Turkey Subsidiary, Branch, or Liaison Office? A Tax & Legal Guide for Foreign Investors

I. Introduction

Turkey’s strategic geographic location at the intersection of Europe, Asia, and the Middle East, its developed industrial capabilities, and ease of access to international markets have positioned it as an increasingly attractive investment destination for foreign businesses. The country offers a favorable business environment, with multiple Turkey business structures available, enhanced by supportive government policies, incentives, and a robust legal framework designed to encourage foreign direct investment.

However, foreign companies planning to enter the Turkish market must first address a critical decision: choosing the most suitable corporate structure for their specific business goals. Selecting the right structure is fundamental, influencing taxation, legal responsibilities, operational capabilities, and the overall success of the investment. An unsuitable choice could lead to unnecessary costs, administrative challenges, and potential legal risks.

In Turkey, foreign investors primarily consider three main business structures: subsidiaries (capital companies), branch offices, and liaison offices. Each option carries distinct legal characteristics, operational flexibility, and taxation implications that must be carefully evaluated against an investor’s long-term strategy and business model.

This guide aims to provide clear, practical, and comprehensive insights into the key tax implications associated with these business structures. By understanding the tax obligations and benefits of each option, foreign investors can make well-informed decisions to optimize their business presence in Turkey, ensuring both compliance and efficiency. The following table of contents outlines the structure of this guide and provides direct links to each section for ease of navigation:

 

II. Overview of Business Structures

Foreign investors planning to establish a presence in Turkey have three main corporate structures to choose from: subsidiaries (capital companies), branch offices, and liaison offices. Each of these structures differs significantly in terms of legal personality, tax liabilities, operational scope, and compliance requirements. Understanding these fundamental differences is essential for selecting the right option aligned with the investor’s business objectives.

2.1 Subsidiary (Capital Company)

A subsidiary is an independent legal entity, established typically as a Joint Stock Company (Anonim Şirket – A.Ş.) or a Limited Liability Company (Limited Şirket – Ltd. Şti.). As an independent legal person under Turkish law, it has extensive operational capabilities, including engaging in contracts, employing staff, owning property, and independently bearing legal and financial obligations.

Tax-wise, subsidiaries are classified as full taxpayers, meaning their worldwide income—both domestic and international—is taxable in Turkey. This structure is ideally suited for investors seeking long-term market engagement and operational autonomy.

2.2. Branch Office

Unlike subsidiaries, a branch office in Turkey is legally considered a direct extension of its parent company rather than a separate legal entity. As such, branches can carry out business activities within Turkey but do not enjoy full legal independence. Consequently, the liabilities and obligations of a branch office directly extend to its foreign parent company.

Branches hold limited taxpayer status and pay corporate tax solely on income generated within Turkey. This structure is beneficial for companies preferring direct control from abroad but requires careful management of local obligations and potential legal risks to the parent entity.

2.3. Liaison Office

A liaison office in Turkey represents the most limited form of business presence. It cannot engage in any income-generating commercial activities. Its permitted activities include representation, market research, and coordination functions only.

Due to this limitation, liaison offices are exempt from corporate tax, providing a distinct advantage in the initial phases of market exploration. However, the operational scope of liaison offices is strictly regulated, and exceeding permitted activities can lead to substantial legal and tax risks. Liaison offices are thus best suited for companies aiming to assess market conditions before fully committing to more comprehensive operational structures.

III. Subsidiaries (Capital Companies): Tax and Legal Implications

Subsidiaries are among the most preferred investment structures by foreign investors aiming for a robust, long-term presence in Turkey. Typically established as either a Joint Stock Company (Anonim Şirket – A.Ş.) or Limited Liability Company (Limited Şirket – Ltd. Şti.), subsidiaries offer the advantage of complete legal and operational independence from the foreign parent company. This independence ensures that the subsidiary itself, rather than the foreign entity, assumes all obligations and liabilities arising from its operations in Turkey.

3.1. Establishing a Subsidiary: Legal Considerations and Advantages

Subsidiaries are independent legal entities under Turkish law, fully authorized to perform a broad range of commercial activities. Investors commonly choose subsidiaries for their flexibility, independence, and ability to clearly separate risks between the parent and local entities. Subsidiaries can directly own assets, hire personnel, enter into contracts, and conduct business operations without involving the foreign parent in local obligations.

Key advantages include operational autonomy, reduced direct risk to the foreign parent company, and eligibility to access various investment incentives provided by the Turkish government. These incentives might include investment grants, tax discounts, and sector-specific subsidies, depending on the nature and scale of the investment.

3.2. Corporate Taxation: Scope and Obligations

In Turkey, subsidiaries are considered full taxpayers, meaning their tax liability encompasses all income generated domestically and internationally. As of 2025, the corporate tax rate applied to subsidiaries is set at 25%. Taxable profit, also referred to as the tax base, is calculated annually by deducting legally allowable expenses from total annual income.

Allowable deductions typically include ordinary operational expenses, depreciation, wages, interest payments (subject to certain conditions and limitations), and other costs directly related to the subsidiary’s commercial activities. Conversely, certain expenditures, such as undocumented or personal expenses, specific penalties, and fines, are expressly non-deductible.

Subsidiaries must also fulfill specific administrative requirements, including quarterly advance tax payments and annual corporate tax returns submitted by the end of April following the financial year.

3.3. Taxation of International Income and Double Tax Treaties

A critical aspect for foreign-owned subsidiaries operating in Turkey is the taxation of their international income. Subsidiaries are required to declare income earned both domestically and abroad. However, Turkey has an extensive network of Double Taxation Agreements (DTAs) designed to avoid taxing the same income twice.

These treaties often allow subsidiaries to offset taxes paid abroad against their Turkish corporate tax liabilities or to benefit from reduced withholding tax rates on international transactions, particularly dividend payments. Therefore, investors should carefully evaluate these treaties in their tax planning strategies to optimize their global tax position effectively.

3.4. Profit Repatriation and Withholding Taxes

One of the primary considerations for subsidiaries is how profits are distributed back to their foreign parent companies. In Turkey, dividends paid to foreign shareholders are subject to a standard domestic withholding tax rate of 15%, effective from December 22, 2024. The actual effective rate may be lower depending on the specific provisions contained in Turkey’s Double Taxation Agreement (DTA) with the investor’s home country.

To effectively manage withholding tax exposure, foreign investors are encouraged to strategically structure dividend distributions, factoring in these treaties and Turkish tax regulations. Accurate planning ensures compliance while optimizing the after-tax return on investments.

3.5. Transfer Pricing and Related Party Transactions

Subsidiaries frequently engage in business transactions with their foreign parent company or other affiliated entities abroad. These transactions, known as related party transactions, are regulated under Turkish transfer pricing rules, which require adherence to the arm’s-length principle. Simply put, prices charged between related companies must reflect standard market conditions, as though they were unrelated parties.

Subsidiaries must document their pricing methods and rationale clearly in transfer pricing documentation prepared annually. Non-compliance or inadequate documentation can lead to significant adjustments from tax authorities, additional taxes, penalties, and increased scrutiny on future tax filings.

3.6. Strategic Considerations and Recommendations

Subsidiaries are ideally suited for foreign investors looking to establish substantial, long-term operations in Turkey, especially those intending to actively engage in domestic markets or regional trade. This structure provides significant operational freedom, reduces parent company liability, and maximizes the subsidiary’s ability to leverage local incentives.

However, the independence and broad operational scope come with extensive legal and administrative compliance responsibilities. Therefore, careful planning, precise implementation, and continuous monitoring of tax and regulatory compliance are crucial for foreign subsidiaries to thrive in Turkey.

IV. Branch Offices: Tax and Legal Implications

For foreign companies preferring direct engagement with the Turkish market without establishing a separate legal entity, opening a branch office represents an attractive alternative. Unlike subsidiaries, branch offices are not independent legal entities. Instead, they operate as direct extensions of their parent companies abroad. This status significantly influences their tax obligations, legal responsibilities, and overall operational capabilities in Turkey.

4.1. Legal Structure and Operational Considerations

A branch office does not hold independent legal status under Turkish law. Instead, it is treated as an integral part of its foreign parent company, meaning all local obligations, including debts, legal liabilities, and regulatory responsibilities, directly impact the parent company. As a result, branches provide the parent company with greater oversight and direct control over Turkish operations but expose it to higher levels of legal and financial risk.

Despite lacking independent legal status, branch offices in Turkey can conduct commercial activities, enter into contracts, hire personnel, and engage in domestic business transactions within the operational scope determined at establishment. However, their activities must align with those specified by the parent company’s registration documents and the branch’s official purpose as declared to Turkish authorities.

4.2. Corporate Taxation: Limited Taxpayer Status

Branch offices are classified as limited taxpayers, meaning their corporate tax liability is restricted to income generated exclusively from activities within Turkey. Unlike subsidiaries, branches are not taxed on their global income, thus offering a more focused, simpler approach to taxation for foreign entities primarily interested in conducting specific operations locally.

As of 2025, branch offices face a corporate tax rate of 25% on net taxable profits earned from Turkish activities. Branches must calculate their taxable income by accurately determining revenue generated within Turkey and deducting allowable local business expenses, similar to subsidiaries. Deductible expenses typically include operational costs, employee wages, interest payments, and depreciation of assets used exclusively for Turkish operations.

4.3. Profit Repatriation and Withholding Tax Implications

Branch offices can freely transfer their after-tax profits back to the foreign parent company. However, such profit transfers, often referred to as profit repatriation, are generally subject to withholding taxes. Currently, Turkey imposes a standard withholding tax rate of 15% on profits transferred from branch offices to their parent entities abroad.

However, this withholding rate may be reduced if a Double Taxation Agreement (DTA) exists between Turkey and the parent company’s country of residence. DTAs can significantly impact branch taxation, providing more favorable withholding tax rates and potentially reducing the branch’s overall tax burden. Foreign companies should therefore carefully analyze DTAs applicable to their situation when planning profit repatriation.

4.4. Transfer Pricing and Transactions with the Parent Company

Given the direct connection between a branch office and its foreign parent, transactions between the two entities are subject to careful scrutiny under Turkish transfer pricing regulations. Turkish law requires these transactions to adhere to the arm’s-length principle, meaning they must reflect market-based prices as if conducted between unrelated parties.

The importance of proper compliance with transfer pricing regulations cannot be overstated, as failure to comply may lead to significant tax assessments and penalties from Turkish tax authorities.

Branch offices should particularly monitor transactions involving:

• Loans and financing arrangements provided by the parent company.
• Administrative and support services rendered by the parent to the branch.
• Sales or procurement of goods and services between branch and parent entities.

Clear documentation supporting the appropriateness of transaction prices is mandatory, requiring careful preparation of transfer pricing reports and annual disclosures.

4.5. Risks and Strategic Considerations in Choosing a Branch Structure

Choosing a branch office structure presents clear advantages, particularly for foreign companies that prefer simplified administration, direct oversight, and ease of repatriation of profits. Branches can also offer greater flexibility for foreign companies looking for shorter-term or more targeted engagements in Turkey.

Nevertheless, due to the direct legal and financial exposure involved, investors must carefully evaluate the risks associated with branch offices. Parent companies must be prepared to directly assume all local liabilities arising from branch activities. Consequently, branch offices require diligent risk management and robust compliance mechanisms to avoid unexpected financial or legal exposure.

Investors considering a branch structure should specifically evaluate:

• The nature and scope of intended local operations.
• The acceptable level of financial and legal exposure to the parent company.
• Potential benefits from Turkey’s double taxation agreements.
• Long-term strategic intentions (whether future transition to a subsidiary might be advantageous).

Thoughtful evaluation and strategic tax planning ensure that branch offices remain an effective and viable solution for foreign companies aiming for targeted market presence with clear operational objectives.

V. Liaison Offices: Tax and Legal Implications

For foreign investors interested primarily in exploring opportunities within Turkey without immediately engaging in commercial activities, establishing a liaison office can be an advantageous initial step. Unlike subsidiaries and branches, liaison offices in Turkey have a highly restricted operational scope. These offices function exclusively for non-commercial activities such as market research, representation, promotion, and coordination on behalf of the foreign parent entity.

5.1. Legal Structure and Operational Scope

Liaison offices in Turkey do not possess separate legal personality; rather, they are extensions of their foreign parent companies, specifically authorized to conduct non-commercial activities. Because liaison offices are expressly prohibited from generating any income or engaging in commercial transactions, their operational scope is strictly limited and clearly defined at the time of establishment.

To operate a liaison office in Turkey, foreign investors must obtain prior approval from the Ministry of Industry and Technology. This approval explicitly defines the permitted activities, which commonly include:

• Market research and feasibility studies.
• Representation and coordination activities.
• Promotional and advertising activities on behalf of the parent company.

Conducting any commercial activity—such as issuing invoices, entering into sales contracts, or engaging directly in trade—exceeds the permitted scope and could result in significant legal and tax consequences.

5.2. Taxation and Compliance

Due to their restrictive scope, liaison offices enjoy substantial tax advantages. As they cannot engage in revenue-generating activities, liaison offices are not subject to corporate income tax in Turkey. Consequently, they are exempt from corporate tax filing obligations and are not required to submit corporate income tax returns.

However, the tax exemption strictly depends on compliance with operational limits. Any indication of unauthorized commercial activity, discovered through tax audits or inspections, could lead to the retroactive imposition of corporate taxes, penalties, and fines. Thus, strict adherence to the defined scope of permitted activities is essential for maintaining tax-exempt status.

5.3. Employment and Payroll Taxes

Although exempt from corporate income tax, liaison offices have responsibilities regarding employee taxes. Salaries paid to liaison office employees may be subject to Turkish payroll withholding taxes. However, a significant income tax exemption applies under Article 23/14 of the Income Tax Law: If employees’ salaries are paid in foreign currency directly from abroad by the foreign parent company, and the liaison office strictly adheres to its approved non-commercial activities, these salaries are exempt from Turkish income tax.

It is crucial to meet these conditions precisely to benefit from the exemption. Regardless of the income tax exemption, liaison offices must still comply with Turkish social security regulations, including registration and monthly contributions for all employees, unless specific exemptions apply (e.g., under bilateral social security agreements for eligible foreign employees).

Key employment tax considerations for liaison offices include:

• Regular withholding and reporting of income taxes on employee salaries.
• Compliance with Turkish social security regulations, including registration and monthly contributions for all employees.
• Proper adherence to Turkish employment laws and payroll administration procedures.

5.4. Value-Added Tax (VAT) and Other Indirect Taxes

While liaison offices do not engage in taxable commercial activities, they inevitably incur expenses, including rent, utility payments, office supplies, and other services obtained locally. These expenses typically include Turkish Value-Added Tax (VAT), which the liaison office must pay as a final consumer. Since liaison offices have no taxable output activities, they cannot reclaim or offset the VAT paid on these purchases.

Moreover, liaison offices must carefully consider indirect tax implications arising from transactions with their parent companies. For instance, services received from foreign parent entities could trigger withholding tax and reverse-charge VAT obligations in Turkey, depending on the nature and form of these services. Therefore, liaison offices must cautiously manage cross-border transactions and their local reporting obligations to avoid unexpected tax liabilities.

5.5. Potential Risks and Transitioning from a Liaison Office Structure

While liaison offices provide a practical, low-risk method of entering and understanding the Turkish market, they carry inherent limitations. Investors who initially choose liaison offices should carefully assess their long-term strategies. As business presence and activities expand, liaison offices typically prove inadequate due to their operational constraints, prompting investors to transition to a more suitable structure such as a subsidiary or branch.

Critical considerations include:

• Clearly understanding and strictly observing permitted activities to maintain tax-exempt status.
• Monitoring operations regularly to ensure compliance, avoiding potential tax and legal penalties.
• Planning proactively for future expansion and readiness to transition to a more robust corporate structure when the business scope broadens.

Investors must remain vigilant in managing liaison offices, regularly reviewing their operational compliance, and proactively planning strategic moves to more flexible corporate structures when their business objectives evolve beyond simple market representation.

VI. Comparative Summary of Structures

Selecting the appropriate business structure in Turkey significantly influences a foreign investor’s tax responsibilities, legal obligations, operational flexibility, and risk exposure. To assist investors in quickly understanding the essential differences between subsidiaries, branch offices, and liaison offices, the following comparative overview highlights key factors investors should consider when deciding on the most suitable investment structure.

Comparative Overview Chart

Criteria	Subsidiary	Branch Office	Liaison Office
Legal Status	Independent legal entity	Extension of parent company	Extension of parent company
Corporate Tax Rate (2025)	25% (global income taxable)	25% (local income only)	Exempt (no income generation)
Profit Repatriation Tax	15% withholding tax	15% withholding tax	Not applicable (no income)
Operational Flexibility	High	Moderate	Very limited
Transfer Pricing	Mandatory, comprehensive rules	Mandatory, comprehensive rules	Limited applicability
Employment Taxes	Full obligations	Full obligations	Full obligations
VAT and Indirect Taxes	Fully applicable	Fully applicable	Applicable to expenses only
Risk to Parent Company	Minimal (independent liability)	High (direct liability)	Low (no commercial activity)

 

Strategic and Risk Comparison

• Subsidiaries are ideal for investors planning a substantial, long-term commercial presence. They offer clear risk separation from the foreign parent but entail significant administrative and regulatory responsibilities.
• Branch Offices suit investors preferring direct management and oversight from abroad but require careful management of local obligations and risks, particularly given the parent company’s direct exposure.
• Liaison Offices are ideal for initial market entry strategies, enabling investors to test market conditions without immediate commercial commitments. However, their highly restricted scope often necessitates future transition to a subsidiary or branch as commercial activities expand.

Investors should carefully weigh these comparative factors against their business objectives, risk appetite, and strategic plans for market entry and expansion in Turkey. Thoughtful consideration and strategic planning will ensure the chosen structure aligns optimally with business goals, regulatory compliance, and efficient management of tax obligations.

VII. Conclusion and Strategic Recommendations

Turkey presents attractive opportunities for foreign investors, offering a vibrant economy, strategic geographic advantages, and favorable conditions for international businesses. However, the success of a foreign investment in Turkey significantly depends on choosing the most appropriate corporate structure. Subsidiaries, branches, and liaison offices each have distinct legal, operational, and tax characteristics, demanding careful consideration aligned with an investor’s specific business goals.

Investors aiming for a robust, long-term presence in Turkey typically find subsidiaries (capital companies) the most advantageous. Subsidiaries offer full autonomy, clear separation of liabilities from the parent company, and significant operational flexibility. Yet, these benefits carry extensive regulatory and tax compliance responsibilities, including full taxpayer obligations, transfer pricing documentation, and complex international taxation considerations. Investors selecting this option should prioritize careful planning and consistent compliance management.

Branch offices offer a practical alternative for investors who prefer direct control from their foreign headquarters and seek a simpler approach to entering the Turkish market. However, branches carry higher risk exposure for the parent company due to direct legal and financial liability. Investors considering branches must diligently manage local tax obligations, withholding taxes on profit repatriation, and strictly adhere to transfer pricing rules to mitigate potential tax risks and liabilities.

Liaison offices, meanwhile, are ideal for businesses initially exploring market potential without engaging in commercial activities. They offer attractive tax exemptions and minimal administrative complexity but come with stringent operational limitations. Investors using liaison offices as an entry point must carefully monitor their activities to avoid breaching regulatory boundaries, potentially transitioning to a branch or subsidiary structure as their business expands.

Regardless of the structure selected, investors must proactively approach tax planning and regulatory compliance, recognizing that Turkey’s tax legislation and international agreements—such as Double Taxation Agreements (DTAs)—significantly impact their operations. Transfer pricing rules, withholding taxes, and payroll obligations further underline the importance of expert guidance and regular review to optimize tax efficiency and avoid unnecessary penalties.

Finally, as Turkey continues to evolve as a key investment destination, staying informed about ongoing legislative changes, market conditions, and incentive opportunities remains crucial. Investors should carefully evaluate their strategic plans, regularly review the appropriateness of their selected structure, and remain ready to adapt their approach as their commercial objectives and market dynamics evolve.

In navigating these complexities, foreign investors who maintain a clear, informed, and strategically proactive approach will be best positioned to maximize their opportunities and effectively manage their risks in Turkey’s dynamic business environment.