Can Foreigners Establish A Company In Turkey?

Is There Any Difference Between Foreigners and Turkish Citizens with Establishing Company in Turkey?

The answer is “No”. According to “Foreign Direct Investment Law” numbered 4875 in Turkey, in line with the principle of equal treatment, foreign investors have the same rights as the local investors. This law stipulates that foreign investors may establish all types of companies stipulated in the Turkish Commercial Code, same as the Turkish investors.

1.    Preparation Process for Foreign Natural Persons to Establish Stock Corporations

Turkish Commercial Code does not differentiate between foreign natural persons and Turkish investors in terms of company establishment and conditions regarding the transfer of shares. The process required for a natural person who is not a Turkish citizen to establish a stock corporation can be examined in two sections under Trade Registry operations and Tax Office transactions.

2.    Points to Consider Before Establishment

Regardless of the type of company to be established, before starting the establishment process, first the title of the company, the scope of the subject of activity, who will be the manager or representative, the company address, the capital and the shares as well as the board of directors should be determined. In addition, before the establishment procedures, appointing a lawyer who has professional expertise on the subject will provide great convenience in terms of transaction security and for speeding up the process. After settling the above-mentioned matters, a document proving the parents name and residence information of the foreign natural person who is establishing the company should be provided along with a notarized passport translation and a document showing the partnership structure of the company and a list of the documents to be requested from the foreign countries should be prepared accordingly.

TRADE REGISTRY PROCEDURES

a.    Establishment Operations

In order to establish a stock corporation in Turkey, first, an application through MERSİS – the central registration system of the Ministry of Commerce – must be made. In this context, foreign natural persons must register to MERSIS prior to starting the establishment procedures on the system and obtain a MERSIS numbers. In order to complete these operations, the translated copy of the natural person’s notary-certified passport and the potential tax number should be scanned and sent via e-mail to the e-mail address of the relevant Chamber of Commerce (for Istanbul: [email protected]).

b.    Post-Establishment Transactions

After the application of establishment of the company and the approval of the said application, the establishment and the articles of association of the company are registered and announced in the Trade Registry Gazette. Next, a circular of signature approved by the notary public to provide the company’s board of directors with the power of representing the company and if there is a company lawyer, a general power of attorney for the lawyer must be issued.

TAX OFFICE TRANSACTIONS

After the company is registered to the Chamber of Commerce, a certificate of approval obtained from the Chamber of Commerce must be certified by the notary public. The person to apply to the notary must be the Chairman of the Board of Directors authorized to carry out the transactions of the company and, if there are any, the other members of the Board of Directors. After these procedures are finalized, the Tax Office to which the company is attached will send a government officer to the address specified in the company’s articles of association in order to verify the existence of the company. The documents to be checked by this officer must include: if the proxy is present during the inspection, their power of attorney and the “Trade Registry Certification” issued by the Chamber of Commerce indicating the establishment of the company. Following this inspection made by the Tax Office, the legal existence of the company is accomplished.

ADVANTAGES OF THE JOINT STOCK COMPANY

With the enforcement of the new Turkish Commercial Code, establishing a joint stock company has become advantageous. Indeed, the fact that the Turkish Commercial Code provides convenience for converting limited liability companies into joint stock companies shows that the legislative authority has desired to increase the activity of the joint stock companies in commercial life. Taking into consideration that approximately 85% of the companies in Turkey are limited liability companies, the new Turkish Commercial Code demonstrates that the legislative authority’s inclination to ensure institutionalization and to enable growth via joint stock companies. It is possible to list the most important properties and advantages of the joint stock companies as follows:
  1. Joint stock companies can be established with one person.
  2. Members of the Board of Directors can be recruited from outside.
  3. It is possible for the company to go public.
  4. Joint stock companies are more prestigious in terms of organization and corporate identity.

Can I Convert My Limited Liability Company to a Joint Stock Company?

As mentioned above, the law offers great conveniences for converting the limited liability companies into joint stock companies. As important transfer rules, there is no obligation for joint stock companies to perform share transfer transactions via notary public and they are also not subject to stamp duty or fees. Owing to the advantageous procedures provided to joint stock companies, especially in terms of Tax Laws, it is also recommended by experts that other owners of stock corporations, such as limited liability companies, convert their companies into joint stock companies.

What are the Benefits of Joint Stock Companies in Terms of Public Opinion and Prestige?

Corporate image carries great significance in terms of achieving the expected goals in commercial activities and the first impression in the corporate field is of great importance. The fact that a first impression cannot be recreated makes it imperative to take every decision with great care. The companies that approach their customers with a solid infrastructure and corporate identity will always be advantageous and will be one step ahead of their competitors. Company name and identity are extremely important details in terms of corporate message. In this context, there are many incentives in the Turkish Commercial Code for the establishment of a joint stock company that meets all these requirements or for the conversion of other types of companies into joint stock companies. For business persons who prefer their company to have a corporate identity, to be more organized, to have a high reputation and to be prestigious, it would be more advantageous for them and their company if the company is established as a joint stock company or continued its activities as a joint stock company.          

 Advantages of Joint Stock Companies compared to Limited Liability Companies

            Joint Stock Company Limited Liability Company
Minimum Capital It is established with a minimum capital of 50,000 TL It is established with a minimum capital of 10,000 TL.
Number of Partners It can be established with one person. There is no limit on the number of partners. It can be established with one person. The number of partners cannot exceed 50.
Nominal Value of The Share The nominal value of each share is at least 1 kuruş. The nominal value of each share is at least 25 TL.
Registered Capital It is possible to switch to this system at the company establishment or later. The registered capital system is not applicable.
Going Public It is possible to make the company public. It is not possible to make the company public.
Bond Issuance Can issue bonds Cannot issue bonds
Management Right and Representation Authority It is not mandatory for the company partners to be on the board of directors. At least one partner must be a manager.
Attendance of the Ministry Representative to the General Assembly Meetings The attendance of the ministry representative to the general assembly meetings is obligatory in case of decision on the following matters:   – At all general assembly meetings of companies whose establishment and articles of association amendments are subject to the permission of the Ministry,   In other companies, – increasing or decreasing the capital, – transition to the registered capital system and exit from the registered capital system, increasing the registered capital ceiling – amendment of the articles of association regarding the change of the subject of activity – merger, division or change of species Ministry representative do not attend the general assembly meetings.
Issuance of Shares It is mandatory to print share certificates (Provisional certificates may be issued until the printing of shares). Registered share certificates may only be issued only for the purpose of proving the partnership. They do not provide for tax advantages as in joint stock companies.
Transfer of Shares – Bearer share certificates, only by delivery (with the transfer of possession); – Registered share certificates or provisional share certificates are transferred by endorsement and delivery. There are no obligations of transfer before notary public, approval of the general assembly and registration in the trade registry. It is obligatory that the share transfer is completed via a notarized transfer agreement, that the general assembly approved the transfer and that the transfer is registered to the trade registry.
Taxation in Share Transfer for Natural Persons Earnings arising from the sale of shares held for more than two years after this period are not subject to income tax. In addition, the cost value in the sale of shares is determined by increasing the rate of increase in the wholesale price index. In order to make this indexing, the rate of increase must be 10% or more. Regardless of the time limit, the income from the share transfer is subject to income tax in any case. In addition, the cost value in the sale of shares is determined by increasing the rate of increase in the wholesale price index. In order to make this indexing, the rate of increase must be 10% or more.
Taxation in Share Transfer for Legal Entities VAT does not arise in the share transfer, provided that there is a provisional certificate or a share certificate. 75% of the profit to be obtained in the sale of the shares held for at least two years will be exempted and 25% will be taxed. VAT is not levied on the sale of shares held for at least two years.   75% of the profit to be obtained in the sale of the shares held for at least two years will be exempted and 25% will be taxed.
Responsibility for Public Debt The shareholders of the company are not liable for the public debts that cannot be collected from the company. However, if the shareholder is also on the board of directors, he has unlimited responsibility.   Legal representatives (if the authority of representation has not been given to third parties as a managing member or manager, the board of directors; if the authority of representation has been given to third parties, these persons) are responsible for all the public debts with their public assets.   The shareholder who is not a member of the board of directors is not liable for tax and social security premiums (4 / a) that cannot be collected from the company. For this, the entire capital must have been paid. The chairman of the board of directors can be appointed externally, there is no obligation for the chairman to be a shareholder. In this way, this is a possibility to be not held personally liable which is especially important in tax offenses that require smuggling penalties. The shareholders are held liable for the public receivables that cannot be collected from the company in proportion to their capital share contributions.   Legal representatives (shareholder / shareholders or third parties who act as managers) are liable with their personal assets. Shareholders are responsible for the company’s tax and social security (4 / a) premium debts that cannot be collected from the company and the manager with all of their personal assets. Company shareholders are responsible not only with the amount of capital they contributed, but also for the rate of capital. For example, if the company’s capital is 10 thousand but its tax debt is 100; the responsibility of the shareholder with 50% of the shares is 50 thousand. If this is a shareholder manager, he is responsible for the entire debt.
Meeting and Resolution Quorum in Articles of Association Amendments Where shareholders holding half of the company capital are present at the meeting, majority of votes is required for a resolution. Decision of the shareholders representing two thirds of the company is required.
Bookkeeping Mandatory ledgers: journal, general ledger, inventory, company stock ledger, general assembly meeting and negotiation book, board of directors resolution ledger. Mandatory ledgers: journal, general ledger, inventory, company stock ledger, general assembly meeting and negotiation ledger. The decisions of the Board of Directors / Managers can be recorded in the general assembly meeting and negotiation ledger, or in a separate ledger of board of directors.
 

Advantages of Joint Stock Companies in Terms of Income Tax

In limited liability companies, besides the aforementioned stamp duty and fees, the transferor may be required to pay “income tax.” According to the repeating article 80/4 of the Income Tax Law, the transfer of limited liability company shares, regardless of their transfer within 3 years or 10 years, are subject to income tax as “capital gains. The 8,800 Turkish Liras of the income is exempt from the income tax and the exceeding part is subject to an income tax between 15% and 35%.

 Advantages in Converting Limited Liability Companies into Joint Stock Companies

In case of the conversion of a limited liability company into a joint stock company;
  1. Since the transfer of shares will be a “transfer of shares” of the joint stock company, the transfer is not subject to stamp duty and fees.
  2. The transfer is not required to be made before a notary public.
  3. In terms of income tax, if the limited liability company is converted into a joint stock company and a “share certificate” or a “provisional certificate” is printed immediately afterwards, the acquisition date of the share certificate or the provisional certificate is accepted as the “date of establishment of the limited liability company.” In addition, there is no income tax two years after the acquisition date.
Accordingly, the most sensible way in terms of transfer is not by transferring the shares of the limited liability company directly, but by converting the company into a joint stock company and issuing share certificates or provisional share certificates which will provide exemption from stamp duty, fee and income tax.