Are you interested in starting a business in Turkey? If YES, here is a complete guide plus legal requirement for starting a business in Turkey as a foreigner.
Okay, having provided an in-depth analysis of the top 50 best small business opportunities in Turkey and a series of industry-specific sample business plan templates; we will now analyze in detail the legal requirements, market feasibility and every other thing it takes to start a business in Turkey. So put on your entrepreneurial hat and let’s proceed.
Within the past few years Turkey has attracted foreign investment due to its unique trading location between Asia, Europe and the Middle East. Turkey is recognized globally as a country of significant importance, with many public and international companies opening offices in and around its major cities.
Why Start a Business in Turkey as a Foreigner?
The vast majority of these larger companies base themselves in Istanbul and Ankara. With its thriving economy, geopolitical position, promising growth opportunities, a hard-working business community, and a young population, the country is a wonderful business location for entrepreneurs.
According to data, since 2017, foreign investors can now obtain Turkish citizenship and its combined benefits by establishing a business in Turkey. Turkish citizenship right has been given to foreign nationals who make investment of a certain amount and create employment or keep the deposit.
If you make capital investment of at least $500 thousand, or create at least 50 person employment, or purchase immovable property worth of $250 thousand, or keep deposit of at least $500 thousand in the banks operating in Turkey for minimum 3 years, or purchase government debt securities of at least $500 thousand provided that they are kept for 3 years, you can acquire your Turkish citizenship. These, and many more are the reasons starting a small business in Turkey can be a promising and lucrative.
So, if you’re interested in leveraging the vast opportunity available in Turkey, below are the necessary steps to take before starting your business.
Starting a Profitable Small Business in Turkey as a Foreigner
Most times in Turkey, foreigners tend to consider starting a business where the language barrier wouldn’t affect their ventures. 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. This idea also ignores the fact that, even if you’re running a bar where the large majority of your customers are Germans for instance, 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.
Do not let this barrier limit your thinking as Turkey provides you with the market to venture into a variety of businesses like Construction companies and agriculture. Do not allow your options to be constrained by unnecessary fear of working in a new environment.
Once you have had your ‘eureka!’ moment and seen a fantastic opportunity in Turkey, it is very tempting to fire ahead and develop the business. But, before doing so, it is advisable you check that your brilliant idea is actually going to work. The first port of call for many is their lawyer.
Be sure to employ the services of a good legal advisor that knows business laws in Turkey and has previously helped expats set up successful businesses. Also, it is very helpful if you have had previous experience working in the same area of activity.
Without experience, starting and running a restaurant or hotel is hugely difficult and very likely to fail. Even with experience, the risk of failure is significant. 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. It’s also pertinent you learn as much as you can about the country. Speak to any expats you know, or even strangers. People are often extraordinarily helpful.
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 foreign clients.
Yet, organising a written business plan is essential to your business success. 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 very necessary even if you don’t need to show the plan to anybody. Have it in mind that writing a comprehensive business plan is mainly for your own benefit. The simple acts of thinking things through and preparing the plan significantly increases your chances of success.
Meanwhile, it’s important to state that a Turkish-format business plan will be somewhat different from the business plan produced and presented to your bank or business partners in the US, Germany or the UK. Those plans, in turn, will usually be a little different from each other.
If the business plan is only for your own personal use, then this doesn’t matter. But if you plan seek finance, to present to a bank or to involve a local partner, then it really needs to be in the format with which the reader will be most comfortable.
Note there are two main differences – apart from the language – between a Turkish format business plan and (for instance) 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.
Secondly, a Turkish business plan will often have cash projections going forward for 12 years rather than the three or four years that is more common in other countries. Do not let the process of writing a Turkish business plan deter you. Once you have prepared your business plan, your Turkish accountant can convert it into the Turkish format.
- Register your business
The Turkish Commercial Code defines several legal business structures, all open to foreigners. The limited company, requiring a minimum of one partner and 5,000 Turkish liras in capital, is relatively simple to set up and is hence one of the most popular corporate forms for small and medium businesses.
The joint stock company, involving a minimum capital of 50,000 Turkish liras and a minimum of one shareholder on the board, is more suitable for larger-scale projects. It must be registered with the Capital Market Board and obtain a stock certificate.
Which ever legal structure you choose, you will be mandated to apply for registration with the Trade Registry System (MERSIS), providing notarised copies of the company’s statuses and of the partners’ identification documents, a tax identity number for the company, bank receipts stating that at least 25% of the capital has been deposited and that another 0.04% has been transferred to the Turkish Competition Authority via the Central Bank or a public bank.
The Turkish minimum gross monthly salary is set at 1,777 Turkish liras. Moreover, the employer must contribute to the social security fund (22.5% of wages) and to the national unemployment insurance plan (2% of wages). Employees’ working time should not exceed 45 hours a week, with overtime paid at a rate of 1.5. Working on public holidays entitles workers to double pay.
Most businesses will need some premises from which to operate. There are ample commercial properties available for rent in Turkey. It is of all types, from the opulent to the cheap and cheerful. For most people, renting a property is the most sensible solution: although, again, your accountant will be able to advise you on the most appropriate in your case.
The main reason why renting tends to be the best option is that it conserves your available capital. It will often be very hard for you to replace or add to that capital from any other source.
But one major disadvantage to operating a business from a rented property is that 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 with a ready-made property of some value.
This is why many people prefer owning the property from which their business operates. The big downside of owning a property is that it consumes lots of cash.
Also, there is an additional problem in that the cost of acquiring and selling commercial property is 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. That is then wasted money.
You can also start off your business 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.
Although, no special licence is needed 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.
It can be extremely hard to obtain funding within Turkey for a new business being started by a foreigner who has recently arrived in Turkey. No one would want to lend money to a foreigner who had just arrived in the country. But it is also possible to raise funds either from banks or 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 who are resident in Turkey.
Most individuals starting up their businesses will, therefore, fund them themselves or partly through family and friends. Some people can decide to fund their business by taking out a mortgage on a property that they already own. Often, that property would have been owned for many years.
They would simply approach their bank, extract the accumulated value and use the money to fund their business idea. This can be done through a ‘personal needs loan’ scheme. 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.
In theory, these loans are still available. 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, however, still considerably more expensive than an ordinary mortgage, which might be 1% per month.
Although you may decide to set up a small business entirely on your own, majority of foreigners starting a business in Turkey do so in this way. But, quite a number also recognise the benefits of having an experienced partner. This could be a local Turkish person or a fellow expat.
Each has its advantages and disadvantages. If you are going to seek local Turkish partners, then there are two major ways of doing so. Advertising 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 or lawyer will be able to suggest people he knows who might be a good match for your skill set and business idea. Have it in mind that choosing the right partner can be challenging.
To put it bluntly, there are many conmen looking to make money out of inexperienced foreigners. Sometimes, those conmen are Turkish but, far more often, you will find yourself at risk from people of your own nationality. That is because they find it easier to gain your confidence and they have enough knowledge of how things work in Turkey to appear plausible.
So, you need to conduct due diligence when it comes to forming a partnership or joint venture. The process of due diligence when it comes to forming a partnership or joint venture should be a two-way process: they should want to know as much about you as you do about them. You should be suspicious if it is not so.
- Start your business and perform your responsibilities as a business owner in Turkey
Note that for every type of business, except those run through public companies – where the responsibilities are more onerous – a business in Turkey is expected do the following:
- Every month (or, in some cases, three months), pay the taxes that you owe. This will include any tax payable by any company you are operating or – if you’re not operating the business through a company – your own personal taxes. You must employ an accountant for this
- Pay your insurances: indemnity for directors, possible business insurance and so on
- Every month, you must pay your social security payments (for yourself and for any employees)
- Every month, your tax declaration must be submitted by your accountant: you will need to pay your accountant a book keeping fee to do this
These are your primary obligations but your accountant will advise you of any other thing required in the case of your particular business.
Recent legislation to promote foreign investment means it’s easier than ever before to set up a business in Turkey. It’s easy to see why Turkey appeals as a destination for new companies: half its 70-million strong population is aged under 30, and they’re increasingly educated and solvent, with cash to spend.
Also, 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.
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.