Setting Up a Company Abroad From Turkey: Capital Outflows, the Controlled Foreign Company Regime, and Choosing a Structure

Short answer: A Turkish-resident individual or company is free, under Turkish law, to set up a company abroad — but doing so triggers three separate layers of regulation at once: (1) under the legislation protecting the value of the Turkish currency, the capital export must be carried out through a bank and reported; (2) under the Controlled Foreign Company (CFC) regime in Article 7 of the Corporate Tax Law, the profit of a qualifying foreign subsidiary may have to be declared in Turkey; and (3) the target country's own company law, tax law, and immigration rules must be complied with. For technology startups in particular, structures in the US (Delaware C-Corp), the UK (Ltd), or within the EU (Estonia/the Netherlands) are commonly used, but the "right" structure depends on your investment goals, ownership structure, and tax position.

Why set up a company abroad?

The reasons Turkish founders and companies set up entities abroad generally fall into a few categories: raising funding from foreign investors (US-based venture capital funds in particular tend to prefer investing in a Delaware C-Corp structure), gaining direct access to international markets and local customer/payment infrastructure, consolidating intellectual property under a single international legal entity, and, in some cases, tax planning. However, "tax advantage" should not be approached naively — as explained below, the CFC regime can mean that a structure set up purely for tax reasons creates an unexpected tax burden back in Turkey.

1. Capital export: foreign exchange legislation and bank notification

Law No. 1567 on the Protection of the Value of Turkish Currency and the related Decree No. 32 require capital transfers from Turkey abroad to be made through the banking system and reported to the central bank. In practice, this means that any amount to be contributed as capital to a foreign company must be transferred through a Turkish bank under the "outward direct investment" category. Correctly classifying this transfer matters — transfers that are misclassified (for example, capital contributions recorded as "service fees") can create problems under both foreign exchange and tax legislation. In addition, acquiring shares in a foreign subsidiary may be subject to a notification requirement to the Ministry of Treasury and Finance; this notification is generally informational, but failing to make it can lead to administrative fines.

2. The Controlled Foreign Company (CFC) regime

Article 7 of the Corporate Tax Law provides that where a fully liable corporation in Turkey directly or indirectly holds at least 50% of the capital, profit share, or voting rights of a foreign subsidiary, and all of the following conditions are met together, the profit earned by that subsidiary — even if not distributed — must be included in the Turkish corporation's taxable income:

• 25% or more of the subsidiary's gross revenue consists of "passive income" such as interest, dividends, royalties, or gains from the sale of securities;
• The subsidiary is subject to an income or similar tax in its home country at an effective rate of less than 20% (i.e., a tax burden below 20% triggers the CFC regime);
• The subsidiary's total gross revenue for the relevant year exceeds the equivalent of TRY 100,000 in foreign currency (this threshold is updated periodically).

When all three conditions are met together, the subsidiary's profit is included in the Turkish parent company's taxable income for the relevant accounting period and becomes subject to corporate tax — even if the subsidiary has not actually transferred that profit to Turkey. For this reason, a foreign structure set up in a low-tax jurisdiction (certain offshore centers, certain Gulf countries) that is essentially earning passive income (for example, one that only licenses intellectual property or functions as an investment holding) can result in an unexpected tax liability in Turkey. Subsidiaries that carry out active commercial activity (selling software, providing services, manufacturing) in jurisdictions with a reasonable corporate tax rate generally fall outside this regime.

3. Transfer pricing and related-party transactions

Transactions between the Turkish company and its foreign subsidiary (management services, licensing, consulting, the purchase and sale of goods or services) are subject to the transfer pricing rules in Article 13 of the Corporate Tax Law. These transactions must be priced on an arm's-length basis and documented accordingly (a transfer pricing report). In particular, in "foreign holding/IP company – Turkish operating company" structures, setting a license fee or management fee that does not reflect arm's-length terms creates risk both for disguised profit distribution and for VAT/withholding tax purposes.

4. Choosing a structure: which country, which entity type?

Commonly encountered structures in practice include:

• US – Delaware C-Corporation: The de facto standard for technology startups planning to raise US-based venture capital. Advantages include fast incorporation, a flexible share structure (preferred shares, option pools), and standardized investor documentation (SAFEs, share purchase agreements) built around this jurisdiction. The downside is exposure to federal and state-level corporate taxes and additional obligations such as franchise tax.
• UK – Limited Company: Fast and inexpensive to incorporate, with all filings transparently tracked through Companies House. Although it has lost some advantages for accessing the EU market post-Brexit, it remains a popular choice for fintech and SaaS companies.
• Netherlands / Estonia: Favored by founders planning to operate within the EU, who want to be subject to EU law, or who are looking for digital convenience in management (such as Estonia's e-Residency system). The Netherlands' extensive tax treaty network can be advantageous for holding structures.
• UAE (Dubai/Abu Dhabi free zones): Has seen growing interest in recent years due to a 0% corporate tax threshold (below a certain revenue limit), geographic proximity to Turkey, and its role as a regional trade hub — but the low effective tax rate makes the CFC analysis especially important.

5. After incorporation: ongoing reporting obligations in Turkey

Once the foreign company is set up, the Turkish-resident individual or corporate shareholder has continuing obligations: reporting information about the foreign subsidiary in the annual corporate/income tax return, re-evaluating whether the CFC conditions are met for each accounting period, taxation of dividend distributions in Turkey (with the possibility of crediting taxes paid abroad under double tax treaties), and asset/wealth declaration obligations (for individuals). In addition, if the foreign company has a place of business or a dependent agent in Turkey, this can create a "permanent establishment" in Turkey, giving rise to a separate corporate tax liability.

Conclusion

Setting up a company abroad is, as much as the incorporation itself, an ongoing compliance burden that must be managed through foreign exchange notifications, CFC analyses, and transfer pricing documentation. Getting the structure wrong from the outset — for example, choosing an offshore subsidiary that is predominantly passive-income, or misclassifying the capital transfer — can turn into significant penalties years later in retrospective tax audits. For this reason, before deciding on a foreign structure, obtaining joint support from an attorney and a tax advisor familiar with both the target jurisdiction's company law and Turkish tax and foreign exchange legislation is critical to avoiding risks down the road.

Sources

1. Law No. 5520 on Corporate Tax, Art. 7 (Controlled Foreign Company), Art. 13 (Transfer Pricing).
2. Law No. 1567 on the Protection of the Value of Turkish Currency and Decree No. 32 (Communiqués Relating to Decree No. 32 on the Protection of the Value of Turkish Currency).
3. Ministry of Treasury and Finance, Notification Principles for Outward Direct Investments.
4. Revenue Administration, General Communiqué on Corporate Tax (Controlled Foreign Company application).

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