For multinational corporations (MNCs) planning to enter the Turkish market without engaging in immediate commercial sales, establishing a Liaison Office is the most strategic entry point. Regulated under the Foreign Direct Investment Law No. 4875, these entities are strictly prohibited from engaging in commercial activities. In exchange for this restriction, they enjoy full exemption from Corporate Tax and Value Added Tax (VAT) on sales. However, the accounting process is fundamentally different from standard companies, focusing on “compliance and reporting” rather than profit generation.

Liaison Office vs. Limited/JSC: Key Differences (2025)

*Under Income Tax Law Article 23/14, employees are exempt from income tax if their salaries are paid in foreign currency from earnings generated outside of Turkey.

1. Financial Characteristics of a Liaison Office

Liaison offices are typically established for market research, technical support, or regional management. The core rule of their financial structure is: “Money comes into Turkey, but no money (commercial gain) can leave Turkey via invoicing.”

No Transfer Pricing Risk

Since these entities do not generate profit, they do not submit Corporate Tax Returns. Therefore, Transfer Pricing documentation—a major compliance burden for MNCs—is not applicable to Liaison Offices.

2. The Major Advantage: Salary Tax Exemption (Art. 23/14)

The primary reason MNCs prefer Liaison Offices in Turkey is the significant reduction in labor costs.

• The Rule: If salaries are paid to employees in foreign currency (USD, EUR, etc.) derived from the headquarters’ earnings abroad, these wages are fully exempt from Turkish Income Tax.
• Financial Impact: The gross salary burden is approximately 30-40% lower compared to a standard Turkish company. Only Social Security Premiums (SGK) are payable; no Withholding Tax is deducted.

📌 Practical Note: To qualify for this exemption, it is mandatory to prove that salary payments are made via foreign currency transfers from abroad. Payrolls must be calculated specifically as “Tax-Exempt.” Incorrect processing can lead to retroactive tax penalties.

3. Statutory Obligations and Reporting Calendar

Being tax-exempt does not mean being exempt from reporting. To maintain the valid status of the office (and secure time extensions), the following reports are critical:

A) Monthly/Quarterly Returns

• Withholding Tax & Premium Return (Muhtasar): Filed for Social Security premiums of employees and withholding tax on services received (e.g., office rent, CPA fees).
• VAT No. 2 Return: Since the office is not a VAT payer, VAT on services received from abroad or from non-VAT payers in Turkey must be declared and paid via the “Reverse Charge Mechanism.”

B) Annual Activity Report

Every year, by the end of May, a “Liaison Office Activity Report” must be submitted to the Ministry of Industry and Technology. In this report, foreign currency transfers received from the HQ and expenditures made in Turkey must match perfectly.

[EDITOR NOTE: Link to ‘Liaison Office Time Extension Application’]

4. Closing and Liquidation

Since a Liaison Office is not a commercial legal entity, the liquidation process is much faster than that of a company (approx. 1-2 months). However, since the office cannot issue invoices, existing assets (furniture, computers) cannot be sold. They must either be abandoned or returned to the HQ, subject to specific customs and tax procedures.

Frequently Asked Questions

Can a Liaison Office issue invoices?

No, absolutely not. If any commercial activity is detected (issuing invoices for goods or services), the Ministry will revoke the operating permit, and the Tax Authority will levy retroactive taxes and penalties.

Is the funding received from HQ taxable?

No. Funds transferred from the headquarters to cover office expenses and salaries are considered “reimbursements,” not commercial income. Therefore, they are not subject to tax.

Must employees be Turkish citizens?

No. The office can employ both Turkish citizens and foreign nationals. However, a Work Permit is mandatory for foreign employees.

Professional Support

Managing a Liaison Office requires specific expertise in Ministry of Industry regulations and the correct application of the Article 23/14 tax exemption, rather than standard bookkeeping. To manage your global company’s Turkish operations without compliance risks, you can rely on Vergi Merkezi | Mali Müşavirlik (CPA Services).

📍 Service Areas: Istanbul, Ankara, Izmir, and all across Turkey.

⚠️ Legal Disclaimer: This content is prepared based on Law No. 4875 and relevant tax legislation. Liaison office permits and tax practices are subject to change by the Ministry. Please verify current regulations before taking action.

📚 References

1. Official Gazette: Foreign Direct Investment Law (No. 4875)
2. Revenue Administration: Income Tax Law Article 23/14 (Wage Exemption)
3. Ministry of Industry and Technology: Regulation on Implementation of FDI Law

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Ready to establish or grow your business in Turkey? Contact Vergi Merkezi | Mali Müşavirlik today for a consultation with our expert accountants.

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