Branch vs Subsidiary in Turkey: Which Is Better for Foreign Investors?

Branch vs Subsidiary in Turkey: Which Is Better for Foreign Investors?

11.07.26

Legal Framework and Key Distinctions Between a Branch and Subsidiary

Under Turkish law, the fundamental distinction between a branch and a subsidiary concerns legal personality and corporate autonomy. A branch is not a separate legal entity and operates as an extension of its foreign parent company.

A subsidiary is a locally incorporated Turkish company, typically a limited liability company or joint stock company. It acquires separate legal personality upon registration with the relevant Trade Registry and operates in its own name.

Because a branch has no separate legal personality, rights and obligations arising from its activities are attributable to the foreign parent company. This distinction can materially affect liability, governance and the legal allocation of commercial risk.

A subsidiary is subject to the Turkish Commercial Code in its own right. It may enter into contracts, hold assets and assume liabilities under its own legal personality, subject to applicable Turkish law.

Both structures may be used for commercial activities in Turkey, subject to sector-specific restrictions and regulatory requirements. When assessing the appropriate structure, advice from a corporate lawyer in Turkey may be relevant to the investor's intended level of legal autonomy, liability separation and long-term operational presence.

A branch should also be distinguished from a liaison office. A liaison office is subject to a separate permission framework and may not engage in commercial activities in Turkey.

Establishing a Branch in Turkey and Its Regulatory Structure

Under Turkish law, a branch operates as an extension of the foreign parent company and does not acquire separate legal personality upon registration. Its activities remain legally connected to the parent entity.

Establishing a branch generally requires a corporate resolution from the parent company authorising the Turkish branch. The relevant documentation must define the branch structure, authorised activities and representation arrangements.

The branch must appoint a representative with authority to act on behalf of the foreign parent in Turkey. The scope of that authority should reflect the commercial and administrative functions assigned to the representative.

The registration process for company formation in Turkey generally requires duly legalised corporate documents relating to the foreign parent company. These may include constitutional documents, evidence of registration and the corporate resolution approving the establishment of the branch.

Depending on the country of origin and the applicable document framework, apostille or consular legalisation requirements may apply. Foreign-language documents must generally be translated into Turkish and submitted in the form accepted by the relevant Trade Registry.

Foreign company branches are included within Turkey's central trade registry framework, and trade registry processes are carried out electronically through MERSİS where applicable.

Following registration, the branch must complete the relevant tax and administrative registrations. Where employees are hired, applicable employment and Social Security Institution requirements must also be considered.

The branch must maintain its books and records in accordance with applicable Turkish accounting and bookkeeping requirements. Tax filing, VAT and withholding obligations may arise according to the nature of its activities.

Because the branch has no separate legal personality, liabilities arising from its Turkish operations remain attributable to the foreign parent company. This may be relevant when assessing contractual exposure, enforcement risk and the group's wider liability position.

A branch does not establish the corporate organs required for a Turkish subsidiary. Its local representative instead exercises powers delegated within the framework established by the foreign parent company.

In practice, a branch may be considered for project-based operations, defined service activities or market entry structures where the foreign parent intends to retain direct operational control.

Establishing a Subsidiary in Turkey: Capital, Liability and Governance

A subsidiary is incorporated in Turkey as a separate legal entity. Foreign investors commonly establish subsidiaries as limited liability companies or joint stock companies, depending on the proposed shareholding and governance structure.

Separate legal personality enables the subsidiary to enter into contracts and assume liabilities in its own name. This generally creates clearer structural separation between the Turkish company and its foreign shareholder.

The incorporation process requires preparation of the articles of association and determination of the company's shareholding, capital and management arrangements. Company formation and trade registry procedures are generally processed through the MERSİS framework.

The minimum capital requirement for a limited liability company is TRY 50,000. A joint stock company must have minimum capital of TRY 250,000.

These amounts have applied since 1 January 2024 following Presidential Decision No. 7887, published in the Official Gazette dated 25 November 2023.

Capital may be contributed in cash or, subject to the statutory requirements, in kind. Non-cash capital contributions must comply with the valuation and eligibility rules under the Turkish Commercial Code.

The governance structure depends on the chosen company type. A limited liability company operates through its General Assembly and one or more managers, while a joint stock company has a General Assembly and Board of Directors.

These corporate organs provide a formal framework for management, shareholder decision-making and oversight. Their powers and responsibilities are governed by the Turkish Commercial Code and the company's articles of association.

A subsidiary may therefore be appropriate where a foreign investor requires separate legal personality, a defined local governance structure and clearer allocation of liabilities within an international corporate group.

Liability, Taxation, Control and Operational Flexibility

The choice between a branch and a subsidiary often turns on liability exposure, taxation, governance and the intended duration of the investor's activities in Turkey.

A branch has no separate legal personality. Liabilities connected with its Turkish activities are therefore attributable to the foreign parent company, which may expose the parent directly to claims arising from local operations.

A subsidiary assumes obligations through its own legal personality. This creates greater structural separation, although shareholders, directors or managers may still face specific liabilities where Turkish law expressly provides for them.

The tax position also requires separate analysis. Both branches and Turkish subsidiaries may be subject to Turkish corporate taxation in relation to taxable profits within the applicable domestic tax framework.

For a branch operated by a non-resident company, the transfer of post-tax branch profits to the foreign head office may give rise to withholding tax consequences under Turkish corporate tax rules. Applicable double tax treaty provisions may also affect the final treatment.

A Turkish subsidiary may distribute dividends to a foreign shareholder. The domestic tax treatment and any available treaty relief depend on the shareholder's jurisdiction and the applicable double tax treaty.

Tax consequences should therefore be assessed according to the investor's corporate structure and anticipated profit flows. The legal form alone does not determine whether one structure is more tax-efficient in every case.

Governance and control also differ. A branch remains directly connected to the authority of its foreign parent, with the local representative exercising powers delegated by that parent.

A subsidiary must operate through the corporate governance mechanisms required for its company type. This introduces formal decision-making procedures but may provide clearer internal approvals and management continuity.

A subsidiary may also provide greater structural autonomy for long-term contracting, local asset holding, workforce planning and participation in commercial projects. Its separate legal personality can support partnerships and clearer risk allocation within an international group.

Practical Considerations for Foreign Companies Entering Turkey

The appropriate structure should be assessed with business legal advice in Turkey, taking into account the investor's planned activities, commercial risks and intended level of operational independence.

A branch may be suitable for project-based or closely controlled operations where the foreign parent intends to maintain direct legal and managerial oversight. The parent should, however, consider the absence of separate legal personality when assessing commercial exposure.

A subsidiary may be more appropriate where the investment requires a separate Turkish corporate identity and a formal local governance structure. This can be relevant for long-term operations, joint investments or businesses involving several shareholders.

Banking arrangements, tax registrations and sector-specific regulation may also affect the choice. Certain regulated activities can be subject to additional licensing, capital or organisational requirements.

Foreign investors should also consider how profits are expected to move between Turkey and the foreign parent company. Domestic tax law and applicable double tax treaties may affect branch profit transfers and dividend distributions differently.

The proposed management structure is another relevant factor. A branch relies on delegated authority from the parent company, while a subsidiary must make corporate decisions through the organs prescribed for its legal form.

These distinctions should be assessed before the incorporation or registration process begins. Changing the legal structure after operations have developed may require additional corporate, contractual and tax planning.

FAQ

What is the main legal difference between a branch and a subsidiary in Turkey?

A branch has no separate legal personality, and liabilities arising from its operations are attributable to the foreign parent. A subsidiary is a separate Turkish legal entity and assumes obligations in its own name.

Is a branch suitable for long-term commercial operations in Turkey?

A branch may be suitable for project-based or closely controlled operations. A subsidiary is often considered where separate legal personality, local governance and a longer-term corporate structure are required.

Does a subsidiary offer better liability separation for foreign investors?

A subsidiary generally provides clearer liability separation because it has separate legal personality. However, specific shareholder, director or manager liabilities may arise where Turkish law expressly provides for them.

Summary

The choice between a branch and a subsidiary in Turkey depends on legal personality, liability exposure, governance and the investor's intended commercial structure. A branch remains directly connected to its foreign parent, while a subsidiary operates as a separate Turkish legal entity. Tax treatment, profit flows and sector-specific requirements should also be assessed before market entry. The appropriate structure will depend on the nature, duration and risk profile of the proposed Turkish operations.

For professional legal assistance with establishing a branch or subsidiary and structuring your market entry in Turkey, contact Gokalp Legal.

This article provides general information and does not constitute legal advice.