Setting Up a Company in Turkey

Establishing a business in Turkey can be rewarding for foreign investors. Here’s a comprehensive guide to help you navigate the company types, associated costs, procedural steps, timelines, and tax obligations in Turkey.

Setting Up a Company in Turkey

Company Types Available to Foreigners:

• Limited Liability Company (LLC): Suitable for SMEs, allowing 1-50 shareholders and 100% foreign ownership. Minimum capital requirement: 50,000 TRY.
• Joint Stock Company (JSC): Ideal for larger businesses, Requires at least one shareholder; 100% foreign ownership is allowed. With a minimum capital of 250,000 TRY.
• Branch Office: Enables foreign company operations without a separate legal entity; No specific capital requirement, but the parent company must allocate sufficient funds for Turkish operations.
• Liaison Office: Allows foreign companies to conduct market research and feasibility studies without engaging in any commercial activities. It is fully owned by the parent company and does not require any capital investment, as it is restricted from participating in revenue-generating operations.

Associated Costs:

• Registration Fees: Between 8,500 to 15,000 TRY. Varying by company type and region.
• Notary and Translation Fees: Estimated 1,500 to 2,500 TRY.
• Legal and Consultancy Fees: Vary based on service providers; advisable to consult local experts.
• Bank Deposit: Required by some banks.

Procedural Steps:

1. Name Verification: Verify the uniqueness of the proposed company name through the Central Trade Registry System (MERSIS).
2. Articles of Association: Draft and notarize the company's Articles of Association.
3. Obtain Tax IDs: Acquire tax IDs for the company and shareholders from the local tax office.
4. Capital Deposit: For LLCs, deposit at least 25% of the capital before registration; the remainder within two years. For JSCs, 25% must be deposited before registration.
5. Registry and Notarization: Submit necessary documents to the local Trade Registry Office. Notarize required company books, such as the journal and ledger.
6. Tax Office Registration:: Register with the local tax office and obtain a tax certificate.
7. Social Security Registration: Register employees with the Social Security Institution

Timelines: Limited Liability Company (LLC): 1-2 weeks; Joint Stock Company (JSC): 2-3 weeks; Branch Office: 2-4 weeks; Liaison Office: 2-3 weeks.

Tax Obligations:

Corporate Income Tax:
Standard rate of 25% on net profits.

Value Added Tax (VAT):
Standard rate of 18%, with reduced rates of 1% and 8% for specific goods and services.

Withholding Tax:
Rates vary; for example, dividends paid to non-residents are subject to a 15% withholding tax.

Social Security Contributions:
Employers contribute approximately 22.5% of an employee's gross salary.

Setting Up a Company in Northern Cyprus

Establishing a business in the Turkish Republic of Northern Cyprus (TRNC) can be rewarding for foreign investors. Here’s a comprehensive guide to help you navigate the company types, associated costs, procedural steps, timelines, and tax obligations in Northern Cyprus.

Setting Up a Company in Northern Cyprus

Company Types Available to Foreigners:

• Local Limited Company (LTD): Allows local and foreign investors; foreigners can hold up to 100% ownership, except in restricted sectors like real estate, which requires a 51% local partner. Minimum capital requirement: €25,000.
• Foreign Company Branch: Full ownership by the parent company; no specific capital requirement, but a bank guarantee may be needed.
• Free Trade Zone (FTZ) Company: Operates within free trade zones with tax exemptions, foreigners can own up to 100% of the shares. Minimum capital requirement: €50,000.
• International Business Company (IBC): Exclusively for activities outside TRNC, requiring non-resident ownership. Minimum capital requirement: €20,000.

Associated Costs:

• Registration Fees: Around €5,000 for Free Trade Zone (FTZ) companies.
• Bank Guarantee: Approximately 140,000 TL for Local Limited Company (LTD – based on British LTD regulation) subject to change is required.
• Professional Fees: Monthly fees range from 50 to 250 GBP for legal and accounting services, depending on the company and work load.

Procedural Steps:

1. Name Reservation: Submit proposed names for approval.
2. Preparation of Memorandum and Articles of Association: Draft and notarize Memorandum and Articles of Association.
3. Submission of Incorporation Documents: Provide necessary forms (e.g., MŞ1, MŞ2, MŞ3) detailing company structure and operations.
4. Capital Deposit: Deposit required capital in a TRNC bank account.
5. Obtain Necessary Certificates: Secure Tax Security Certificates and other relevant documents.
6. Completion of Registration: Obtain official Certificate of Incorporation.

Timelines: Local Limited Company (LTD) and Foreign Company Branch: 4-6 weeks; Free Trade Zone (FTZ) Company and International Business Company (IBC): 3-4 weeks.

Tax Obligations:

Corporate Tax:
Standard rate of 10% on net profits. Free Trade Zone companies operating entirely outside the Turkish Republic of Northern Cyprus (TRNC) are exempt from corporate tax.

Income Tax:
An additional 15% on profits after corporate tax, making the total tax burden 23.5%.

Value Added Tax (VAT):
Standard rate of 16%. Free Trade Zone and International Business Company companies are generally exempt from VAT.

Other Taxes:
Withholding tax on dividends and interest may apply, depending on specific circumstances.

New Real Estate Law for Foreigners in Northern Cyprus

Overview of Changes

On May 21, 2024, the real estate law in Northern Cyprus underwent significant amendments, particularly affecting foreign buyers. These modifications aim to close existing legal gaps, promote transparency, protect buyers from unlawful actions, and ensure tax compliance across the market.

Key Highlights of the Law

• Foreigners (from countries like Germany, the USA, the UK, Russia, etc.) can now purchase one property: a house, an apartment, or land (up to 1,338 m²). They are also allowed to co-own property with up to three individuals.
• Citizens from countries recognizing Northern Cyprus (currently only Turkey) are allowed to purchase up to three apartments.
• Foreigners cannot acquire agricultural or forestry land or properties with shared titles.
• In any project, 80% of units can be sold to foreigners, with restrictions on how many can be sold to citizens of the same country.
• For investment, foreigners can buy properties in sectors like healthcare and tourism but must invest €20 million in a local bank and retain the investment for at least five years (please make an appointment with us for investment consultation below this threshold).
• Developers are required to obtain a "kat irtifak koçan" (preliminary building division certificate) during the construction stage, providing extra protection for foreign buyers.

Taxation and Fees

All taxes and fees must be settled within 60 days after the permit is issued. Foreign buyers must pay 6% for registration, 0.5% stamp duty, and 6% for the title transfer, in addition to VAT and transformer fee for first-time buyers.

Legal Compliance and Penalties

If foreign buyers fail to comply with the law, they may face fines starting from a minimum of 500 times the minimum wage. Attorney trust agreements made after May 21, 2024, will be invalid unless registered within 75 working days.

Clarifications for Buyers

For those who already purchased real estate before May 2024, the law provides a six-month window to register existing contracts. Foreigners with more than one property must notify the Council of Ministers and pay 1% tax of the sales price; otherwise, the fine increases to 3% after the six months.

Important: If a buyer fails to transfer the title within six months of obtaining permission, the permit will be canceled, and reapplication will double the fee.

Final Thoughts

The recent amendments aim to create a more structured and transparent real estate market in Northern Cyprus. Taxes have not increased, but foreign buyers must now adhere to stricter regulations, particularly around ownership rights and permissions. Ensuring legal compliance protects both the buyer and the seller, making the process smoother for all involved.

For more detailed advice or assistance, it is recommended to consult a professional real estate agency or legal professionals familiar with Northern Cyprus real estate law.

Expert Assessment of Real Estate in Turkey is no Longer Mandatory for all Buyers

Expert assessment are in many cases no longer required when foreigners buy poperty in Turkey. But there are exceptions. Changes have been made to Turkish legislation on the document flow procedure for the purchase and sale of real estate by foreign citizens.

In the past, all foreign buyers were required to obtain an expert property assessment when completing a purchase and sale transaction. However, this requirement is now mandatory only for foreigners purchasing real estate to apply for Turkish citizenship (Turkish Citizenship FAQ, Turkish Citizenship Guide). The expert assessment must be submitted to the Land Registry and Cadastre Office of Turkey before the transaction takes place. For more information on how to acquire Turkish citizenship through property investment, please refer to our detailed article: Turkish Citizenship by Property Investment.

Note: The General Directorate (Department of Foreign Affairs) reserves the right to request a property valuation report if it deems it necessary.