Turkey has been passing laws that encourage foreign investments more and more every year. In 2003, Turkey introduced the Law on Foreigners’ Work Permits, regulating work permits in a more accessible way for foreigners. In 2016, this law was replaced by the International Labor Law, which regulated foreigners’ work permits in compliance with the European Union standards.In 2003, Turkey introduced the Direct Foreign Investments Law, thereby adopting a completely liberal approach to foreign investors and immigration. Foreigners may now be investors and shareholders in companies incorporated in Turkey just as easily as Turkish citizens. Direct Foreign Investments Lawspecifically emphasizes the equality between Turkish and foreign investors.
II) ESTABLISHING COMPANIES
There are two most common types of companies in Turkish Law. Limited liability companies are incorporated with 10,000 minimum capital which is payable within 24 months from the incorporation. Limited liability companies are preferred by individual business owners who would like to limit their liability and stabilize their tax rates. On the other hand joint-stock companies are incorporated with 50,000 minimum capital, 25% of which must be paid prior to the incorporation. Joint-stock companies are a better option for growing companies with more employees and larger growth.
III) BASIC COSTS AND TAX RATES
The base costs of running a limited liability company are annual taxes for relevant tax declarations which are insignificantly low for non-operational companies. However the company, same as all taxpayers in Turkey, must hire a certified public accountant to draft and file the tax declarations on the company’s behalf.
The company must also declare an address as head office, and there must actually be an office present at the declared address. However, in order to decrease the costs, start-up companies usually subscribe to shared office areas, also known as virtual offices, which are recognized by the tax offices as company headquarters.
As the company becomes operational and starts issuing invoices, there will usually be 18% value added tax charged by the issuer of the invoice to its recipients. Furthermore, the recipient of the invoice is also charged 20% withholding tax, which is income tax paid by the recipient on behalf of the issuer of the invoice. This withholding tax is deducted from the invoice amount and later paid by the recipient to the tax office. Finally, the income tax for companies is fixed at 22% on the profits.