Full Details of Turkish Dividend Tax Law

Understanding the complexities of Turkish Dividend Tax Law is essential for both companies and investors to ensure legal compliance and optimize financial outcomes. This law governs the taxation of dividends, which are profits distributed by a company to its shareholders.

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Companies must accurately calculate and withhold the appropriate tax from dividends, which is typically 15% for resident individuals, while non-residents may benefit from reduced rates or exemptions under double taxation agreements (DTAs).

Our tax department is prepared to handle your company’s Turkish dividend tax law issues in Turkey. Turkey has one of the most competitive corporate tax rates in the OECD region. The Corporate Tax Law No.

5520 which was enacted on June 21, 2006, made some important amendments to the current applications and also included new concepts in the tax legislation. With the new Corporate Tax Law in place, Turkish corporate tax legislation now has noticeably clearer, more objective, and better-harmonized provisions that are in line with international standards.

Details of Turkish Dividend Tax Law

Turkish Dividend Tax Law governs the taxation of dividends distributed by companies to their shareholders. Understanding this law is crucial for both companies and investors to ensure compliance and optimize tax efficiency. This article provides a comprehensive overview of the Turkish Dividend Tax Law, its implementation, and the responsibilities involved.

What is Turkish Dividend Tax Law?

Turkish Dividend Tax Law outlines the tax obligations related to dividends, which are portions of a company’s profit distributed to shareholders. The law aims to regulate the fair and efficient collection of taxes on these earnings, ensuring that both the state and investors benefit appropriately from corporate profits.

How Does Turkish Dividend Tax Law Work?

1. Dividend Distribution:

When a company decides to distribute its profits to shareholders in the form of dividends, it must adhere to the procedures established by the Turkish Commercial Code and tax regulations.

This includes calculating the distributable profit, obtaining necessary approvals from the general assembly, and ensuring that dividends are distributed proportionally to shareholders based on their ownership.

2. Tax Rates:

Dividends are subject to withholding tax, which varies depending on the recipient’s status and residency. For resident individuals, the withholding tax rate is generally 15%. However, for non-resident individuals and entities, the rate may differ based on tax treaties between Turkey and the recipient’s country of residence.

3. Tax Declarations and Payments:

Companies must withhold the appropriate amount of tax from the dividends paid and remit it to the Turkish tax authorities. The withholding tax must be declared and paid within a specified period, typically by the 23rd of the month following the dividend distribution.

4. Double Taxation Agreements:

Turkey has entered into numerous double taxation agreements (DTAs) with other countries to prevent double taxation of dividends. These agreements may provide for reduced tax rates or exemptions, depending on the terms negotiated between Turkey and the other country.

Responsibilities Under the Turkish Dividend Tax Law

For Companies:

• Calculation and Approval: Companies must accurately calculate the distributable profit and obtain necessary approvals from the general assembly.
• Withholding Tax: Companies are responsible for withholding the correct amount of tax from dividends paid to shareholders.
• Tax Declarations: Companies must file tax declarations and ensure timely payment of the withheld tax to the authorities.
• Compliance: Companies must comply with all relevant laws and regulations, including those related to the calculation and distribution of dividends.

For Shareholders:

• Tax Liabilities: Shareholders are responsible for understanding their tax liabilities related to dividends received and ensuring that any additional tax obligations are met.
• Documentation: Shareholders should maintain proper documentation of dividend receipts and any taxes withheld to support their tax filings and claims for tax credits or exemptions under DTAs.

For Tax Advisors and Accountants:

• Guidance: Providing accurate guidance to companies and shareholders on dividend tax obligations and compliance requirements.
• Tax Planning: Assisting in tax planning to optimize the tax efficiency of dividend distributions.
• Filing Assistance: Helping with the preparation and submission of tax declarations related to dividends.
• DTA Utilization: Advising on the application of DTAs to minimize tax burdens on cross-border dividend payments.

Transfer of Dividends

Foreign companies are allowed to repatriate their profits and some limitations exist only for the companies monitored by entities such as the 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.

Therefore if the DTT dividend withholding tax rate is lower than the generic 15% rate, the DTT rate may apply.

There is no limitation on the repatriation of profits unless the company is monitored by an upper supervisory body (such as the Capital Market Board or the Banking Regulatory and Supervisory Board), whose approval is required. After paying a 25% corporate tax, there is a 15% dividend withholding tax if the profit is distributed to local natural persons or foreign natural/legal persons.

Under the Turkish tax system, all taxable entities are subject to the same dividend withholding tax rate, which is 15% and is applied to profits after taxation. Favorable dividend withholding tax rates exist due to Turkey’s Double Taxation Treaties.

Foreign investors are free to transfer dividends abroad in accordance with the Foreign Direct Investment Law. However, the Turkish Commercial Code’s legal reserve requirements must also be met.

There are no restrictions with respect to dividend payments under the Foreign Exchange legislation, but the dividend withholding tax has to be paid before repatriation. This will be checked by the banks used for the transfer.

Reach us for the Dividend Tax Law in Turkey

Navigating Turkish Dividend Tax Law requires a thorough understanding of the regulations, tax rates, and compliance requirements. Both companies and shareholders must be diligent in fulfilling their responsibilities to avoid penalties and optimize tax efficiency.

At Finlexia Accounting Firm, we are committed to providing expert guidance and support to help you navigate the complexities of Turkish Dividend Tax Law effectively.

For more information or assistance with dividend tax matters, please contact Finlexia Accounting Firm. Our team is dedicated to ensuring your tax obligations are met efficiently and accurately.

You may reach our accountants and lawyers for Turkish dividend tax law services by visiting our Contact page.