How to approach an emerging market like Turkey?

Turkish economy still in progress

Turkey’s economy is still dynamic. Recently, it rebounded at its fastest rate in more than two decades in the second quarter, providing some good news for its local economy and his ruling party but also prompting fears of rising inflation.

GDP (Gross Domestic Product) surged 21.7 % in the last three months to June, its fastest rate of expansion since a long time: 1999.

Turkey, considered as one of the most important growing market in the word, is attracting more and more investors.

As many companies all over the world, you’re looking to explore new markets.

Foreign companies often aim to recruit a local profile to start their business.

Then, a legal question appears: how to recruit him ?

– May we set-up a legal entity ?

– Or to outsource this service via Umbrella Company also called PEO Turkey (Professional Employer Organisation), EOR (Employer of Record Services) or Payroll in Turkey?

Set-up a company or outsource via Payroll Turkey solutions ?

In this article, we’ll explore the advantages and difficulties of each solution.

First question to answer: what will be the size of your local staff ?

The bigger your team, the more you will have to think about set-up your own company.

For small team, if you’re interested in cost effective approach, PEO (Professional Employer Organization) solution is the right answer:

– Local service provider can manage recruitment process

– and additionally, they manage payroll on your behalf. It means:

– Signature of employment contract with your employee,

– Pay salary / process to taxes payments.

– Rent a car (if needed)

– Manage expenses (Mobile, travel expenses…) & allowances (Private insurance…)

This solution avoids you to set-up an entity.

Advantages of PEO solution in Turkey

Just have a look at the information below to better compare.

If you set up a company, there will be additional costs:

– set up fees and also administrative fees

– monthly fees including accounting

– you have to rent an office and have an official address (or virtual office is also possible)

If you have a small team, there will time consuming tasks:

•      There will be a monthly follow-up of accounting aspects, taxes, declaration from headquarters and your Turkish employee. Turkish authorities are more and more strict about this topic.
•      As everything is in Turkish and Turkish laws are updated every year, your employee will spend time to understand and follow-up local obligations. Even if it’s the role of your accountant, your Turkish employee will be to be the interface on daily basis.
•      It means that each week, there will be many calls with an accountant + face to face meetings (in Turkey, face to face is important, calls aren’t sufficient to get right information) ==> don’t forget that your employee is an “employee” and not an “entrepreneur”. It means that he is not used to managing this kind of task. And after, your employee will have to translate technical / financial information to your accounting department.
•     Even if at the beginning, your company will not generate turnover. There will be monthly / quarterly and annual declarations to edit, stamp taxes to pay, accounting books to pay etc. Many small tasks to follow-up
•     And during this time, your employee will not be concentrating on develop your business in Turkey and will not be dedicated to his main job.
•     Last and not least: If you decide to stop your project in Turkey, your company must stay “alive” for 12 months. Monthly costs and taxes must be supported during this period.

For all these reasons, most of the time, up to 5/6 employees, most convenient way is to recruit in Turkish market via PEO / Payroll services.

Among the strengths of Turkish market, we can list below advantages:

• Young and educated workforce : 60% of Turks are under 35 years old and 800,000 Turks graduate from university each year
• Well developed and flexible manufacturing tissue: Turkey is recognized as an industrialized country. Many multinationals have a production site in Turkey, whatever the sector: automotive (Renault, Toyota, Hyundai, Mercedes …), food (Fererro, Bel, Nestle …), metallurgy, computer (eg: HP) …
• Strategic geopolitical location : Turkey is a bridge between Europe, the Middle East and Asia. Most multinationals have their EMEA (Europe / Middle-East / Africa) headquarters in Istanbul: Microsoft, Pepsi, Coca-Cola etc
• Strong economic recovery after COVID-19:among the major markets, Turkey and China are the only countries to have experienced post-Covid growth. +5.9% for Turkey
• Recovering export performance that reduces current account risks