A representative office can be defined as “Offices established by non-resident individuals and legal entities with social, cultural or economical purposes such as communication, entertainment, providing contacts, conducting market research at the country of investment, close follow up of business opportunities at the country of investment and offering information to the main company.”
Upon foreign investments legislation, the representative office’s conducting business activities is forbidden, therefore the economical structure of such offices has to be closely observed. Being banned of business activities, these offices should not have tax liabilities regarding corporate tax and value added tax, where they’re located.
II- NATURE OF THE REPRESENTATIVE OFFICES WHICH ARE ESTABLISHED UPON DIRECT FOREIGN INVESTMENTS ACT NR. 4875
According to the Article 3/h of the Law on Foreign Direct Investments #4875, the General Directorate of Foreign Investments (GDFI, Yabancı Sermaye Genel Müdürlüğü) is entitled to give permission to companies which are founded upon foreign legislation for establishing representative offices in Turkey, provided that they do not carry out commercial activities in Turkey.
For establishing a representative office in Turkey, the following conditions should be present:
1- The legal entities who wish to establish a representative office in Turkey should be founded upon foreign legislation and the founded legal entity should be a corporate entity.
2- The representative office to be established in Turkey should not conduct commercial activities in Turkey.
The procedure to be followed for establishing a representative office in Turkey
GDFI is entitled to give permission as well as extending the duration of this permission, to companies founded upon foreign legislation for establishing representative offices in Turkey, provided that they do not carry out commercial activities in Turkey.
The requests of foreign companies for opening representative offices for fields such as capital markets, insurance trade are assessed by organizations and institutions which are authorized upon specific legislation.
Necessary documents for application
With the following documents, to the GDFI is applied for establishing a representative office in Turkey:
The original commercial activity certificate belonging to the main company and certified by the Turkish Consulate or apostilled according to the provisions of Convention Abolishing the Requirement of Legalization for Foreign Public Documents,
The activity report or balance sheet or income table prepared for the main company (of the previous year),
The original certificate of authority given to the person entitled to act on behalf of the representative office,
In case the establishment procedure is carried out through the mediation of another person, the original power of attorney.
The public notary certified translations of these documents should be presented during application. Besides, a detailed petition containing the presentation of the company demanding to establish a representative office in Turkey and the planned future activities for the representative office should also be produced.
The competent office to be applied to for the permission of establishing a representative office is the GDFI, Undersecretariat of Treasury. When the necessary documents are presented and the required forms are filled out, the permission is given within 5 business days.
A copy of the registration certificate to the Tax Department for the representative offices who has the establishment permission is sent to the GDFI within a month. In case of an address change, the new address shall be informed to the GDFI within a month.
A maximum activity permission of 3 years is given to the representative offices. For the duration extension requests, the past activities, future plans and targets of the representative office are taken into consideration and a maximum duration of 3 yearly extension is granted each time.
The representative offices should inform GDFI about their annual activities as soon as the month of May. For this purpose, “Information Form About Activities of Representative Offices” is used and the documents proving that expenses of the office were allowed with the foreign currency brought into country from abroad.
In case a representative office quits its activities, for the closing transaction, the cease-work – inspection record obtained from the relevant tax department is sent to the GDFI. The offices are not entitled to any transfer claims except for the remainder amount which is a result of liquidation.
All expenses of the representative offices are allowed with the foreign currency which is brought into Turkey from abroad. The representative offices cannot carry out any commercial activities in any case and cannot have activities in other fields, which is outside the terms of given permission. Moreover, these offices cannot claim transfers for profit and similar earnings, other than close-out and liquidation.
III- SOME ISSUES WHICH WORTH MENTIONING
The following procedures should be complied:
A- Registration to the tax department
After the permission is obtained from GDFI, an identity number should be obtained from the tax department and a tax liability of income tax (witholding tax) for the representative office should be created. After the “Registration Form for Legal Entities” is filled out at the tax department, its copy should be sent to the GDFI within a month. If the representative office rents its office place in Turkey, the rent contract should be sent to the GDFI, too.
In case of address changes, GDFI and the tax department should be informed about the new addresse within a month.
B- Sending the “Information Form About Activities” by the representative offices
Every year, till the end of May, an “Information Form About the Activities of Representative Offices” which is attached to the relevant by-law (Appendix 4) is filled out and sent to the Undersecretariat. To these forms, the documents proving that the expenses of the past year were allowed by the foreign currency, sent from abroad.
C- Expenses of the representative offices
It should be once again reminded that, all types of expenses of the representative offices established in Turkey should be allowed by the foreign currency, sent from abroad.
D- Profit transfer
The representative offices in Turkey cannot have any income gearing activities, therefore they cannot claim any profit transfers.
E- Necessary proceedings after the expiry of 3 years permission given by GDFI
A maximum of 3 yearly permission is offered to the representative offices and at the end of this period, this permission can be extended. Besides, the representative offices can be converted into companies as well as branches, at the end of the permission period.