Company Formation in Turkey: Legal Processes, Requirements, and Advantages for Foreign Investors

Turkey, with its strategic geographic location, strong domestic market, and dynamic economy, offers an attractive business environment for foreign investors. Our country accommodates capital investments from various regions of the world and creates suitable opportunities, particularly in sectors such as industry, technology, construction, and tourism. Foreign investors can benefit from these opportunities by establishing a company in accordance with Turkish law. However, the company formation process is subject to certain legal procedures, and these processes must be managed carefully.

This article will provide a detailed discussion on the company formation process in Turkey, legal requirements, advantages provided to foreign investors, and the legal processes that may be encountered.

1. Company Formation Process in Turkey

The company formation process in Turkey is based on the Turkish Commercial Code (TCC) and other relevant legislation. The procedures to be followed during the establishment of a company generally consist of the following steps:

1.1 Selection of Company Type

The first step in establishing a company is to decide which type of company to choose. The main company types commonly preferred in Turkey are as follows:

• Joint Stock Company (A.Ş.): This structure is suitable for companies with large capital and a partnership structure. Joint stock companies can issue shares, and there may be anonymity in the partnership structure. The minimum capital requirement is 50,000 TL.

• Limited Liability Company (L.T.D.): This structure is more suitable for small and medium-sized businesses. The number of partners cannot exceed 50, and the minimum capital requirement is 10,000 TL. Limited liability companies require less bureaucracy compared to joint stock companies.

• Sole Proprietorship: This type of company can be established by a single person and is typically preferred by small-scale businesses.

The choice of company type may vary depending on the company's business activities, investment amount, and labor requirements.

1.2 Preparation of the Company’s Articles of Association

After deciding on the company type, the company’s articles of association are prepared. The articles of association are an important document that includes the company’s management structure, partnership rights, areas of activity, capital structure, and other fundamental regulations.

For foreign investors, this step can become even more critical, as the company’s activities must comply with both Turkish law and the laws of the investor’s home country. The articles of association must be notarized and registered with the trade registry.

1.3 Tax Office Registration and Tax Number

After the company is established, an application is made to the relevant tax office to start the tax liability. A tax number is obtained, and the company's commercial activities officially begin. This step ensures that the company's commercial activities are auditable and regulates its legal relationship with the state.

1.4 Trade Registry Registration

In Turkey, all companies must be registered with the trade registry. The trade registry registration is an official procedure that indicates the company has gained legal personality and can operate legally. In order to complete the trade registry registration, some additional documents, along with the company's articles of association, must be submitted.

1.5 Municipalities and Licenses

Once the company is established, it is required to obtain the necessary permits from the municipalities based on the sector in which it will operate. For example, a company operating in the construction sector must obtain a construction license, while a company in the health sector must obtain a health license.

2. Company Formation in Turkey for Foreign Investors

Foreign investors have the right to establish a company in Turkey under the same conditions as Turkish citizens. However, there may be additional requirements and documents to be provided:

2.1 Appointment of a Foreign Representative

Foreign investors must appoint a representative in Turkey when establishing a company. This representative will carry out the necessary procedures for the establishment of the company and fulfill the local legal requirements in Turkey. The foreign investor may not reside in Turkey, but a Turkish citizen or a resident foreigner can act as the company’s representative.

2.2 Work Permits and Social Security Registration

If the company employs foreign staff, work permits must be obtained. Additionally, the company must register with the Social Security Institution (SGK) to ensure the employees' insurance processes are completed. These steps guarantee the legal rights of employees and create the necessary legal infrastructure for the company to continue its operations.

3. Tax Obligations in Turkey

Companies established in Turkey are subject to various taxes, which may vary depending on the type of company and the business activities. The main taxes are as follows:

• Corporate Tax: All companies operating in Turkey are required to pay corporate tax at a rate of 20% on their profits. However, this rate may be lower in certain sectors.

• Value Added Tax (VAT): VAT is applied at rates of 1%, 8%, or 18% on goods and services sold in Turkey. Companies must pay attention to the VAT declaration process.

• Income Tax: Company owners are required to pay personal income tax on the income they earn from the company.

3.1 Tax Incentives for Foreign Investors

Turkey offers various tax advantages to encourage foreign investments. These incentives create attractive opportunities, especially for companies in R&D, technology development, and export sectors. These incentives include VAT exemptions, customs duty exceptions, and R&D incentives.

4. Foreign Companies Acquiring Real Estate in Turkey

Foreign companies have the right to acquire real estate in Turkey. However, this right is regulated with certain restrictions. For foreign companies to purchase real estate:

• Capital Structure: More than 50% of the company’s capital must be owned by foreign shareholders.

• Legal Permissions: The acquisition of real estate by foreign companies can only be carried out with approval from local governorships and other relevant authorities.

  
  

5. Advantages for Foreign Investors

Turkey offers many advantages to foreign investors. These advantages include:

• Tax Exemptions and Exceptions: Foreign investors are provided with tax exemptions and exceptions for companies operating in certain sectors. Significant tax incentives are available, particularly in R&D, technology development, industry, and energy sectors.

• Free Zones: Foreign companies operating in Turkey’s free zones can benefit from tax advantages and may have lower labor costs.

• Export Support: Foreign companies can benefit from government support and incentives by exporting from Turkey.

  
  

Conclusion

Turkey offers a highly advantageous business environment for foreign investors. When managed properly, the company formation process can create great opportunities in both local and international markets. However, obtaining legal consultancy at each stage of this process is an important step to prevent potential issues. By fulfilling Turkey’s legal requirements, foreign investors can establish their companies on a legal basis and take advantage of international trade opportunities.