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Incorporating In Free Zones In Turkey

Incorporating In Free Zones In Turkey

Free zones legislation in Turkey offers quite a few advantages for those who are operating in these special trading areas. As a result, incorporating in free zones may be very tempting for those businesses whose operation in Turkey is (or will be) suitable for being conducted within a free zone. This is especially true if the relevant operation will not make any sales to the Turkish market, but will use their operation in the relevant free zone as a hub to manufacture/produce orders that they receive from their overseas customers. As per section 6 of the Free Zones Act numbered 3218, these businesses are deemed as outside the Turkish custom zone regarding customs procedures until the Turkish Republic becomes a full member of the European Union. As a result, this export regime does not apply to goods coming from foreign countries to free zones and vice versa. Moreover, for those businesses that produce within free zones, their earnings from the sale of products they produce are exempt from corporate tax/income tax (as the case may be) until the Turkish Republic becomes a full member of the European Union. If a relevant business exports at least 85% of the FOB value of its production, its employees’ remuneration is also exempt from income tax. Hence, in this memo, we would like to briefly outline the procedure for incorporating in a free zone within the Turkish Republic.

The first step is determining which company to incorporate. Under Turkish law, there are five types of commercial companies: (1) Joint Stock Companies, (2) Limited Companies, (3) Comandite Companies, (4) Collective Companies and (5) Cooperative Companies. In practice, the most preferred ones are Joint Stock Companies and Limited Companies. However, other types of companies may be preferred based on tax efficiency considerations. After consultation with your legal counsel, you will be able to determine which one of those types of companies is most suitable for your business model and risk management policy. After determining the type of company you will use, the tradename of the company should also be selected in compliance with the applicable legislation in Turkey. This tradename will be stated in the application form (see below) and the operating license will be issued for this tradename. Changing this tradename afterwards, therefore, would be time consuming and burdensome. Hence, it is time well spent to determine the correct and compliant tradename for the NewCo at the outset.

After determining the type of company to be incorporated in the free zone, its draft articles of association should be prepared. It is advisable that MERSIS format to be followed in order to achieve consistency between the draft and the final articles of association since, at the incorporation stage, there will be system-generated provisions in the articles of association which cannot be altered. The content of this articles of association should be in compliance with the Circular 1998/4 or, otherwise, the application will be rejected.  

The applicants should also complete the required “Operation License Application Form”. There are a number of issues to be considered when completing the form; however, the fundamental decision here is whether the application is to be submitted as “tenant free zone user” or “investor free zone user”. The length of operating license for the former is 20 years for production activities; 15 years for other activities; whilst for the former is 45 years for production activities and 30 years for other activities. Investor free zone users are those who will buy open land within the free zone on which it is to construct its premises. Tenant free zone users simply lease an existing premise from a free zone user holding a valid operation license. The former is generally preferrable as companies are reluctant to wait for construction — which would mean more costs, time and bureaucracy.

The application form should be completed by using a computer and each page of the form should be signed. The form prompts plentiful information regarding the new business to be established in the free zone.  As well, the persons filing the application and the Free Zone General Directorate’s evaluation will be fundamentally based on the information given in this form. Depending of the activity to be carried out and other factors, there will be a number of appendices that should be submitted to the relevant free zone alongside the application form. We kindly would like to note that the free zone administrations would ask for a photocopy for each document submitted. Therefore, the applicants should bring photocopies as well as the original documents.

 Some of the appendices mentioned above include:*

  1. A bank receipt demonstrating that the application fee (5.000,00-USD at the time of writing of this memo) has been paid,
  2. Descriptive information relating to the applicant and the activity to be carried out in the free zone,
  3. Power of attorney and signature circular of the signatories,
  4. If the NewCo will have foreign judicial person shareholder(s), the certificate of incorporation and commercial extract of those judicial persons,
  5. Passport copies of the foreign corporate officers (including shareholders’ corporate officers), and
  6. Draft articles of association of the company to be incorporated.

*Please kindly note that additional documents may also be needed depending on your circumstances.

After the application is submitted to the relevant free zone, it will be passed on to the Free Zones General Directorate who will evaluate the application. If the application is rejected, the application fee will be returned to the applicant. If the General Directorate accepts the application, it will issue an “appropriateness letter”. As from the date of this letter, the applicant will have 30 days to incorporate its company and execute a lease/sales agreement regarding the premises/land within which the NewCo is to operate and have this lease/sales agreement approved by the relevant free zone administration. In the event these documents are not submitted within the prescribed time, the application will expire, and the application fee will not be returned to the applicant. Hence, it is advisable to consult with the free zone administration beforehand with respect to the form and content of the lease/sales agreement to make sure that it will be approved by the relevant free zone administration. The free zone administration will pass on the approved lease/sales agreement, trade registry approval (ticaret sicili tasdiknamesi) of the NewCo and the signature circulars of the corporate officers of the NewCo to the General Directorate of Free Zones which will be followed by the issuance of the operating license for the NewCo.

The procedure for incorporation in free zones is, as is seen, more burdensome than ordinary company incorporations. Furthermore, free zone operating license holders have an ongoing obligation to comply with the free zone legislation — failing which may place their operating licenses in jeopardy. Therefore, both during and after the incorporation, the assistance of legal counsel with relevant experience in free zones and free zone administrations carries cardinal importance. 

Disclaimer: The information provided on this memo does not, and is not intended to, constitute legal advice; instead, all information, content, and materials available on this memo are for general informational purposes only.  Information on this memo may not constitute the most up-to-date legal or other information.  This memo may contain link or links to other third-party websites. Such links are only for the convenience of the reader, user or browser; the Kesikli Law Firm and its lawyers do not recommend or endorse the contents of the third-party sites.

@Rüştü Mert Kaşka, LLM | Kesikli Law Firm

11:10 , 22/01/2021 Comments Off on Incorporating In Free Zones In Turkey