Open Foreign Subsidiary from Turkey

Expanding into international markets is a key step for Turkish companies aiming to increase their competitiveness, attract foreign investors, and establish a global presence. One of the most effective methods for this expansion is to open a foreign subsidiary from Turkey. A subsidiary is a separate legal entity established in another country, owned partially or fully by the parent company. By setting up such a structure, Turkish businesses can benefit from new opportunities while minimizing legal and financial risks.

What is a Foreign Subsidiary?

A foreign subsidiary is a company registered in another country but owned and controlled by a parent company based in Turkey. The subsidiary operates under the laws of the host country and enjoys its own legal identity. Unlike a branch, which is legally tied to the parent, a subsidiary can enter contracts, open bank accounts, own property, and be fully responsible for its debts and obligations.

For example, a Turkish technology company may establish a subsidiary in Germany to access the European Union market. While the parent company remains in Turkey, the subsidiary functions as a local entity in Europe.

Benefits of Opening a Foreign Subsidiary from Turkey

Opening a foreign subsidiary offers Turkish businesses multiple advantages:

• Access to new markets: Companies can sell directly in regions such as the EU, USA, or Middle East without relying on distributors.

• Tax optimization: Some countries provide tax incentives for foreign investors.

• Local credibility: A registered local company increases trust with customers, suppliers, and authorities.

• Easier compliance: Operating as a local entity helps meet local laws, labor rules, and licensing requirements.

• Protection of the parent company: Since a subsidiary is a separate entity, liabilities remain within the subsidiary and do not directly affect the parent company in Turkey.

Legal Structure Options

When a Turkish company decides to establish a subsidiary abroad, it can choose among different legal structures depending on the host country’s laws. The most common types are:

• Limited Liability Company (LLC): Popular due to its simple structure and limited liability protection.

• Corporation (Inc.): Preferred for larger businesses, offering shareholding and investment opportunities.

• Joint Venture Subsidiary: Formed with local partners to share resources and market access.

The parent company in Turkey usually holds majority or full ownership of the subsidiary, but in some cases, local regulations may require local shareholders.

Steps to Open a Foreign Subsidiary from Turkey

The process may vary by country, but generally follows these steps:

1. Market Research: Identify target markets based on demand, competition, and legal environment.

2. Choose the Legal Form: Decide whether to establish an LLC, Corporation, or other type.

3. Register the Subsidiary: Submit incorporation documents (articles of association, shareholder list, registered address) to the host country’s authorities.

4. Open a Bank Account: Required for capital injection and operational expenses.

5. Tax Registration: Obtain tax identification and comply with VAT, income tax, or other local obligations.

6. Hire Staff or Appoint a Director: Some countries require a local representative or board member.

7. Compliance and Licensing: Apply for necessary permits depending on the sector (e.g., finance, health, construction).

Key Documents Required

Although exact requirements differ by jurisdiction, most countries request the following:

• Parent company’s registration documents (from Turkey, translated and apostilled)

• Articles of association of the new subsidiary

• Shareholder and director details

• Proof of registered office address

• Bank reference letters (sometimes required)

Tax Considerations

Taxation is a critical factor when opening a foreign subsidiary. Companies should carefully evaluate:

• Corporate tax rate in the host country

• Double Taxation Agreements (DTA): Turkey has DTAs with many countries, preventing double taxation of profits.

• Transfer pricing rules: Transactions between parent and subsidiary must be priced at market value.

• Withholding taxes: Applied to dividends, royalties, or interest payments to the Turkish parent.

Proper tax planning ensures efficiency and avoids unexpected liabilities.

Risks and Challenges

While establishing a subsidiary abroad has many benefits, companies must also be aware of potential challenges:

• High setup and compliance costs in certain jurisdictions

• Cultural and language barriers when managing operations

• Different labor laws that may increase employment costs

• Political or economic instability in the host country

• Regulatory complexity requiring continuous monitoring and legal support

Example: Turkish Company Expanding to Europe

Suppose a Turkish textile manufacturer wants to sell directly to European retailers. By opening a subsidiary in the Netherlands:

• The company benefits from EU market access without customs restrictions.

• The Netherlands offers favorable tax treaties with Turkey.

• The subsidiary increases trust with European customers by being a local entity.

This structure allows the Turkish parent to remain in control while adapting to EU business practices.