International Trade and Customs

Amendments on the Regulation for Implementation of Foreign Direct Investment Law

Contact: Att. Ozgur Kocabasoglu; Erdem & Erdem Law Office (Turkey)

Some prominent amendments have been introduced to the Regulation for Implementation of Foreign Direct Investment Law (the “Implementation Regulation”) with the Regulation regarding Amendments to the Regulation for Implementation of Foreign Direct Investment Law (the “Regulation”) published

in the Official Gazette dated 3 July 2012. With the aforesaid arrangement, the provisions regarding the establishment and the operation of the liaison offices (“branch offices”) and the required documents to support the application have been widely changed. Moreover, the authority to implement the Regulation handed over by the Undersecretariat for the Treasury to the Ministry of Finance.

 

Amendments Concerning the Establishment of the Liaison Office

The main modification regarding the establishment of the liaison offices brought by the Regulation is that the permits in order to establish a liaison office and extensions will be given by the Finance Ministry instead of the Undersecretariat of Treasury. Furthermore, the Regulation provides for a new provision concerning the start-up companies, which are newly formed according to the law in their home country and wish to found liaison office in Turkey. According to this provision, before granting and operational permit for these types of companies, the Ministry may set forth one year mandatory waiting period after the foundation of the company by considering the subject of the operation and the capital size of the company, and the number of the employed workers.

Furthermore, there is also a change concerning the consideration/response time for the applications, made to request the establishment and the duration of extension. Now, the applications will be concluded within fifteen business days after the date of application in condition that all the required information/documents are whole and complete.

The rule regarding consideration of the requests to establish a liaison office in order to execute operations in the financial areas having special legislation such as money and capital market, insurance business by the authorized agency and institutes, in context of the special legislation, has not been changed with the new Regulation. However, with the new adding, it is set forth that, in the cases where the Ministry considers as necessary, the request to establish a liaison office of the foreign companies in the others sectors where taking permit, license or similar authorities to execute operations are necessary, will be concluded by receiving opinion of the agency or institutions which give the above-mentioned permit or license.

Amendments Regarding the Supporting Documents in the Application

The required documents to support the application to the Finance Ministry in order to establish a liaison office have been also changed. Besides the mentioned documents in the article 7, the application form in the annex of the Regulation, the written statement concerning the content of the operations carried out by the liaison office, the written statement concerning the undertaking regarding that the liaison office will not carry out any commercial activities and the certificate which indicates the authority of signature of the person who sign the abovementioned statement.

Amendments Regarding the Operation of the Liaison Office

Before the amendment to the Implementation Regulation, the permits of the operation were granted for maximum 3 years to the liaison offices and taking into consideration of the past years operations and plans and targets oriented to the future, its duration was extended each time maximum for 3 years. The rule of granting permits for maximum 3 years at the first application in context of the declared operation in order to establish a liaison office has not been changed. However, now, it will be decided according to the characteristics of the executed operation of the liaison office that whether the duration of permit will be extended or not, if it will, for how long time it will be extended. According to the Regulation, if the permit of operation is granted to make marketing research or to introduce the products or the services of the foreign company, then, the permit of operation can not be extended. Apart from that, the Regulation set forth 5 different categories regarding the characteristic of the operation and according to these 5 categories, the duration of extension can be varied as 5 or 10 years. The permits of the liaison offices which conduct operations in the following are will be extended for 5 years. (i) Representation and entertainment (the representation in the sectorial institutions and in the relevant organizations, the coordination and the organization of business contact of the foreign company’s officials in Turkey, providing an office), (ii) Control of the suppliers in Turkey with regards to the quality and standard  supervision and procurement of supplier (the supervision of the companies which produce on the name of the foreign company within the context of its quality standards, the procurement of the demand of products and producers of the foreign company), (iii) Technical support (providing education and technical support to the distributors, providing technical service to the supplier producer in order to increase their quality standards), (iv) Communication and information transfer (gathering information regarding the developments in the market in order to transfer to the foreign company which has business relations with Turkey, tendency of consumers, sale scores of  the rival firms and distributors, performance of the distributor company, etc. and their transfer in order to transmit to the foreign company). The permits of liaison offices, which conduct operation as a regional head office (for the units of the foreign company in the other countries, providing management service and coordination in context of the activities such as the creation of strategies of investment and management, planning, promotion, sale, post-sales services, brand management, financial management, technical support, r&d, foreign procurement, testing of newly developed products, laboratory services, research and analysis, education of employees, etc.) will be extended for 10 years.

On the other hand, the characteristics of the executed operation are not an element which can be taken into consideration per se in order to grant the permit for the extension of the duration of the operation. The applications for the extension of duration are made to the General Directorate of the Encouragement Implementation and Foreign Capital. The Directorate will be concluded the request of the extension of duration considering not only the executed operation but also the past years operations of the office, the business plan and the objectives oriented to the future in Turkey of the foreign company, existed and foreseen amount of expense and the number of employed workers.

In the cases where a change of address, representative(s) of the office or title of the foreign company come into question, within at latest 1 month after the realization of the change, the liaison offices will notify to the General Directorate with the lease contract indicating the new address, the certificate of authority relating to the new appointed person or the document(s) with respect to the change of title of the foreign company.

The Regulation gives the authority to the Ministry to control the operations of the liaison offices whether they execute in accordance with the law and operation area mentioned in their permit, or not. This control can be made ex officio or with the written notification of the relevant agency and institutions. As a result of the control, a period of time of 30 days is given to the offices which are ascertained to execute the operation inconsistently with the granted permit after the application in order to receive the permit for the currently executed operation. This period of time can be extended for maximum 30 days in existence of the valid reasons. At the end of the given time, the operation permits of the offices which do not apply will be cancelled. At the end of the control, the permits of the offices, which are ascertained to execute commercial operations, will be cancelled and the situation will be notified to relevant authorities.

Conclusion

With the Regulation, the provision regarding the establishment and the operation of the liaison offices and also the required documents in the application in order to establish a liaison office have been widely changed, the Undersecreteriat of Treasury has been replaced by the Finance Ministry. The General Directorate of the Encouragement Implementation and Foreign Capital will decide to extend the duration of permits concerning the liaison offices which desire to extend the duration of operation permits taking into considerations the offices operation areas. Furthermore, the authority to control the operations of the liaison offices is given to the Ministry whether they execute their operations in compliance with the law and with the mentioned operation in their permit, or not. 

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