Direct distribution

Ownership structures

May a foreign supplier establish its own entity to import and distribute its products in your jurisdiction?

Yes, a foreign supplier may establish its own entity with no greater restriction than a Turkish national in accordance with article 3 of Foreign Direct Investment Law No. 4875 , and will be subject to Turkish Commercial Code (TCC) No. 6102, as are Turkish nationals.

May a foreign supplier be a partial owner with a local company of the importer of its products?

Yes, there is no specific restriction with regard to foreign suppliers in this respect.

What types of business entities are best suited for an importer owned by a foreign supplier? How are they formed? What laws govern them?

In practice, the best suited type of business entities for foreign suppliers would be in the form of a joint stock company or a limited liability company. These companies are preferable, as the liability of the shareholders of these companies is limited to the capital that is committed to the company.

A joint stock company and a limited liability company can be established by at least one or more shareholders who can be real persons or legal persons. These two types of companies are different with regard to the minimum required amount of capital. The capital of joint stock companies shall not be less than 50,000 Turkish liras. For limited liability companies, the capital of the company shall not be less than 10,000 Turkish liras.

To establish a joint stock company or a limited liability company, articles of association shall be filed with the Central Registry Record System (MERSIS) and be signed by the founders, or via power of attorney, with the Trade Registry Office’s authorised personnel. In addition to the articles of association, other company documents that are required for the establishment shall be submitted to the relevant Trade Registry Office. The capital shall be paid in accordance with the provisions of the TCC. For the joint stock companies, one-quarter of the subscribed share capital must be paid in cash prior to the registration of the company and the remaining part must be paid within 24 months following the registration of the company. Alternatively, the capital may be fully paid prior to the registration. However, the requirement to pay one-quarter of the capital before the registration of the company is not applicable to limited liability companies. Thus, subscribed capital for limited liability companies must be paid within 24 months following the registration of the company. When all of the required documents are duly submitted, the establishment of the company shall be registered with the relevant Trade Registry and, finally, the establishment shall be announced in the Trade Registry Gazette. Additionally, pursuant to article 64 of the TCC, during the registration of the joint stock companies and limited liability companies, opening approval of the company books shall be processed through the directorates of the Trade Registry.

Restrictions

Does your jurisdiction restrict foreign businesses from operating in the jurisdiction, or limit foreign investment in or ownership of domestic business entities?

Unless otherwise stated in international agreements or special laws, foreign investors are free to invest in Turkey and be subject to the national treatment principle. In other words, they have equal rights and obligations as have national investors. Law No. 4875 does not stipulate any restriction with regard to the branches of industry in which foreign businesses may operate.

Equity interests

May the foreign supplier own an equity interest in the local entity that distributes its products?

Yes, as explained in question 4, foreign suppliers have equal rights and obligations with regard to national suppliers, according to Law No. 4875.

Tax considerations

What are the tax considerations for foreign suppliers and for the formation of an importer owned by a foreign supplier? What taxes are applicable to foreign businesses and individuals that operate in your jurisdiction or own interests in local businesses?

The Turkish direct taxation system is comprised of two main taxes, those being personal income tax and corporate income tax. An individual is subject to personal income tax on his or her income and earnings in line with the provisions of Income Tax Code No. 193 (ITC). Corporations are subject to corporate income tax as per provisions of Corporate Tax Code No. 5520 (CTC).

Taxation of corporations: Resident companies with unlimited tax liability would be taxed on their worldwide income in Turkey. Non-resident companies with limited tax liability are subject to tax only on Turkish-sourced income. The former standard corporate tax rate of 20 per cent is increased to 22 per cent for the fiscal periods of 2018, 2019 and 2020. Additionally, withholding tax is applied on dividends, interests, royalties and technical services fees. The withholding tax rate varies depending on the type of the payment and the provisions of the relevant double tax treaty.

Taxation of individuals: Resident individuals are taxed on worldwide income; non-residents are taxed only on Turkish-source income. Taxable income is comprised of employment income, business income, income from agricultural activities, professional income, income derived from shares, income from immovable property and other income (capital gains and non-recurring income). Individual income tax rates apply on a progressive basis, ranging from 15 per cent to 35 per cent.

Stamp tax is also another tax burden in Turkey. In accordance with the Stamp Tax Code No.488 (STC), any legal documents (papers) signed in Turkey, or signed abroad where the beneficial interest of the parties lies in Turkey, will be subject to stamp duty, unless there is an applicable exemption. In principle, stamp tax is levied as a percentage of the value stated on the agreements at rates varying between 0.189 and 0.948 per cent (unless a specific rate is determined, the general rate for commercial agreements is 0.948 per cent). The STC also provides for a cap on the amount of stamp duty payable, which is adjusted on a yearly basis. For Fiscal Year 2018, the stamp duty cap is 2.135.949,30 lira.

Apart from the above-mentioned tax liabilities, the Turkish taxation system comprises several indirect taxes, but the most important ones are the value added tax (VAT) and special consumption tax (SCT). Liability for VAT arises; (i) when a person or entity performs commercial, industrial, agricultural or independent professional activities within Turkey, (ii) when goods or services are imported to Turkey. VAT is levied at each stage of the production and the distribution processes. However, the real VAT burden is on the final consumer. In principle, the following persons or entities are liable for VAT: those supplying goods and services; and those importing goods or services. In the event that the taxpayer is not resident, or does not have a place of business, a legal head office or place of management in Turkey, or in other cases as deemed necessary, the Ministry of Finance is authorised to hold any person who is involved in a taxable transaction responsible for the payment of tax. VAT rates vary from 1 to 18 per cent, depending on the type of the goods and services subject to delivery.

SCT is levied only once at one stage of the consumption process of the goods within the scope of four lists annexed to SCT Law No. 4760. The goods subject to taxation are indicated through tariff codes generated from the Turkish Customs Tariff Nomenclature (TCTN). The TCTN is in compliance with the Combined Nomenclature, which is the international classification system for goods.

Additionally, it should be noted that double tax treaty provisions should also be taken into consideration when making a final conclusion in terms of taxation principles.