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Starting a Business in Turkey

This guide was written by Başak Yıldız Orkun, Managing Partner at Orkun & Orkun (info@orkunorkun.com) in collaboration with Guides.Global (office@guides.global).

It was written on 25 June 2017. The law and practice in Turkey change all the time. Our guides are updated as frequently as possible - typically every three years - but may be out of date.

Our guides are prepared by professionals from many countries. They are, of necessity, both brief and general and can take no account of your personal circumstances. They are intended to be a good introduction to the subject BUT ARE NO SUBSTITUTE FOR PROPER PROFESSIONAL ADVICE, which our contributors will usually be happy to provide upon request.

The advice and opinions contained in the guides are those of the author and are not necessarily those of Guides.Global.

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The scope of this guide

This guide looks at all the aspects of starting a business in Turkey: the structures, the preparation, financing, opportunities and pitfalls.

You may also want to watch the video version of this guide or download the audio (MP3) guide.

Index

Introduction

Many foreigners want to start a business in Turkey. They fall into three groups.

There are international entrepreneurs who simply see business opportunities in Turkey. They see that there are some areas of activity where Turkey is much less developed than in the country where they live or work. They see that the rapid modernisation of Turkey and its increased integration into Europe gives opportunities for rapid business growth, with good levels of profit. They may also see Turkey as a good stepping-off point for getting involved in business in the region.

Then there are the people who visit Turkey, fall in love with it and want to find a way of being able to stay there - which usually means either finding a job or starting a business. For many of these people, especially if they don't speak Turkish, there are few job opportunities and those that exist tend to be low paid. So it seems to make sense to start a business.

The third group is people who might normally have wished to operate as self-employed, without any formal business structure, but who find that it is very difficult to do that in Turkey and so who turn to setting up a business as an alternative.

What are the restrictions on what I can do in Turkey?

Turkey is very welcoming when it comes to people wanting to set up new businesses. They realise that new business boosts the economy and creates local employment - and they also recognise that, for historical reasons, Turkey lacks some of the skills required by cutting-edge businesses in the 21st century.

In recent years, there has been quite a lot of government activity to encourage foreigners to set up businesses. For example:

However, also for historical reasons (now long-since irrelevant but preserved in legislation that no government has seen fit to remove), there are several main areas of business activity which are specifically closed to businesses run by foreigners unless you obtain special permission from the Ministry of Customs and Trade (Gümrük ve Ticaret Bakanlığı). These include:

There is no central list of these restrictions published by the government. Instead, they’re to be found on the websites of the various Turkish ministries – the Ministry of Education, the Ministry of Agriculture, etc. Have a look in our Useful Contacts for Turkey guide.

In Turkey, there are also quite a large number of activities where a professional qualification is required. These include many activities which are not subject to the need for professional qualifications in other countries. Don't forget to do your research on your career choice.

Business structures in Turkey

As in almost every country, there are a number of legal structures that you can choose to use when you set up a business. At the time, this can seem boring and unimportant but choosing the right structure will have huge implications later on, particularly if your business grows.

It will affect the taxes you have to pay. It will affect your ability to employ people. It will affect how (and if) you will be able to obtain funding for your business. It will affect the ease of selling your business.

There are many different business structures in Turkey. These include:

Working on your own

True self-employment - working on your own - means that you can run your business without the need for any special business structure. It is generally not possible for foreigners to work in a self-employed capacity in Turkey.

A registered business

This is sometimes known as “sole proprietorship” (Şahıs Firması). It’s different from a limited company. It does not have its own, independent, legal personality and it does not give you the benefit of limited liability. It will, however, have its own tax number and be registered as a business in the appropriate registry.

A uni-personal business (Tek kişilik şirket)

For most purposes a uni-personal company is a business the same as working in a self-employed capacity but with the benefit of limited liability.

A uni-personal company is a special type of limited company - simpler and easier to set up than the other types - which can only have one shareholder.

The rules regarding uni-personal companies changed in 2012. A foreigner can set up a uni-personal company in Turkey but there are a couple of catches.

It gives you the same protection (limited liability) as other limited liability companies.

This means that the business is treated as a separate legal entity, not as a mere extension of you. Its debts are not your debts and if the business fails it need not take you down with it.

To enjoy this protection, you do have to operate the business properly and responsibly in accordance with Turkish law. In particular, the company must be registered on the Turkish mersis – a central trade registry and information system operated in Turkey. This gives the company a reference number and provides a basic contact point for all of the key information about the company.

The downsides, for most people, are:

A partnership

handshakeA partnership is a business operated by two or more people or legal entities. If it is operated by two or more real people it tends to be called a partnership. If it is operated by two or more companies working together it tends to be called a joint venture. The legal effect is the same.

In either case, Turkish law makes the process simple.

Unlike partnerships under the Anglo-American legal system, a partnership in Turkey has its own legal personality. To this extent, they’re like companies. They can, for example, sue or be sued in the name of the partnership rather than in the name of the individual partners.

A partnership or joint venture has no tax liability. It is what is called 'fiscally transparent'. This means that all the profit it generates is passed on to its partners and that they then each have to pay tax on their share of that profit.

A partnership does not give any form of limited liability. However, of course, if the partnership/joint venture is between two limited liability companies then they will each have their own element of limited liability - though you should note that each of the partners will be responsible for all the debts of the company if his (or its) fellow partners cannot or do not pay their share.

There are three types of partnership within Turkey:

The ordinary or collective partnership

The most common of these is the ordinary partnership. It is used both when two or more individuals want to run a business in circumstances where they do not need or want limited liability or when two or more limited liability companies want to operate together for the purposes of a joint venture. It is also sometimes used when the parties are setting up the business on a trial basis, just to see whether it works. If it does, they can choose an alternative long-term structure.

The reason this is the most common form of partnership is that it is very cheap, simple and quick to set up.

In a simple case, the partnership can be set up by your accountant. If the situation’s a bit more complex, you would probably have your lawyer prepare a partnership contract.

This agreement will contain the identities of the parties, how the capital of the business is to be provided, the rules for the operation of the business and a declaration of the authorised scope of the business.

In any case, the contract will be witnessed by a Notary (noter).

You (or your lawyer or accountant) must apply to the tax office to register your partnership. The tax office will then issue you with a tax number.

Armed with that, you can apply to register the business itself. This will be either with the Chamber of Merchants and Craftsmen or the Chamber of Commerce.

The cost of setting up a relatively simple partnership might be TRY5,000 (£1,100/€1,300/US$1,400). If it’s a very simple partnership, prepared by your accountant, you may find that they will prepare the contract itself free of charge if they are going to be keeping the books for the new business.

In addition to the lawyer’s or accountant’s charges, the Notary will charge a fee of 1.5% or 2% of the registered capital value of the partnership and if, as is usually the case, you do not speak fluent Turkish, you will be charged for the services of an official translator, who will charge you between TRY100-TRY200 per page.

Limited liability partnership (LLP)

As the name suggests, the difference between an ordinary partnership and a limited liability partnership is that the exposure to risk by the partners in an ordinary partnership is unlimited; whereas partners in an LLP are much better protected, in much the same way as a limited company.

The process of setting up an LLP is much the same as the process of setting up an ordinary partnership but it is registered at the Trade Registry and Chamber of Commerce.

A limited company

Apart from the uni-personal company, there are two main types of limited company in Turkey.

Both are governed by the Turkish Commercial Code.

The private limited company (limited şirket)

Most small and medium-sized businesses are private limited companies.

A private limited company is a smaller, simpler and less formal version of the public limited company.

It has the same limited liability but its shares cannot be traded on the stock exchange. They can, however, be sold privately.

Because its shares cannot be traded publicly it has to file very little in the way of official returns and information to the government and its management structure is allowed to be a great deal simpler.

A private limited company must have a minimum share capital of TRY10,000 (£2,200/€2,500/US$2,800). This amount must be paid into the company's bank account. It cannot be used to pay the expenses of setting up the company but can be used immediately for its business purposes so, for example, you could use it as a down payment on a van.

This is often paid into the company’s bank account in full at the time that the company’s created, but you can set a company up on the basis that only one third is paid at the time of the formation of the company and the rest over the next three years.

The paperwork creating and regulating the company (its Articles of Association) is quite straightforward. It usually takes the form of a standard document which contains some standard options (about pension rights etc) that can be included or not as you choose.

The total cost of setting up a private limited company might, in a simple case, be about TRY3,500 (£750/€900/US$1,000).

The company must file an annual report to the Companies Registry. This is a simple document setting out details of the company's assets and profit plus the names and addresses of its shareholders. Your accountant can file this report for you.

The company is a separate legal entity from its shareholders and so pays its own taxes in the same way as the uni-personal company referred to above.

The public limited company

A public limited company is the structure usually adopted by large companies.

It is unlikely to be used by someone setting up a new business.

It is much more expensive to set up (about €20,000) and it required a minimum capital of TRY50,000 (£11,000/€13,000/US$14,000)

The main advantage of the public company is that its shares can be traded on the Turkish stock exchange.

The main disadvantages are that, to protect the investors, a great deal more disclosure is required in its accounts and annual report; and that the way in which the company is governed is more tightly regulated and more complicated.

A public company is taxed on the same basis as a private company.

Cooperatives (Kooperatif Şirket)

As in most countries, in Turkey a cooperative is a group of people who have come together, voluntarily, to do something to meet their common requirements. The essence of a cooperative is that it is jointly owned and democratically controlled.

cooperativeOn that very simple foundation, there has been built quite a complicated superstructure offering many different types of cooperatives and different ways in which they can be established and managed.

Cooperatives are governed by a different legal code than companies. This is the Code of Cooperatives.

We’re not going to say anything more about cooperatives in this book because they are, these days, very rarely used in Turkey.

A franchise

A franchise is not, strictly speaking, an operating structure. The franchisee (the person operating the business) could be a self-employed person or any type of limited company.

In a franchise, the franchisor (the person who had the idea behind the franchise and set the system up) usually has a set of products and a system of working which it allows the franchisee to use in return for a payment of an annual franchise fee.

Many people feel that starting a new business using a well-proven system takes away a lot of the risk. However, you do lose a significant portion of your profit and some of your flexibility.

If you're thinking of operating a franchise, you need to do considerable due diligence to check out exactly what you're getting and what it will cost you. Once again, your accountant will be able to advise you about this.

A joint venture

A joint venture, under Turkish law, is simply a partnership operated either by two or more limited companies or an individual and one or more limited companies.

For the purposes of this chapter, it can be treated as a partnership (see above).

Preparation for starting a business in Turkey

Identifying an opportunity

Traditionally, people have tended to look at business opportunities where (they believe) their lack of Turkish will not be a huge impediment. They open bars, restaurants and property management companies or they set up a business offering services exclusively to the expat community.

However, this is rather narrow-minded. It also ignores the fact that, even if you're running a bar where the large majority of your customers are German, you will still find it difficult if you do not speak at least some Turkish. You will need to buy your supplies and you will need to deal with local customers.

I have helped foreigners set up businesses in almost every sector. Do not allow your options to be restrained by unnecessary fear of working in a new environment.

How should I check that my business idea will work?

Once you have had your 'eureka!' moment and seen a fantastic opportunity in Turkey, it is very tempting to race ahead and develop the business. However, before doing so, it is essential to check that your brilliant idea is actually going to work.

This process - part of your ‘due diligence’ - is outside the scope of this book and will be specific to your particular type of business. Discuss due diligence with your accountant.

Reality check!

Risk of failure

Starting and running a business in Turkey is probably no simpler than starting and running a business at home. Even in your own country, one business in four is likely to fail in its first year. Starting a business in an unfamiliar country increases this risk - which makes it really important to plan on a sound basis and take advice. This can help avoid the problems that (to a local person) are obvious but which (to you) are not.

Experience

It is extremely helpful if you have had previous experience working in the same area of activity. Without experience, starting, for example, a restaurant or hotel is hugely difficult and very likely to fail. Even with experience the risk of failure is significant.

Transferable skills

Even if you don't have any directly relevant experience, you may find that you have very relevant transferable skills. For example, you may have worked for many years as a car mechanic but see better opportunities as a mechanic (engineer) looking after foreigners' boats in Turkey.

Learning about Turkey

Before you commit to opening a business in Turkey, learn as much as you can about the place. Read our guides - all of them! Speak to any expats you know, or even strangers (whether that's face-to-face or via online forums).

How do I find the right business partners?

cooperativeYou may decide to set up a small business entirely on your own. For example, maintaining pools for foreigners of your own nationality. Probably the majority of foreigners starting a business in Turkey do so in this way.

However, quite a large number also recognise the advantage of having an experienced partner. This could be a local Turkish (bringing a wide range of contacts and contributing both cultural understanding and language skills), or a fellow expat. Each has its advantages and disadvantages.

It's worth thinking carefully about this issue (although, in practice, most people are instinctively attracted to one method or the other and unlikely to change their mind).

If you are going to seek local Turkish partners, then there are two main ways of doing so that might occur to you. Advertising (or looking for advertisements) and recommendation (word of mouth). In Turkey, 90% of successful partnerships are as a result of recommendation. No one would be comfortable responding to an offer that has been advertised. Sometimes your accountant will be able to suggest people he knows who might be a good match for your skill set and business idea.

Choosing the right partner can be challenging. To put it bluntly, there are many conmen looking to make money out of inexperienced people wishing to do business in Turkey. Sometimes, those conmen are Turkish but, far more often, you will find yourself at risk from people of your own nationality. They find it easier to gain your confidence and they have enough knowledge of how things work in Turkey to appear plausible.

There are, of course, risks to your Turkish partner as well as to you. In many cases, they are the people who are easily accessible. In many cases, they will be the local director of the company that’s going to be running the business and so carry almost all the responsibilities. In many cases, they will speak Turkish whereas you do not and so face the additional responsibility of being in charge of all communications for the business. Often, they will be the people with the local knowledge and the local technical skills and so critical to the success of the business. Usually, they will be the people upon whom you depend for your understanding of Turkish business culture.

For all these reasons, the process of due diligence when it comes to forming a partnership or joint venture should be a two-way process and you should be suspicious if it is not.

Business plans in Turkey

You will, I hope, be familiar with the concept of a business plan. A business plan sets out, in writing, your objectives, why they will work, how you're going to achieve them, and how you're going to fund the business.

Surprisingly, business plans are relatively rare in Turkey – at least at the level of the businesses usually set up by our foreign clients.

Despite this, making a written business plan is (in our view), basically, essential. The process of putting things down on paper and working out all the numbers will usually identify lots of potential problems and challenges.

It is essential even if you don’t need to show the plan to anybody else. The mere discipline of preparing the plan increases your chances of success.

However, it's important to note that a Turkish business plan will be somewhat different from the business plan you'd produce to your bank or business partners in the US, Germany or the UK. Those, in turn, will usually be a little different from each other.

If the business plan is only for your own use, then this doesn't matter but if you want to use it to seek finance or to present to a bank then it really needs to be in the format with which the reader will be most comfortable. So, for example, if you were seeking finance from the US it is very helpful to have your business plan converted into the format with which an American would be most familiar. Similarly, if you want to present it to a Turkish bank, it will not only need to be translated into Turkish but it will also need to be adjusted (quite substantially) so that it looks and feels like a Turkish business plan.

There are two main differences - apart from the language - between a Turkish format business and (say) a UK format business plan. The first is that the Turkish plan lays much more emphasis on your CV (resume). Not just your experience in this sector of business, but your personal life and general experience.

The second is that a Turkish business plan (if it’s created at all) will often have cash projections going forward for 12 years rather than the three or four years more common in other countries. This is all a bit of a waste of time because everybody knows that it's hard enough to predict what's going to happen in 18 months' time, let alone 12 years' time! But if this projection is not there, it will cause eyebrows to be raised and you will risk a perfectly good plan being turned down.

Don't despair, though. In practical terms, once you have prepared your draft business plan, your Turkish accountant will have the experience to convert it into the Turkish format and, more likely than not, into several other 'international' formats.

Premises for a business in Turkey

Most businesses will need some premises from which to operate. You have several options.

Rented property

There is ample commercial property available for rent in Turkey. It is of all types from the opulent to the cheap and cheerful.

For most people, renting the property from which their business will operate is the most sensible solution although, again, your accountant will be able to advise you which is the most appropriate in your case. The main reason for this is that it conserves your capital for use within your business and it will often be very hard for you to raise that capital from any other source.

There is one major downside to operating a business from rented property, particularly if it is a business such as a bar, restaurant or garage providing direct service to the public. If your landlord cancels your lease - which he can do each year on the anniversary of the lease once the initial period stated in the lease has passed - he will be left not only with all the improvements that you have carried out on the premises but also a ready-made business of some value as your customers continue to turn up to the premises that they know to be an Indonesian Restaurant or a specialist Ferrari garage.

Property you have bought (owned property)

Many people - particularly the British - like the idea of owning property and like the idea of owning the property from which their business operates.

They have seen property prices rise a lot over the years and they see this as an extra source of profit from the business.

They also feel that the money they're spending on improvement to the premises is being spent for their benefit, not for the benefit of a landlord.

They find that the cost of renting is, typically, about 5% of the value of the property and - in today's climate - if they have some spare money they feel that this is a good investment, particularly after taking into account the other factors I have referred to.

The big downside is that it consumes lots of your cash. It will almost certainly not be possible to obtain mortgage finance to buy the property and so you will have to use your own capital. This may be money you need to run the business or, at the very least, money that would generate you more profit by being invested in your new (and successful!) business.

There is an additional problem in that the costs of acquiring and selling commercial property are quite expensive (about 10% and 5% respectively of the value of the building) and you may find that you outgrow the premises quite quickly or that, for some other reason, they turn out to be unsuitable.

For most people, renting turns out to be the better option unless they have lots of spare cash.

See our Guide to Buying a Commercial Property in Turkey.

Working from home in Turkey

Many businesses start off by working from home. Clearly, this is not possible in all cases - it might be a bit tricky if you're running a bar - but it can be a very useful way of testing whether your business is going to succeed and to delay incurring major expenditure until it does.

cooperativeNo licence is required to work from home, but you can expect to be visited by the tax office if your business is registered at your home address. This is to check if the business is real and so that the claims and deductions that you might be making are justifiable.

However, apart from the practical restrictions on your ability to work from home, there may be other limitations on your ability to do so.

If you are renting a property, you will need the consent of your landlord if you wish to operate a business from the premises.

If you own or rent property located within a community of owners (usually an apartment or a property that shares common facilities such as a pool or tennis courts that are owned and controlled by all the owners in the complex) you will need their consent before running a business from home. Some communities completely prohibit all business activity on the grounds of noise and nuisance. By law, commercial businesses are not allowed within a community/condominium; but professions (such as lawyers or doctors) can be carried out, if your use of the building for this purpose has been approved by the community/condominium.

If you are doing anything other than office and administrative type work, you may need to apply for the property to be reclassified as business premises. This is likely to lead to a substantial increase in your local property taxes.

Despite these limitations, it is commonplace for businesses to be run from home for at least a few months after they have been launched.

Running an internet-based business in Turkey

More and more people are basing their whole business concept around delivery using the internet and operating from home.

Turkey has, in many places, a good, reliable, and quick internet infrastructure, so this is not a technical problem if you live in a city. Delivery of physical goods within Turkey is also well catered for. Delivery of physical goods to international customers is a little more challenging - though possible.

Funding for a business in Turkey

Any new business will need funding.

It is extremely difficult - to the point of being virtually impossible - to obtain funding within Turkey for a new business venture being started by a foreigner who has recently arrived in Turkey. From the point of view of the lender, there are lots of good reasons for this. Would you lend money to a foreigner who had recently arrived in your country and who had what was, perhaps, a good business idea but no business experience, no knowledge of the culture of the country and only a few words of the language?

Having said this, it is in some cases possible to raise funds either from banks or from private investors but this will usually only be possible if you have lots of available security and/or personal guarantees from people of some substance resident in Turkey.

Most people setting up their businesses will, therefore, fund them themselves.

Many people used to decide to fund their business by taking out a mortgage on the property that they already own in Turkey. Often, that property would have been owned (perhaps as a holiday home) for many years and often it would have increased substantially in value. This is done by a ‘personal needs loan’. This is a type of loan under which the banks will agree to increase the size of an existing mortgage or to grant a new mortgage on a property that had not previously been mortgaged. Loan-to-Value ratios (LTVs) will be low: typically no more than 40-50%. Interest rates will typically be 1.5% per month (measuring interest on a monthly basis in this way is very common in Turkey). This is considerably more expensive than an ordinary mortgage, which might be 1% per month. Fees apply: valuations, commissions, Notaries’ fees, legal fees etc.

This approach to funding is now almost closed.

This is for two reasons. The first is that it is (at the moment – June 2017) difficult to find Turkish banks who will provide this facility to foreigners newly arrived in Turkey.

The second is that it is usually illegal. People would apply for the finance at the early planning stage of their new business and on the strength of their being in regular employment in their own country. Then, once they'd received the money, they would ‘magically’ decide to leave that employment and come to Turkey to set up a business. This broke their duty of total honesty when it comes to their dealings with their bank and could result in the mortgage being cancelled and/or, at least in theory, criminal charges.

Employing people in Turkey

Employing people in Turkey is a somewhat bureaucratic procedure and formal employment is something that most Turkish businesses seek to avoid, preferring to rely on contracting with people to provide specific services on a self-employed basis.

Despite this reluctance, very large numbers of people are properly employed in Turkey. The complexity and expense of actually employing them is not that high but the tax and social security burdens that you take on – and your ongoing liabilities to your employee – can be quite onerous.

As in most countries, such contracts are often not legal (because they do not represent the true position) if you are really employing someone full time and dressing it up as self-employment.

Remember that, as a newly-arrived foreigner setting up a new business in Turkey, you are probably more exposed than most to the risk of a disgruntled rival denouncing you to the authorities for your illegal employment practices.

See our Guide to Employment Law in Turkey for more information.

Don’t forget the bits & pieces!

When you’re setting up a new business, it’s too easy to forget about some of the smaller tasks that can make a great deal of difference a few years later or to think that, because your business is new, they’re not really important and you will get around to them later.

One of these things is to make sure that the name of your business and any relevant trade or service marks and other ‘intellectual property’ rights are protected. This is something you should raise with the lawyer advising you about the creation of the business. Unfortunately, this is seldom cheap – especially if (as is usually the case) you really need to protect your rights around the world but those rights can become hugely valuable as time goes on.

Who do I go to for advice?

Seeking advice is not likely to be expensive unless your business idea is complex. With me, an initial overview might cost you TRY1,000. A lawyer who was not bilingual and experienced in these international transactions might charge less.

Traditionally, the people who deal with setting up simple businesses in Turkey are accountants (rather than lawyers) and so your best source for this information is probably an accountant. The accountant will know when it might be a good idea to get a lawyer involved.

You may find you can get additional informal (and free) help from the more experienced members of the expat community. However, using them does carry two risks: they're unlikely to be familiar with all the Turkish legislation - and they might steal your idea!

Social security payments

If you choose to employ people within your business, in addition to their salary you will have to pay social security contributions to the Government of Turkey. These cover the employees’ entitlements to healthcare and other benefits.

At the moment, the rate of social security contributions is 12.5% of the person’s total salary package. This includes the value of any non-cash benefits you give to the employee - for example, private medical insurance or the use of a car.

As the owner of the business, you will also have to make substantial social security payments.

Conclusion

If you want to be your own boss in Turkey, starting a business is the way to make it happen.

As in all countries, running your own business comes with a lot of responsibility, particularly if you want to employ people. Be prepared for that.

In fact, preparation is really the key thing to take away from this guide. Everyone's situation will be totally unique, so you need to sit down and really think about your options. Ideally, you should seek legal advice (from an accountant of a lawyer) as to your best course of action.

Other guides of interest

 Description Link 
Turkey Country Guide
Essential facts and figures about Turkey
Click to see this guide
Employment Law in Turkey
Rights and responsibilities of employers and employees
Click to see this guide
Setting up a Company in Turkey
How to create a Turkish company
Click to see this guide

Readers' Comments

 

Further information?

I hope you have found this guide useful. If you need any further help, please contact me.

Başak Yıldız Orkun

25 June 2017


 

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