When foreign companies consider expanding their operations into new markets, the option of establishing a Branch Office in Turkey emerges as a significant consideration. This strategy offers several advantages and considerations, shaping the decision-making process for businesses exploring this avenue.
A branch office functions as an independent unit, allowed to carry out its business activities. It has its own management, accounting, and financial records. Interestingly, branches can choose to keep records with the parent company.
Step-by-Step Guide to Opening a Branch in Turkey for Foreign Companies
It is mandatory to register and declare branches in the commercial register where they are located, just like companies. This step ensures transparency and legal operation. Plus, branches need a unique trade name, making them easily identifiable.
In cases arising from the transactions made by the branch, a lawsuit can be filed at the location of the branch, and the branches have the authority to represent themselves in this case as plaintiff and defendant. But in terms of bankruptcy cases, branches do not have a capacity to sue. The bankruptcy case must be filed against the main office and at the place where the head office is located.
The initial step involves applying online through MERSIS, a user-friendly platform. This digital process sets the foundation for your branch. Remember, the registration process is similar to what companies follow, emphasizing compliance.A foreign company that wants to open a branch in Turkey must obtain permission from the Ministry of Industry and Technology.
The first branch to be opened must be registered as a main branch, branches that will be opened after the registration of the first branch are registered as branches of domestic commercial enterprises.Additionally, for tax offices to carry out branch opening procedures, the branch must be registered in the trade registry.
Advantages of Establishing a Branch Office in Turkey
1. Immediate Market Presence
One of the most compelling advantages of setting up a Branch Office in Turkey is the immediate market presence it offers. This streamlined entry allows foreign companies to tap into the Turkish market without creating an entirely separate legal entity. This can significantly expedite the process of reaching out to potential customers and partners.
2. Integration with Global Operations
A Branch Office becomes a seamless extension of the foreign company’s global network. This integration ensures that the operations and activities of the Branch align with the parent company’s overarching strategies. This synergy can result in smoother operations and more consistent customer experiences.
3. Conduct Commercial Activities
The Branch Office is authorized to carry out commercial activities on behalf of the parent company. This facilitates business expansion and allows companies to explore various opportunities in the Turkish market without the need for intricate legal processes.
4. Streamlined Registration Process
Establishing a Branch Office in Turkey involves a relatively simplified registration process compared to creating a separate legal entity. This can save time and resources, making it an attractive option for companies looking for a quicker market entry.
Disadvantages of Establishing a Branch Office in Turkey
1. Liability Considerations
Perhaps one of the most significant disadvantages of a Branch Office is that the parent company assumes full liability for the activities and obligations of the Branch. This financial risk can be substantial and is an important factor for foreign companies to evaluate.
2. Limited Autonomy
Branch Offices operate under the control and policies of the parent company. This limitation can impact the autonomy of the Branch in decision-making processes and overall flexibility in operations.
3. Administrative and Reporting Burdens
A Branch Office has the responsibility to comply with both the regulations of its home country and the specific laws of Turkey. This dual compliance can result in higher administrative and reporting burdens, which might require additional resources.
4. Tax Implications
Branches of foreign companies have limited tax liability in Turkey based on the income derived within the country. The business income generated by the Turkish Branch is subject to corporate income tax. Furthermore, profits transferred after deducting corporate income tax may also be subject to withholding tax.
Conclusion
Deciding whether to establish a Branch Office in Turkey involves a careful evaluation of its advantages and disadvantages. While it provides immediate market presence and integration with global operations, the liabilities, limited autonomy, administrative burdens, and tax considerations need to be weighed against the potential benefits. Foreign companies must conduct a thorough assessment aligned with their business objectives and risk tolerance to make a well-informed decision regarding branching into the Turkish market.
