Expanding your business to Turkey offers a strategic advantage due to its dynamic economy, geographical positioning, and investor-friendly policies. However, one of the most crucial decisions when entering the Turkish market is choosing between establishing a branch or a subsidiary. Understanding the differences, advantages, and potential challenges of each structure is essential for making an informed choice.
Understanding the Basics: Branch vs. Subsidiary
What is a Branch?
A branch in Turkey is an extension of a foreign company, meaning it operates under the parent company’s legal identity. It does not have separate legal personality, and its activities are directly controlled by the parent company. The liabilities of a branch office are borne by the foreign entity.
What is a Subsidiary?
A subsidiary, on the other hand, is an independent legal entity formed under Turkish law, even if it is owned by a foreign company. A subsidiary operates with its own commercial registry and bears its own responsibilities, including tax and legal obligations. Typically, a subsidiary is registered as a limited liability company (LLC) or a joint-stock company (JSC) in Turkey.
Key Differences Between a Branch and a Subsidiary in Turkey
| Aspect | Branch | Subsidiary |
| Legal Identity | Not a separate entity; part of the parent company | Independent legal entity |
| Liability | Parent company is fully liable | Liability limited to the capital invested |
| Management & Control | Controlled by the parent company | Operates independently with its own board |
| Taxation | Taxed based on income generated in Turkey | Subject to corporate tax on all earnings |
| Regulatory Requirements | Simpler to set up; fewer compliance obligations | More regulatory requirements but greater autonomy |
| Operational Flexibility | Limited; must follow parent company policies | More flexibility in operations and expansion |
Advantages and Disadvantages of a Branch in Turkey
Advantages:
- Quick and Cost-Effective Setup – Less paperwork and lower initial capital requirements.
- Easier Control – The parent company retains direct management and oversight.
- Tax Benefits – Only profits earned in Turkey are subject to taxation.
Disadvantages:
- Limited Independence – Must operate within the scope of the parent company’s activities.
- Unlimited Liability – The foreign parent company is fully liable for all debts and obligations.
- Restricted Business Scope – May not be eligible for certain tax incentives and government grants.
Advantages and Disadvantages of a Subsidiary in Turkey
Advantages:
- Legal Independence – Operates separately from the parent company, reducing risks.
- Greater Market Credibility – Turkish customers and partners may prefer dealing with a local entity.
- Wider Business Scope – Can expand services beyond the parent company’s operations.
- Tax Benefits – Can take advantage of local tax incentives and deductions.
Disadvantages:
- More Complex Setup – Requires full registration, including a minimum capital investment.
- Regulatory Compliance – Must adhere to Turkish corporate governance laws and tax regulations.
- Higher Costs – Greater financial commitment due to operational and legal obligations.
Choosing the Right Option for Your Business
The decision between setting up a branch or a subsidiary in Turkey depends on various factors such as business goals, financial capabilities, and risk tolerance. Here’s when you should choose each:
Opt for a Branch If:
- You want a low-cost entry into the Turkish market.
- You need a simple structure that remains directly controlled by the parent company.
- Your operations in Turkey will be limited to a specific function like marketing or liaison services.
Opt for a Subsidiary If:
- You aim for long-term business growth and market expansion in Turkey.
- You need legal protection that limits liability to the Turkish entity.
- You want to access local government incentives and tax benefits.
The Process of Branch Opening in Turkey
If you decide to establish a branch office in Turkey, here are the key steps:
- Prepare Necessary Documents – These include a notarized decision from the parent company, a power of attorney, and financial statements.
- Register with the Trade Registry – Submit required documents to the Turkish Trade Registry Office.
- Obtain a Tax Identification Number – Register the branch with the Turkish Tax Office.
- Hire a Local Representative – A branch must appoint an official representative in Turkey.
- Open a Bank Account – Establish a corporate bank account for financial transactions.
Final Thoughts
Both branches and subsidiaries offer distinct advantages depending on your business objectives. If you seek a cost-effective and straightforward entry into the Turkish market, a branch might be the right choice. However, if you want long-term stability, market credibility, and independent operations, a subsidiary is the better option.
Understanding the legal, financial, and operational implications of each business structure will help you make an informed decision for your company’s expansion in Turkey. Seeking professional legal and financial consultation can also ensure a smooth setup process while maximizing your investment benefits.
By carefully evaluating your business goals and risk appetite, you can determine the best path for establishing your presence in Turkey.
