Turkey can be reached by road, air, or train. Maritime transport is highly developed. Turkish Airlines flies to 255 destinations in 122 countries.

6- International Memberships and Agreements: Turkey has been a NATO member since 1952. The Customs Union agreement with the EU has been in effect since 1996. It is a member of the World Trade Organization and the OECD. It is a party to many international trade agreements. It has free trade agreements with nearly 30 countries. Türkiye has signed bilateral investment agreements with 86 countries. It has conducted membership negotiations with the European Union since 2005.

What are the Risks of Investing in Turkey?

We can summarize the main risks of Turkey investment as follows:

Inflation risk: After Covid, Turkey’s inflation rose above 50%. This poses some risks to investment returns predictability in the context of price stability.

Exchange rate risk: Foreign investors investing in Turkey may be affected by Turkish lira fluctuations. Currency fluctuations can reduce profit margins or cause losses.

Political risks: Changes in government policies and political instability in Turkey may pose risks for investors.

Competition risk: Turkey has intense competition in many sectors. Investors should be careful when investing in sectors with high competition to maintain or increase their market share.

Economic risks: Turkey’s economy may fluctuate from time to time. Economic recessions or financial crises can cause investors to lose their investments.

Legal risks: Doing business in Turkey carries legal risks. Regulatory, tax laws and other regulatory factors may require investors to exercise caution to protect their investments.

In summary, investing in Turkey involves some risks like other countries. However, these risks can be reduced or managed with careful research, planning and investment strategies. These risks should be evaluated together with the advantages and opportunities and decisions should be made accordingly. Turkish state follows a warm and encouraging policy for foreign investors. Turkey is a member state of international arbitration and foreigners can bring business-related disputes to international courts. Business rules and legal regulations in Turkey do not discriminate between domestic and foreign entrepreneurs.

Resources:

IMF- https://www.imf.org/en/Countries/NLD

Ministry of Trade – www.ticaret.gov.tr

Ministry of Foreign Affairs of the Republic of Turkey – www.mfa.gov.tr

Central Bank of the Republic of Turkey – https://www.tcmb.gov.tr/

Turkish Statistical Institute – www.tuik.gov.tr

Turkey Statistical Data Portal: https://data.tuik.gov.tr/

Invest in Turkey: https://www.invest.gov.tr/en/pages/home-page.aspx

Expodatabase – www.expodatabase.com

World Meters – www.worldmeters.info/tr/

The Economy Intelligence Unit (EIU) – www.eiu.com

What Can We Do For You?

We want to be a bridge to our customers’ business plans for growth and development, even in the most remote parts of the world.

You might like to see these contents also:

The post Striking Headlines for Those Who Want to Invest in Turkey first appeared on MHR & Partners.

Turkish Business Culture for Investors or Workers in Turkey

MHRPartner — Sat, 06 May 2023 14:42:46 +0000

Mehmet Akif Özmen | MHR & Partners Chairman of the Board of Directors | Sworn in - CPA

There is a famous story about Turkey’s business world. I asked a Japanese entrepreneur who had done business with Turks what he had learned in Turkey. He replied, “One Turk is smarter than one Japanese, but two Turks are not smarter than two Japanese!” A Japanese proverb that points out that Turks are extremely talented in individual endeavours, but have poor partnership building practices.

Turkish business culture is full of different and interesting experiences for international investors. With the right approach and relationships, investing and working in Turkey can be very fruitful. Turkish society respects and sympathises with foreign investors who create jobs and earn foreign currency. Turkey does not distinguish between foreign and domestic investors in Turkey. Investment climate is friendly and encouraging.

For the business world, Turkish culture is very rich and diverse. Turkey attracts international investors with its geographical location, rapid economic growth and strong infrastructure. However, Turkish business culture and business practices can sometimes pose a challenging learning curve for foreign investors. In this article, we set out the salient elements of Turkish business culture to serve as a brief guide for foreign entrepreneurs and international investors looking to invest in Turkey.

Prominent Elements of Turkish Business Culture

History, geography, and belief codes influence business culture in Turkey. Turkey is an imperial country with deep-rooted historical connections. It has a multicultural sociology and ethnic diversity determined by being the cradle of hundreds of civilizations in the past, being located at the intersection of international migration routes (heartland), and having different geographical climates and landforms.

More than 90% of the population is Muslim. Turkey is a secular state. Tradition and modernity coexist. Turkish society is leader-orientated and likes collective action. Turkey has a rich upper class. There is also a growing middle class. The business world is characterized by numerous educated and well-trained executives who are open to the world. Turkey’s talent infrastructure is constantly developing.

Tim Bright, who has worked as a mentor and management consultant in Turkey for many years and was a member of the Board of Directors of the British Chamber of Commerce in Turkey – BCCT, shares his observations on Turkish business culture as follows: “Business people in Turkey are always open to new ideas and hardworking. They always treat foreign guests, investors, and business people with respect and hospitality. However, it may take time to establish mutual trust. However, once trust is established, it is not easily shaken. Turkish society values team spirit over individualism. Business is dominated by modern understanding and traditional values.”

Stating that companies are very successful in crisis management and that they mostly prefer short-term plans, Bright lists the keys of Turkish business culture for foreign investors who want to do business in this country as follows: Power distance is high, sense of belonging is strong and social relations are very important.

“Turkish business culture reflects society’s characteristics stemming from its cultural, historical, and social structure. Turkish businesspeople are generally sincere, warm-hearted, and hospitable and values human relations. Business negotiations in Turkey are based on personal relationships and trust. Foreign investors need to understand these dynamics and act accordingly to gain a foothold in the Turkish business world.”

Below, we summarize the main dynamics of Turkish business culture that are salient and frequently encountered in daily life. Cultural elements, like any social phenomenon, are difficult and inaccurate to generalize to all individuals or a particular community. Any explanation that attempts to explain large social structures and behaviors is an abstraction and inherently incomplete.

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Family structure: A key aspect of the Turkish business world is its strong family structure. The family is the cornerstone of Turkish society and also influential in the business world. Companies are often run by families and it is imperative for families to work together and get along with each other.

Turkish family structure has patriarchal tendencies. This patriarchal structure evolves with modernization. Women’s place in social life is increasing, especially in metropolises. Although they do not take their rightful place in the business world, women are extremely influential in the Turkish family structure.

Turkey’s business culture is quite different due to the family structure’s reflection on business life. Family and kinship ties create trust and loyalty in the business world, but can also make objective decision-making difficult.

Communication: In Turkish business culture, direct and open communication is not expected. Indirect statements and insinuations are common. For foreign investors, this creates difficulties in decision-making, but obstacles can be overcome by communicating with an understanding approach.

In Turkish business culture, welcoming each other and chatting briefly before business negotiations makes negotiations take place in a warm environment. It is considered cold to talk about business directly.

Communication between business people in Turkey is very warm and sincere. While employees communicate via e-mail or telephone, they are also expected to contact personally. This helps to further strengthen relationships between people. Once a solid relationship is established, direct communication is preferred. As e-mails are usually slow to answer, telephone calls are used to speed things up whenever possible.

School and military friendships and fellow countrymen are the leading social networks among Turks.

People in Turkey do not confide in people they are not intimate with and do not like being asked questions about their private lives. They require a certain level of formality to be maintained. Be especially careful not to ask questions about people’s spouses and children.

Turks are very honorable and value international prestige. Their patriotic and religious feelings are very strong. They care about emotions. These sensitivities can be considered a red line in bilateral relations and communication.

An investor who wants to do business in Turkey is advised not to bet on 3 sensitive issues in business negotiations. These are religion, politics, and football.

Language: Turkey’s official language is Turkish. Turkish is widely spoken by the public and businesses. After Turkish, Kurdish is also extensively spoken in daily life, especially in Eastern and Southeastern Anatolia. After the Syrian war, more than 3 million refugees fled Turkey. This made Arabic the third most widely spoken language. Today, many businesses in Turkey have started to include Arabic language options on their websites and telephone greeting menus.

Greetings: Greetings in Turkish business culture are a critical start to successful communication. One of the most important reasons for resentment is not greeting people when they meet. “Sir” (Mr. Ahmet) for men and “Madam” (Mrs. Ayşe) for women is a very common form of address in the business world. It is considered impolite to address someone with whom you do not have a cordial relationship by their first name. Eye contact in communication is extremely significant.

Turks are warm-blooded nations. On the first encounter, a handshake is valued. In some regions, handshake is not considered sufficient, so do not be surprised if you see encounters in the form of hugs. It is best behavior to wait for your interlocutor to extend his hand first, especially when shaking hands with women who wear headscarves.

Business Lunches: Business lunches are very important in Turkish business culture. Business meetings or dining out with business partners can strengthen relationships. Don’t be surprised if many deals are settled at business dinners. Hospitality and hospitality are ingrained in Turkish business culture. For this reason, it is common to take people with whom you have business relationships to dinner. Rejecting a dinner invitation is unacceptable.

It should be noted that gifts should not contain pork products or alcohol. Again, many Turkish business people may not prefer to eat at alcohol-filled places. Knowing these sensitivities in advance prevents communication accidents in business relations.

Business attire: In Turkey, work attire is generally formal and conservative for white-collar workers. Casual dresses for men and low-cut clothing for women are not preferred. Lately, the tendency not to wear a tie and to come to the workplace with free clothes on Fridays has increased along with the world. Freelance dress codes are common in some business lines, such as software, marketing, and academia.

Time perception: Turkish business culture has innate flexibility and is often expected to adapt to flexible schedules. For example, precise times are often not given for business appointments. Job interviews usually take longer and are not strictly scheduled. This situation may create difficulties for foreign investors, but this flexibility also creates opportunities.

Reading Advice

What are the types of companies in Turkey? What does it take to set up a company and open a branch in Turkey? Where should foreign entrepreneurs start setting up a company in Turkey? Do a deep reading for the answers to all these questions!

Negotiation: In Turkish business culture, negotiations can be long and concluded in more than one meeting. We advise foreign investors to be patient and proceed step by step. Business requires compromise and mutual benefit. Highlight the benefit for both parties and the profitability of the partnership. Consider benefits such as potential prestige, influence, and power alongside sales profitability.

When presenting your proposal, make sure it is clear, well-presented, and concise. It is a wise idea to supplement the information with visual examples (for example, graphs, maps, diagrams) as Turks generally communicate more effectively both visually and verbally. It’s also critical to keep what’s promised and be reliable.

Bargaining: Bargaining is a strong tradition among Turks and they may take offense if you refuse to negotiate. “Everything can be bargained for” is a widely accepted belief. Turkish business culture expects initial prices should never be accepted.

Prices often move up to 30 percent in negotiations between initial offers and final decisions. Be prepared with multiple offers that work within this figure’s percentages. Have a goal in mind before entering the meeting and gradually make reasonable concessions.

Personal relationships: In Turkish business culture, business and personal relationships are often intertwined. Establishing a network of connections to do business is valued. Cordial relationships between business owners and managers help businesses move forward quickly and efficiently. A focus on relationships rather than tasks dominates Turkish business culture.

Turkish business culture values personal relationships. Establishing a sincere relationship is essential to doing business. This means that investors should first get to know the Turkish business world, build the right relationships with people, and build trust.

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It is so helpful to have a business plan ready to establish a company in Turkey, to invest or even get a residence permit.

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Written contracts: In Turkey, verbally agreed matters must be put into formal contracts. Documents in writing contracts are common in corporate companies. Smaller enterprises have a weak written contract culture. We recommend written agreements for the safe continuation of business relationships.

Business meetings: In Turkey, confirming meetings or negotiations a few days in advance facilitates planning. Turkey is quite common to drink tea or coffee during business meetings. This makes the business meeting more informal and helps business people get to know each other better. It is considered rude to rush people to achieve the meeting purpose.

If the meeting is one of the first meetings between business partners, its purpose is usually to get acquainted. Do not expect a decision in the first conversation.

Chewing gum at work, in meetings, and in job interviews is often considered off-putting and vulgar in Turkish business culture.

Recruitment and management: In Turkish business culture, recruitment and management are often based on personal contacts and references. This can create challenges for foreign investors, but also opportunities if appropriate networks are established.

Hierarchy: In Turkish business culture, hierarchy and authority are important. Decisions in the workplace are usually made by top managers and are expected to be obeyed. Managers are not used to having their views discussed and challenged. In addition, respecting older people and benefiting from their experience is valued. Respect for elders and authority is a vital component of Turkish business culture.

Teamwork: In Turkish business culture, values such as teamwork, cooperation and cooperation are often emphasized. Turks are a community with strong organizational ability and ability to mobilize resources quickly. As a result, they developed flexibility and the ability to adapt to challenging conditions. They make quick decisions and get quick results. A strong individuality does not stand out among them because they tend to be leader-oriented. In the Turkish business world, crisis management, handling difficult conditions, and flexibility are highly developed. In addition, the culture of long-term planning is weak. In addition, we see that they have difficulty complying with the rules.

Partnership: In the Turkish business world, foreign investors are encouraged to establish partnerships with local companies to do business. A local partner can better understand Turkish business culture and help foreign investors gain a foothold in the Turkish business world. Besides, partnering with Turks has its own difficulties. The culture of partnership, of achieving together and sharing, is weak. At times, emotions take precedence over rationality. They care about short-term gains and cost-oriented thinking dominates in places. Performance thinking comes later. We cannot generalize this situation for all business people, but many Turkish business entrepreneurs have unsuccessful stories about doing business together.

Work-life balance: In Turkish work culture, the distinction between workplace and private life is unclear. Some employers demand more from employees. However, recently, employees have expressed very strong demand for work-life balance. Generation Z and millennials and the digital age possibilities force Turkish business culture to change.

In addition, Turkish business culture is based on selfless work. Business people have busy working hours and strive to do their job in the right way possible.

Working hours: In Turkey, 45 hours per week are worked between 9:00 and 18:00 on weekdays, Monday to Friday. Lunch is common. Some businesses offer lunch to employees at their workplace.

Fridays, most men go to prayers. More than half of the population fast for 1 month during Ramadan. People who pray 5 times a day are not small. The days of Ramadan and EID al-Adha (3 and 4 days respectively) are public holidays. All these religious practices have reflections on business life and business culture.

After Covid, remote working became widespread among software developers and call center employees. Some large holdings have switched to remote and hybrid working models for those outside of these professions.

Special Days: Official days, religious holidays and special days are celebrated enthusiastically by the public in Turkey. It is very common to congratulate and share content on social media and private WhatsApp groups. They visit their relatives and graves during religious holidays. In some workplaces, they hold ceremonies as a group. It is customary to take gifts such as Turkish delight, chocolate, and baklava when visiting family during the holidays. Giving gifts on religious holidays and special days is appreciated and encouraged. On special occasions, enthusiasm, joy and warm interactions peak in business and social life.

Resources:

Dimensions of the Transformation of Turkish Business Culture in the Globalization Process

Turkish Business Culture – Zafer Parlar

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Preparing a Business Plan for Starting a Company in Turkey

MHRPartner — Mon, 10 Apr 2023 15:39:17 +0000

Mehmet Akif Özmen | Chairperson at MHR & Partners

Do you want to establish a new company in Turkey, invest in, or expand an existing business in the Turkish market? If yes, the first question is: Do you have a business plan? There is a famous proverb that no wind helps a captain who does not know where he is going. Investment and business development is a serious business. It is a matter of risking precious resources such as money and time. It requires preparation, planning, and strategy.

In this article, after emphasizing the benefits and necessity of preparing a business plan, we will discuss how to prepare a good one. Your business plan will serve as a roadmap for understanding the dynamics of your business and how to execute your plans. Although the title of this article is dedicated to Turkey, the principles we set out in this article also include the essentials of a business plan for starting a business in any country and sector.

Is a Business Plan Necessary?

Preparing a business plan will primarily guide you in the successful execution of the following tasks:

Managing your existing business better
Starting a new company
Obtaining loan support from financial institutions for your investment project
Growing by investing
Finding partners/entrepreneurs for your project
Influencing key suppliers and employees
Even obtaining business visas and residence permits in developed countries of Europe

If you are looking for financial support for your investment project from banks, financial institutions, and venture capital firms in Turkey or if you are trying to find a partner for your company, it is a prerequisite to have a very well-prepared business plan. You can convince the funders with a clear, understandable, detailed, and reassuring business plan. A good idea often generates more excitement than a strong business track record.

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What are the Benefits of Preparing a Business Plan?

We can summarize the benefits of preparing a business plan as follows:

Helps Define the Business: A business plan forces you to consider important issues such as your company’s mission, vision, strategies, value proposition, customer analysis, target market, and competition. It helps you clearly define your business and focus on your goals.

Facilitates Planning and Goal Setting: A business plan helps you set specific, measurable, and achievable goals for your business and plan how to achieve them. It enables you to identify key performance indicators and track progress over time.

Guides Decision Making: A business plan serves as a roadmap for your business and helps you make informed decisions about marketing, sales, operations, and finance. It also serves as a benchmark to measure the performance of your business. A business plan clarifies the decision-making process regarding essential aspects of the business, such as capital investments, leases, sourcing, etc.

Helps Attract and Retain Talent: Attracting talented employees and partners is vital to success. Part of the purpose of a business plan is to help bring in the right talent at the right time. Employees want to understand the company’s vision, how the business will achieve its goals, and how they can contribute to it in their role.

Increases Credibility: A well-studied and prepared business plan can increase the credibility of your business with potential investors and partners. It shows that you have thoroughly researched your market, competition, and industry and are confident in your business’s viability.

Helps to Obtain Financing: A business plan is often required when seeking funding from investors, banks, financial institutions, and venture capital firms. The business plan provides a detailed business overview, including your products or services, target market, and financial projections.

Strengthens Communication: A business plan is your vehicle for communicating the value of your business to potential investors, employees, suppliers, and customers. It helps you clearly explain your business model, target market, and growth prospects.

In summary, a business plan is a valuable tool that can help you clarify your business objectives, communicate your value proposition and make better decisions. Even if you don’t need it to raise funds, it serves as a valuable lever to guide the growth and development of your business.

What are the Preliminary Preparations for Designing a Business Plan?

We can list the preliminary preparations to create a clear and guiding business plan.

Adapt your business plan according to your target audience: When creating your business plan, consider your target audience, business line, and business dynamics. For example, the business plan of an insurance or industrial company will be different from that of an angel investor.

Define your business model: Clearly define your business model, including how your company will generate revenue. Be sure to address regulations and laws specific to your industry.

Conduct a SWOT analysis: Analyse and write down your company’s strengths and weaknesses and the opportunities and threats that await you in the outside world.

Research your sector: Conduct thorough research on the industry in which your company will operate. This should include market size, growth prospects, and trends. Identify your target market and competitors and analyze their strengths and weaknesses.

Develop a marketing and sales strategy: Create a detailed marketing and sales strategy that considers your target market and customer preferences. Identify the best channels to reach your target market and generate revenue.

Plan your operations: Outline the logistics of your operations, including the location of your facilities, equipment, and supply chain.

Create realistic financial projections: Develop economic forecasts for your company based on market data and research. Consider your projected revenues and expenses and include contingencies for unexpected events.

Be simple and straightforward: A business plan should be simple enough. Keep it clear, concise, and easy to understand.

Update and review your plan regularly: A business plan is a living document that should be routinely updated as your company and the market evolves. Review your plan periodically and make any necessary changes.

Seek advice and feedback: Consider seeking advice from industry experts, business consultants, or experienced entrepreneurs. They can provide valuable feedback on your business plan and help you navigate the unique challenges of your industry.

Reading Advice

What are the types of companies in Turkey? What does setting up a company and opening a branch in Turkey take? Where should foreign entrepreneurs start to set up a company in Turkey? Do a deep reading for the answer to all these questions!

What Does a Well-Drafted Business Plan Include?

Creating a business plan is challenging and tedious, especially for new business owners. However, it is a crucial preparation for building and growing a successful business. Above all, you need to ensure that your business plan is sound and demonstrates the potential of your business.

Here are the key components of a good business plan:

Executive Summary: This is a summary of the entire business plan, including critical points of the proposed or existing business.

Company Description: This section provides an overview of the company, including its history, ownership, and management structure.

Company’s Main Business Idea: This section presents the main idea of the current or prospective business concisely and understandably.

SWOT Analysis: Provides a summary analysis of the company’s strengths and weaknesses and the opportunities and threats in the external world.

Mission and Vision: Provides information about the vision and mission of the company.

Sector Analysis: This section provides an overview of the industry in which the company operates/will operate, including market size, growth prospects, and trends.

Market Analysis: This section describes the target market for the company’s products or services, including market size, growth prospects, and demographics of the target market. It provides a detailed insight into customer segmentation.

Competition Analysis: This section describes the company’s competitors and their strengths and weaknesses.

Marketing and Sales: This section describes the marketing and sales strategies, including how the company will reach its target market and generate revenue. Unique Selling Point, that is, it clarifies the special selling advantages that make you different.

Product or Service Introduction: This section describes the company’s products or services, including how they are differentiated from competitors.

Financial Projections: This section includes financial projections for the company, including projected income statements, balance sheets, and cash flow statements. Start-up costs, operating expenses, financing methods, liquidity ratios, key financial performance ratios, and break-even points to profit are included in this analysis.

Risk Analysis Plan: It includes answers to the following questions: Are your alternative action plans ready? What are the possible quality problems in service and product production? Have you calculated that your production/service costs may be higher than expected? Are you ready for unrealizable sales levels? What are the chances of your business surviving if critical employees and customers leave? Have you analyzed legal risks? What are the factors that could cause your business to fail?

Operations: This section describes the company’s operations, including its facilities, equipment, and supply chain.

Organisation and Staff Planning: Clearly articulate what kind of organizational structure and depth of competence/expertise you have. It opens a unique space for the management team’s work experience and critical business skills that will execute your business plan.

Location Selection: Explain in which locations/countries you will invest and the business you will establish.

Appendices: This section may include additional information such as CVs of key personnel, licenses, patents, pre-contracts, references, and other documents.

Since you want to start a business in Turkey, your business plan should be written in Turkish. However, if you do not speak Turkish, this is not much of a problem in today’s world.

Starting a business in Turkey has country-specific regulations and laws. You will need to comply with Turkish regulations and laws when setting up your business or investing, which will involve much administrative work. To ensure everything is done correctly, you should seek help from local professionals with expertise in Turkish business regulations and compliance, such as lawyers, tax advisors, and accountants.

Also, Turkish officials, private banks, investors, or funds often have different perspectives and criteria when evaluating a business plan. It is, therefore important to consider the local market and regulations when creating a plan for that country.

How Can You Make Your Business Plan More Attractive When Presenting It?

If you are thinking of presenting your business plan to decision-makers outside your organization, there may be other things you need to do to make it enjoyable. Would you rather have a dry, boring business plan or one that grabs you? Investors are no different; they want to see that you have a sense of humor and can think outside the box. In this case, you can make some changes to the presentation of your business plan. For example, instead of “Financial Insights,” you could replace “Money Talks: A Look Into Our Wallet” instead of “Financial Projections” or “Marketing Strategy” instead of “Marketing Madness: How we plan to make you rich” instead of “Marketing Strategy.”

Another way to make your business plan more interesting is to include infographics, diagrams, and visual themes. But don’t overdo it; make sure the visuals support and complement the information in the plan and don’t distract from it.

Feel free to add some of your personality to the plan; investors want to know whom they are investing in. Show them you are passionate about your business and have what it takes to make it happen.

When presenting your business plan, make sure it includes an executive summary and that the following main headings are well-grounded: Business Model, Management Team Competence, Market Analysis, Financial Projections, Use of Funds, and Exit Strategy. Also, be prepared for possible questions and always be honest, transparent, and predictable.

Conclusion

Keep in mind that the business plan you have prepared may change many times over time as the business world is exceptionally chaotic and volatile. Many new ideas and unexpected risks will arise while running your own business. Even the most prominent companies today look very different from what they were once planned to be. So avoid getting too attached to your ideas and plans. Remember that business plans are dynamic, changeable roadmaps; do not hesitate to update them according to changing circumstances. In conclusion, a business plan is more than just numbers. It is a roadmap that guides you to realize your company’s vision, mission, and strategic goals.

We have prepared a sample study you can use while preparing a business plan. You can download it here. You can benefit from our expertise in the Turkish markets to craft a good business plan abroad.

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Export Value-Added Tax (VAT) Refund Guide For Turkey

MHRPartner — Sun, 02 Apr 2023 14:13:45 +0000

MHR & Partners Academy

Exports ranks first in Turkey’s source of foreign currency revenues. One of the issues that exporting companies in Turkey are most curious about is how to collect VAT refund receivables in exports. In this guide, we clarify the issues that taxpayers are curious about the export VAT refund.

What is Export VAT Refund?

Value Added Tax (VAT) is a type of tax levied on the final consumer. There is a delivery of goods or services between companies until it reaches the final consumer. The companies collect the Value Added Tax from the buyer as responsible and declare the remaining amount as responsible after deducting the VAT amount paid by them.

In cases where companies do not calculate or collect VAT in the deliveries they have made within the scope of the full exemption in the VAT law, they can request the return of the VAT amount they have paid or burdened from the tax office. The issues in the VAT General Communiqué are valid when requesting VAT refund.

In VAT legislation, deliveries within the scope of full exemption are listed. Export deliveries are also within the scope of full exemption. The VAT amount that is incurred for export deliveries and cannot be eliminated through discounts can be refunded.

Amount Limits in Export VAT Refund Claim

VAT amounts not exceeding 5.000 TL (10.000,00-TL to be applied in returns arising from transactions after 01.05.2022) can be refunded in cash without the need for a Certified Public Accountant or Tax Inspection Report. In cash refund requests exceeding this amount, a Certified Public Accountant or Tax Inspection Report is required.

The Path to be Followed in Cash VAT Refund Requests

VAT Law No. 3065 (11/1-a) Article (10.000,00-TL to be applied in refunds arising from transactions after 01.05.2022) in cash refund requests exceeding 5.000 TL related to the export of goods made within the scope of Article (10.000,00-TL), the stages to be followed by taxpayers and the issues regarding the refund process are given below.

1. Determination of VAT Declaration Period

According to Article (11/1-a) of the Value Added Tax Law, export deliveries and services related to these deliveries and services performed for customers abroad are exempted from value added tax. According to Article (12/b) of the same Law, in order for a delivery to be considered as an export delivery, the goods subject to delivery must leave the customs territory of the Republic of Turkey and arrive in a foreign country.

The exemption related to the export of goods is declared with the VAT declaration for the taxation period that includes the “closing date” of the customs declaration, which is the date of export.

In export deliveries, the date on which the customs declaration is closed by the border customs is accepted as the date of export realisation.

Accordingly, the event giving rise to the exemption and VAT refund right in export deliveries occurs on the date when the exported goods leave the Turkish Customs Territory. Therefore, even if the date of issuance of the export invoice and opening of the customs declaration is earlier, export deliveries should be declared in the taxation period that includes the actual export date when the goods leave the Turkish Customs Territory.

– The export price shall be converted into TL at the foreign exchange buying rate of the Central Bank of the Republic of Turkey, which was first published before the closing date of the customs declaration.

– Journal entries must be made taking into account the “actual export date”. The export price should be written in the declaration, including freight and insurance costs.

On the other hand, unless the goods are actually exported – except for the delivery of the goods at the seller’s workplace in Turkey – the sales contract is considered incomplete. Then, no accrued profit can be mentioned. In this case, since the sale is realised as of the date the goods leave the customs territory, the income is accrued as of this date. The fact that the invoice is issued first in export transactions has no effect on the period in which the income is generated in terms of corporate tax. In terms of determining the period of income, the taxable event in export transactions occurs on the date the goods leave the customs territory. In this case, the earnings of the company arising from the mentioned exports should be associated with the period earnings based on the date the goods leave the customs territory.

2. VAT Return Request Process

Article 32 of VAT Law No. 3065 states:

“The Value Added Tax shown on invoices and similar documents related to the transactions exempted from tax pursuant to Articles 11, 13, 14 and 15 of this Law and subparagraph (s) of paragraph (4) of Article 17 shall be deducted from the Value Added Tax to be calculated over the taxable transactions of the taxpayer. In cases where the taxable transactions do not exist or the calculated tax is less than the tax to be deducted, the Value Added Tax that cannot be deducted is refunded to those who make these transactions according to the principles to be determined by the Ministry of Finance and Customs, provided that it is requested until the end of the second calendar year following the period in which the transaction took place.” This provision is valid as of 01.01.2019.

In the return requests arising from the deliveries and services subject to the reduced rate, the application must be made by the end of the year following the taxation period in which the delivery and service is performed (with the VAT declaration of November of the following year).

Taxpayers can make a VAT refund request with a standard refund request petition throughthe internet tax office after submitting the VAT Declaration No.1.

The following documents are required in the export VAT refund request:

– Standard refund request petition

– Sales invoices list

– Customs declaration or list (Free zone transaction form for exports to the free zone, electronic trade customs declaration for exports via mail or cargo)

– VAT list to be deducted for the period in which the export is declared

– Loaded VAT list

– Return Requested VAT Calculation Table.

All of the above-mentioned lists are sent virtually via the internet tax office. However, for cash refunds over 5 thousand (10.000,00-TL to be applied for refunds arising from transactions after 01.05.2022), if a Certified Public Accountant report is written, copies of export invoices and Customs Exit Declarations are attached to the report.

3. Evaluation of VAT Refund Request

The fulfilment of the VAT refund request to be made by the taxpayer by the tax office is as follows:

1) The VAT refund request petition and the documents listed above are completed and uploaded to the VATIRA system.

2) “VAT Refund Control Report” is generated by KDVIRA system.

3) Some documents need to be confirmed.

4) The following conditions (Collateral / Certified Public Accountant Report / Tax Inspection Report) are expected to be realized.

a) VAT Refund Against Collateral

In the cash refund requests of the taxpayers arising from this transaction, VAT refund is made if collateral is shown without submitting the Certified Public Accountant report. The collateral in question is resolved according to the result of the tax inspection report or Certified Public Accountant report.

In the event that the Certified Public Accountant report related to this return is not submitted within six months from the date of VAT refund against collateral, the collateral in question is resolved according to the result of the tax inspection report.

b) VAT Refund Based on Sworn Financial Advisor Report

In the cash refund requests of the taxpayers arising from this transaction, the cash refund request is fulfilled if the Certified Public Accountant report is submitted.

c) VAT Refund with Tax Inspection Report

In the following cases, the refund requests of the taxpayers are fulfilled according to the result of the tax inspection report issued by those authorised to carry out tax inspection.

– They want to receive their refunds as a result of the tax inspection report,

– Failure to provide collateral or declare that they will receive their refunds with a Certified Public Accountant report

d) Returns to Taxpayers with “HİS Certificate”

“HİS Certificate” is an application that aims to quickly finalise the VAT refund requests of taxpayers who pay their taxes on time, are not on the black list in terms of VAT application and are called large taxpayers in terms of their financial statements.

The refund requests of the taxpayers holding the HİS certificate are fulfilled regardless of the amount, without collateral, Tax Inspection Report or Certified Public Accountant report.

In the cash refund requests of these taxpayers, the amounts that are not found to be negative as a result of the query made by the KDVIRA system regarding the submitted documents are refunded within five business days following the completion of the report. The refund of the VAT amounts related to the purchases for which a negativity is detected is fulfilled provided that the negativity is eliminated or the required conditions are met.

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Taxation of Dividend Transfers Between Companies Established in Turkey and Germany

MHRPartner — Sun, 02 Apr 2023 09:20:53 +0000

MHR & Partners Academy

In this article, we deal with a highly technical taxation issue. Let us assume that a German resident company is a shareholder of a limited liability company established in Turkey. If the limited liability company established in Turkey wants to transfer its share of the profits to Germany, how will the taxation be for both companies?

Many entrepreneurs who own companies in Turkey establish companies in Germany. Sometimes the company established in Germany is a partner of the company in Turkey. Sometimes a foreign company resident in Germany establishes a company in Turkey and becomes a partner of this company. This article clarifies the taxation of dividend transfers between companies in different countries in such a partnership relationship.

In this article, we refer extensively to the relevant legislation when addressing the taxation of dividend transfers. In particular, the Corporate Tax and Tax Procedure Law in Turkey, as well as the agreement between the Republic of Turkey and the Federal Republic of Germany on the avoidance of double taxation and tax evasion in respect of taxes on income, constitute the decisive legal framework for this article. In addition, the methodology used to address the issue can be adapted to companies in Turkey in which other European resident companies are also shareholders. Although the issue has been explained in terms of limited liability companies, it can also be extended to other companies/institutions that are liable to corporate tax under the corporate tax law, such as joint stock companies. In this article, we also briefly mention the taxation of the dividends distributed by the company established in Germany in the event that a person or company resident in Turkey is a shareholder of a company established in Germany.

Summary / General Provisions Regarding the Taxation of a Limited Liability Company Established in Turkey According to the Turkish Tax System

How is a Limited Company Established in Turkey Taxed?

A “Limited Liability Company” established in Turkey is subject to corporate tax as a capital company in accordance with Article 1 and Article 2 of the Corporate Tax Law No. 5520. Pursuant to Article 3 of the same law, a limited liability company established in Turkey is subject to taxation as a “full taxpayer” corporation. Pursuant to Article 3 of the Corporate Tax Law, full taxpayer corporations are taxed on all of their earnings both inside and outside Turkey.

Pursuant to Article 6 of the Corporate Tax Law, limited liability companies established in Turkey are subject to corporate tax, and corporate tax is calculated on the pure corporate income of the taxpayers in an accounting period. In the determination of pure corporate income, the provisions of Income Tax Law No. 193 on commercial income are applied.

What Does Narrow Liability Corporate Income Consist of?

On the other hand, companies that are within the scope of “narrow taxpayership” as per the same article of the law (among the institutions listed in Article 1 of the law, those whose legal and business centres are not both located in Turkey) are taxed only on the earnings obtained in Turkey. In limited taxpayers, corporate income consists of the following gains and revenues

a) Commercial gains derived by foreign corporations having a place of business or permanent representative in Turkey in accordance with the provisions of the Tax Procedure Law No. 213 dated 4/1/1961 and numbered 213, from the works carried out in these places or through these representatives (Even if they meet these conditions, the gains arising from sending the goods purchased by the corporations in Turkey for export to foreign countries without selling them in Turkey are not considered to be obtained in Turkey. The meaning of selling in Turkey is that the buyer or seller or both of them are in Turkey or the sales contract is concluded in Turkey).

b) Earnings derived from an agricultural enterprise located in Turkey.

c) Earnings derived from self-employment in Turkey.

d) Income derived from the rental of movable and immovable property and rights in Turkey.

e) Income from movable capital obtained in Turkey.

f) Other gains and revenues obtained in Turkey.

The relevant provisions of the Income Tax Law dated 31/12/1960 and numbered 193 shall apply to the earnings or revenues and income elements mentioned in the narrow taxpayer status and to the issues of obtaining the income elements in Turkey and having a permanent representative in Turkey.

What is the Legal Headquarters and Business Centre for Companies?

Legal Centre: The headquarters of the taxable corporations indicated in their establishment laws, presidential decrees, by-laws, main statutes or contracts.

Business Centre: It is the centre where the transactions are actually gathered and managed in terms of business.

How does a limited liability company established in Turkey file a declaration?

Pursuant to Article 14 of the Corporate Tax, a limited liability company established in Turkey shall submit a declaration for all of its taxable income. The corporate tax return is submitted to the tax office to which the taxpayer is affiliated from the first day of the fourth month following the month in which the accounting period is closed until the evening of the twenty-fifth day. In accordance with Article 24 of the same law, corporate tax is paid until the end of the month in which the declaration is submitted. In accordance with Article 32 of the same law, corporate tax is applied as 20% to the net corporate income obtained in an accounting period. (23% will be applied to the earnings of 2022 in accordance with the Presidential decree, unless otherwise decided, 20% will be applied to the earnings of 2023)

VAT Liability of Limited Liability Company Established in Turkey

Pursuant to the Value Added Tax Law No. 3065, the deliveries of goods and services made domestically by a “limited liability company” established in Turkey are subject to value added tax as a general rule. However, pursuant to Articles 1/1-a and 12/2 of the Value Added Tax Law, services performed for customers abroad are exempt from value added tax. The term “customer abroad” refers to the buyers whose domicile, workplace, legal and business centre is abroad and the branches of a domestic company operating independently on its own behalf abroad. In order for a service to be considered as a service performed for customers abroad, the following conditions must be fulfilled.

– The services must be performed for a customer abroad.

– The service must be utilised abroad.

Pursuant to Article 1/1-a and 12/2 of the Value Added Tax Law, a limited liability company established in Turkey is exempt from value added tax in the event that the service to be provided abroad is provided to the customer abroad and the service is utilised abroad. VAT will not be calculated in the invoices to be issued for the services provided.

Tax liabilities arising from the Double Taxation Avoidance Agreement between Germany and Turkey in the event that a limited liability company established in Turkey distributes its profits to its German resident partner as dividends

Legislative Infrastructure

In the second paragraph of Article 3 of the Corporate Tax Law No. 5520, it is stated that, among the institutions listed in Article 1 of the Law, those whose legal and business centres are not both located in Turkey shall be taxed only on the income generated in Turkey; In the third paragraph, the income elements of the corporate income in limited taxpayers are listed and in subparagraph (a), commercial gains derived by foreign corporations having a place of business in Turkey in accordance with the provisions of the Tax Procedure Law or having permanent representatives, from the works carried out in these places or through these representatives, and in subparagraph (d), movable capital income derived in Turkey shall be taxed as corporate income; In the fourth paragraph, it is stipulated that the relevant provisions of the Income Tax Law shall apply to the earnings and revenues mentioned in this article and the income elements obtained in Turkey.

According to paragraph (6) of the first subparagraph of Article 7 of Income Tax Law No. 193, in order for the income from movable capital to be deemed to be derived in Turkey, the capital must be invested in Turkey.

In subparagraph (4) of the second paragraph of Article 75 of the same Law, the remaining portion of the corporate income before deducting deductions and exemptions from the corporate income before deducting deductions and exemptions, after deducting the calculated corporate tax, of limited taxpayer corporations submitting annual or special declarations in accordance with the Corporate Tax Law, regardless of their source, is defined as securities income.

According to the general provisions of the Turkish tax system (in the absence of a double taxation avoidance agreement between the two countries) Within the scope of Article 94 of the Income Tax Law No. 193 and Articles 15 and 30 of the Corporate Tax Law No. 5520;

“Except for those who obtain dividends through a place of business or permanent representative in Turkey, tax deduction at the rate of 10% should be made on dividends distributed to limited taxpayer corporations and limited taxpayer real persons.”

In Article 30 of the Corporate Tax Law, it is ruled that corporate tax deduction will be made by those who pay or accrue these earnings and revenues in cash or on account, including advances, over the earnings and revenues of the institutions subject to limited taxpayers, In the sixth paragraph of the same article, it is stipulated that corporate tax deduction at the rate of 10% will be made on the amount transferred to the head office by the limited taxpayer corporations submitting annual or special declarations from the amount remaining after deducting the calculated corporate tax from the corporate income before deducting discounts and exemptions.

How will the taxation be done?

Accordingly, the shareholder of the Limited Liability Company will be considered as a limited taxpayer due to the fact that he/she is a resident abroad and does not have a legal and business centre in Turkey. According to the sixth paragraph of Article 30 of the Corporate Tax Law, withholding tax is required to be withheld on the amounts of the corporate income obtained by the Limited Liability Company established in Turkey and transferred to the limited taxpayer resident abroad.

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Dividend Taxation in the Context of Double Taxation Agreement with Germany

As of 1 January 2011, there is an Agreement between the Republic of Turkey and the Federal Republic of Germany for the Avoidance of Double Taxation and Tax Evasion in Taxes on Income. The provisions of the double taxation avoidance agreement between the Republic of Turkey and the Federal Republic of Germany will be taken into consideration in the taxation of the dividends to be obtained by the non-resident limited taxpayer corporation from the company established in Turkey.

In Article 10 titled “Dividends” of the “Agreement between the Republic of Turkey and the Federal Republic of Germany for the Avoidance of Double Taxation and Prevention of Tax Evasion in Taxes on Income

“Dividends paid by a company which is a resident of one Contracting State to a resident of the other Contracting State may be taxed in that other State.

However, such dividends may also be taxed in and in accordance with the law of the Contracting State in which the company paying the dividend is a resident of that State, provided that, if the beneficial owner of the dividend is a resident of the other Contracting State, the tax so levied shall be

a) 5 per cent of the gross amount of the dividend if the beneficial owner of the dividend is a company (other than a partnership) holding directly at least 25 per cent of the share capital of the company paying the dividend

b) in all other cases, not exceed 15 per cent of the gross dividend amount.”.

Article 23 of the Agreement guarantees that undertakings of one State shall not be subjected to taxation in the other State which is heavier than the taxation and related obligations faced by the undertakings of the other State under the same conditions.

Considering the provision of subparagraph 2/a of Article 10 of the Treaty, it is seen that Turkey is entitled to levy a maximum of 5% tax on dividend payments made by a company resident in Turkey to real beneficiaries resident in Germany who have at least 25% of its capital share.

Within the framework of these provisions, in the event that the German resident company holds at least 25% of the capital shares of the company established in Turkey, the rate of 5% should be taken into consideration in the taxation to be made in Turkey over the dividend payment to be made to the German resident company from the remaining portion after deducting the calculated corporate tax from the corporate income of the company established in Turkey before deducting deductions and exemptions, instead of the 10% rate in our domestic legislation.

In the case where Article 7 and Article 10, paragraph 2, subparagraph (a) of paragraph 2 of Article 10 entitles Turkey to levy tax, an income arising in Turkey will be excluded from the base for the calculation of German tax in accordance with Article 22, paragraph 2, subparagraph (a) of Article 22 of the Agreement titled “Avoidance of Double Taxation”. In cases where Article 12 of the Agreement entitles Turkey to levy tax, the tax paid in Turkey shall be offset against the tax payable in Germany in accordance with subparagraph (b) of paragraph 2 of Article 22 of the Agreement.

In this sense, in the dividend distribution of the company established in Turkey to the company resident in Germany, which is the shareholder of the company, the tax deduction of 5% will be deducted by the company resident in Germany from the tax to be paid in Germany.

In cases where the provisions of the Agreement are amended according to the domestic legislation, in order to benefit from the provisions of the Agreement, it is necessary to prove that the enterprise resident in Germany is a full taxpayer in Germany and is taxed in this country on all world earnings with a document (residence certificate) to be obtained from the competent authorities of Germany and the original of this document and a copy of its Turkish translation certified by a notary public or Turkish consulates in Germany must be submitted to the tax authorities or the relevant tax office.

Taxation of Dividends Distributed by a Company Established in Germany in the Event that a Person or Company Resident in Turkey is a Shareholder of a Company Established in Germany

In accordance with the reciprocity principle of the double taxation agreement mentioned above, in the reverse case, if the company resident in Turkey has at least 25% capital share of the company established in Germany, the rate of 5% should be taken into consideration instead of the taxation rate in the domestic legislation in the taxation to be made in Germany over the dividend payment to be made to the company resident in Turkey from the remaining portion after deducting the calculated corporate tax from the corporate income of the company established in Germany before deducting discounts and exemptions.

In this sense, in the dividend distribution of the company established in Germany to the Turkish resident company, which is the shareholder of the company, the 5% tax deduction will be deducted by the Turkish resident company from the tax to be paid in Turkey.

Evaluation and Conclusion

If we briefly summarise the issues we have explained in detail in the above sections of our article;

A “Limited Liability Company” established in Turkey is subject to corporate tax as a “full taxpayer” capital company. Full taxpayer corporations are taxed on all of their earnings both inside and outside Turkey.

For limited liability companies established in Turkey, corporate tax is calculated on the net corporate income of the taxpayers in an accounting period. In the determination of pure corporate income, the provisions of Income Tax Law No. 193 on commercial income are applied. On the other hand, companies which are within the scope of “limited liability” as per the same article of the law (companies which do not have both their legal and business centres in Turkey among the institutions listed in Article 1 of the law) are taxed only on the earnings obtained in Turkey.

As of 1 January 2011, there is an Agreement between the Republic of Turkey and the Federal Republic of Germany for the Avoidance of Double Taxation and Tax Evasion in Income Taxes. The provisions of the double taxation avoidance agreement between the Republic of Turkey and the Federal Republic of Germany will be taken into consideration in the taxation of the dividends to be obtained by the non-resident limited taxpayer corporation from the company established in Turkey.

In accordance with the double taxation avoidance agreement, in the event that the German resident company has at least 25% of the capital share of the company established in Turkey, the rate of 5% instead of 10% in our domestic legislation should be taken into consideration in the taxation to be made in Turkey over the dividend payment to be made to the German resident company from the remaining portion after deducting the calculated corporate tax from the corporate income of the company established in Turkey before deducting deductions and exemptions. On the contrary, in accordance with the reciprocity principle of the double taxation avoidance agreement, in the taxation to be made in Germany over the dividend payment to be made to the Turkish resident company, which is the partner of the company resident in Germany, the rate of 5% should be taken into consideration instead of the taxation rate in the domestic legislation.

In the distribution of dividends between the two countries, the amount of 5% to be deducted from the taxes to be paid in their own countries can be deducted from the taxes to be paid in their own countries.

In cases where the provisions of the Agreement are amended according to the domestic legislation, in order to benefit from the provisions of the Agreement, it is necessary to prove that the enterprise in Germany is a full taxpayer in Germany and is taxed in this country on all world earnings with a document (residence certificate) to be obtained from the competent authorities of Germany and the original of this document and a copy of its Turkish translation certified by a notary public or Turkish consulates in Germany must be submitted to the tax authorities or the relevant tax office.

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The post Taxation of Dividend Transfers Between Companies Established in Turkey and Germany first appeared on MHR & Partners.

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Summary / General Provisions Regarding the Taxation of a Limited Liability Company Established in Turkey According to the Turkish Tax System

How is a Limited Company Established in Turkey Taxed?

What Does Narrow Liability Corporate Income Consist of?

What is the Legal Headquarters and Business Centre for Companies?

How does a limited liability company established in Turkey file a declaration?

VAT Liability of Limited Liability Company Established in Turkey

Tax liabilities arising from the Double Taxation Avoidance Agreement between Germany and Turkey in the event that a limited liability company established in Turkey distributes its profits to its German resident partner as dividends

Legislative Infrastructure

How will the taxation be done?

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