Forming New Horizons – Expanding into Turkey

Country Spotlight:

GDP – $907 billion?

Population – 85 million?

Competitiveness Ranking? – 53 out of 64 (IMD)

The Commercial Brief:

Turkey’s economy is heavily driven by three economic sectors: Services at 51.74%, Industrial at 31.29%, and Agriculture at 6.48%. Turkey has a sizeable economy and is the 20th largest in the world. Its forecasted GDP growth for 2024 is moderately strong at 3.1%. While Turkey has experienced impressive growth, between 2002 and 2022, the GDP average growth rate was 5.4%, peaking at 11% in 2021. Unfortunately, however, Turkey has also experienced hyperinflation in recent times - the good news in May 2024 is that economists widely believe it has peaked (in excess of 75%). Corporate income tax (CIT) has a standard rate of 25% but for financial sector companies, it rises to 30% which is less competitive. The Employer Social Burden is relatively modest at approximately 22.5%. There is a 5% discount on employer contributions due to timely payments, meaning that contributions are ultimately 17.5% if the salary is under stipulated caps.

Turkey is culturally renowned for its rich and diverse heritage, shaped by its pivotal role in the histories of the Byzantine and Ottoman Empires, evident in iconic sites like Hagia Sophia and Topkapi Palace. Its cuisine, celebrated for dishes such as kebabs and baklava, and its distinctive coffee culture, recognized by UNESCO, are central to its cultural identity. Turkish architecture blends Byzantine, Ottoman, and modern influences, with landmarks ranging from Istanbul’s Blue Mosque to Cappadocia’s fairy chimneys. Traditional arts like rug weaving and ceramics, especially notable in ?znik tiles, thrive, particularly in places like Istanbul’s Grand Bazaar. Music and dance incorporate both Eastern and Western influences, featuring traditional instruments like the oud and saz, and dances such as belly dancing. Turkey also hosts numerous cultural festivals that celebrate a variety of themes from arts to agriculture. The literature scene is robust, with Nobel laureate Orhan Pamuk among its modern contributors. Additionally, Turkey's predominantly Muslim religious landscape coexists with its historical Christian and other religious traditions, creating a dynamic cultural mosaic that spans continents and civilizations.

Turkey possesses a wealth of natural resources that bolster its economy, notably holding the world's largest reserves of boron. The country also has significant deposits of coal, chromium, mercury, copper, gold, silver, antimony, tungsten, zinc, and iron. Beyond minerals, Turkey's diverse landscape supports substantial agricultural production, including tobacco, cotton, grain, olives, and sugar beets. Its extensive forests provide timber, and the geographic advantage of its location between the Black and Mediterranean Seas enriches Turkey with maritime resources, enhancing its fisheries and providing key transportation routes. These natural assets are complemented by Turkey's growing energy sector, which includes hydroelectric, wind, and solar power, underscoring its strategic economic and environmental significance. In addition, its control of the Bosporus Strait and Dardanelles is geopolitically significant.

Companies expanding here will find that Turkey has strong talent across several key industries, underpinned by its dynamic economy and strategic geographic location. The country is particularly noted for its robust manufacturing and automotive industries, which are supported by a skilled workforce in engineering and production. Additionally, Turkey excels in the textile and apparel sector, being one of the world's leading exporters, which draws on its deep pool of skilled designers and craftsmen. The construction and real estate sectors are also significant, benefiting from experienced architects, engineers, and urban planners. Furthermore, Turkey has a growing technology sector, particularly in software development and IT services, fueled by a younger, tech-savvy generation emerging from its well-regarded universities. These industries collectively highlight Turkey’s diverse industrial base and its capability to cultivate and attract specialized talent.

In summary, Turkey is a good destination to expand into but given that it is experiencing high inflation and has low competitive rankings companies should carefully address which industries will be most successful - we can help with this. Companies will find that distributed workforces or those that work in capital-light industries will fare better than in industries such as CPG.

Challenges of Expanding into Turkey:

In our experience, setting up a permanent overseas entity in Turkey without Global EOR support can take up to 10 months, including the entity incorporation, setting up the bank account, and concluding the local registrations. This timeline does not include license applications and recruiting of the individuals holding the license on behalf of the organization.

Any company operating in Turkey is obliged to comply with Turkish law, including all primary and secondary legislation for employment and corporate matters. All entities require a registered address that is tied to an office space where the operation will take place.

In general, the following steps are required for company incorporation:

1. Draft necessary corporate documents for incorporation (including articles of association which include information on the company’s purpose and subject, share capital, title, directors/managers, and their signing powers).
2. Notarization and apostille of corporate documents in the jurisdiction that they will be issued (e.g. trade registry extract of the shareholder, power of attorney, board resolution of the shareholder, etc.).
3. Issuance of documents required by the directors/managers (e.g. signature declaration) and notarization and apostille of the ones that will be issued abroad.
4. Translation of all documents issued abroad and notarization of their translations before a notary public in Turkey.
5. Obtain potential tax number for foreign shareholders, directors, managers, and representatives in Turkey. This number is for identification purposes only and it does not directly incur any tax liability.
6. Enter into a lease agreement for the registered address of the new company to be established.
7. Open a new bank account.
8. Online application through the central registration system (MERSIS) following a physical application before the Trade Registry to establish an entity. Articles of association will also be signed in the presence of the Trade Registry officials.
9. Obtain trade registry certificate and corporate books from the Trade Registry.
10. Issue signature circular for authorized representative(s).
11. Complete registration with the Tax Office and attend a site visit of tax officers at the company’s registered address.
12. Complete registration with the Social Security Institution.
13. Open a bank account in a state bank (following a recent regulation change, the tax payments can only be made through state banks).

In terms of employment law, in addition to the robust legislation around employment and employee benefits, under Turkish law, the employer is required to keep a personal file for each employee that includes the signed employment agreement, a copy of the employee ID card, diplomas, and any other employment-related documents, These documents may be audited by the authorities from time to time.

It is, therefore, essential for employers to familiarize themselves with the above. To avoid complications and business risk and enter the market quickly and compliantly, utilize a Global EOR in Turkey that has dedicated and extensive in-country personnel, HR, Legal, Payroll, Compliance & Immigration teams that can support you and your organization directly.

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Peter Dixon & Laura Isaza - Velocity Global

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If you have any questions pertaining to this article please drop a comment or feel free to directly message us, we will do our best to help.?

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