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Dividend Tax in Turkey

Dividend tax in Turkey

Updated on Friday 19th April 2019

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The Turkish taxation system is made of direct and indirect taxes which apply on the global income of Turkish residents and on the income sourced in this country in the case of foreign citizens and companies with activities here.

One of the most important taxes imposed in Turkey is the withholding tax, which is levied on several types of income, among which dividend payments.

Below, our Turkish lawyers explain how the dividend tax is applied in this country. We can also help foreign investors doing business in Turkey how they will be taxed.

The rates of the dividend tax in Turkey

The rate for dividend tax in Turkey is 15% for residents and non-residents (natural persons and legal entities) that receive dividends from companies incorporated in Turkey. The legal entities can be limited or full taxpayers according to the part of the income subject to taxation in Turkey. The limited ones will pay taxes, including dividend tax, for their income obtained in Turkey, while the full taxpayers are subject to taxation for their income gained all over the world.

The withholding tax on dividend payments is applied to both residents and non-residents in Turkey, however, it is important to note that special provisions apply when it comes to non-residents under specific tax treaties signed by the home countries and Turkey.

The following particular situations can be found when it comes to the Turkish dividend tax:

  •          - the tax is not imposed on the distribution of dividends to resident companies and branches of non-resident companies;
  •        -   dividend payments can be subject to partial exemptions in certain cases, such as the double tax treaties with Austria, Belgium, and Bahrain;
  •          - dividend payments can also be subject to different tax rates in certain cases, such as the double tax treaties with Canada, Denmark, and Bulgaria;
  •           - in most cases the dividend tax is imposed at a fixed rate, the lowest rate being 10%, such as is the case of the double tax treaties with Estonia, Croatia, and Yemen.

 

In most cases, the dividend tax is imposed at the standard rate of 15%.

There are also other exemptions when it comes to the Turkish dividend tax imposed under the double tax treaty with the United States where a participation holding is required in order for a reduced rate to apply. 

Companies that have their main/registered office in Turkey are considered full taxpayers and this rule applies also for Turkish subsidiaries of foreign companies and the branches are limited taxpayers. The foreign companies that have economic activities in Turkey are limited taxpayers and they have to pay taxes on their income (dividends) obtained in Turkey.

Our Turkish lawyers can offer specific information on the double tax treaties signed by Turkey at the request of clients.

Special taxation situations

For dividends obtained in Turkey by foreign companies, there are some particular situations in which other rules are applied. A company based in the Netherlands that receives dividends from a Turkish company has to pay a tax of 10% in Turkey if it doesn’t pay the corporate income tax in the country where it is registered.

The same rate for the dividend tax is applied for the dividends received by Belgian companies in the same conditions.

As a general condition, the dividend tax is 15% for foreign companies, if there is no other mention regarding the rate in a tax treaty signed by Turkey and the other country.

The transfer of dividends

The foreign companies are allowed to repatriate their profits and some limitations exist only for the companies monitored by entities such as Capital Market Board or the Banking Regulatory and Supervisory Board that approved the transfer of the dividends. The dividends can be transferred from Turkey to other countries according to the Foreign Direct Investment Law and the new Turkish Commercial Code.

Foreign companies pay a dividend tax lower than 15% if there are double taxation treaties already signed between their country of residence and Turkey. Until now, Turkey has signed over 70 double tax treaties. The dividend tax must be paid before the profits are repatriated.

The dividend tax and the participation exemption in Turkey

The taxation of dividends is closely related to the participation exemption regime in Turkey. From this point of view, Turkey “borrows” the dividend taxation system imposed in most European countries.

Under the participation exemption regime, dividend payments in Turkey are subject to specific tax treatment. The dividends received by a Turkish company from another local company are exempt from the dividend tax when the payment is received by the shareholders in the company receiving them.

In order for the participation regime to apply in the case of non-resident companies, the following conditions must be met:

  1.           the foreign company paying the dividends must be a private limited liability company or a joint stock company;
  2.           the Turkish company receiving the dividends must have owned at least 10% of the capital in the company paying the dividends for at least one year;
  3.           the profits from which the dividends resulted were subject to a corporate tax of at least 15% in the foreign company’s country (a 20% rate is required for certain incomes);
  4.           the dividends are sent to the Turkish company before the expiration of the corporate tax filing date.

 

All the conditions mentioned above must be respected in order for the participation regime to apply with respect to the Turkish dividend tax.

Our law firm Turkey can also help foreign investors who want to set up business operations here and take advantage of the tax benefits offered by the authorities.

Holding companies and the Turkish divided tax

The establishment of a holding company in Turkey can offer substantial benefits to those who want to take advantage of the taxation system in this country. Under the holding company regime, a Turkish company or a foreign company can benefit from dividend tax exemptions under certain requirements.

One of these requirements is the participation exemption regime. In the case of a Turkish company, it must be registered as a joint stock corporation and must hold at least 75% of the non-cash assets in its subsidiary for a minimum period of one year, in order to obtain the dividend tax exemption in Turkey.

In the case of foreign companies seeking to obtain an exemption from the Turkish dividend tax, they must hold at least 10% of the capital in each Turkish limited liability company and/or corporation operating as subsidiaries.

In the case of international holding companies, they can obtain an exemption from the withholding tax on dividends in Turkey if they keep their investments for at least two years.

If you need more information about the dividend tax and the other legal obligations for your company in Turkey, you may contact our lawyers in Turkey.