Primetax Guide: Profit Distribution in Türkiye

Introduction

The Turkish Commercial Code No. 6102 (the “TCC”) sets out the principal rules governing the determination and distribution of profits by Turkish companies. For joint stock companies (anonim şirket – “AŞ”), the main rules are contained in Articles 507 to 523. For limited liability companies (limited şirket – “Ltd.”), Article 608 regulates profit distributions and Article 610 applies the relevant statutory reserve provisions governing joint stock companies by analogy.

A shareholder has a statutory right to participate in profits that are lawfully made available for distribution. This should be distinguished from an automatic right to receive a dividend every year. The amount of profit to be distributed, if any, is determined through the corporate approval process, subject to the TCC, the company’s articles of association and any applicable sector-specific rules.

Public companies and regulated entities may be subject to additional requirements under capital markets, banking, insurance or other sector legislation. This Guide focuses principally on non-public AŞ and Ltd. companies, while highlighting the main points relevant to foreign shareholders and public companies where appropriate.

Distributable Profit

For an AŞ, dividends may be distributed only from net profit for the period and from freely distributable reserves. Annual profit is determined by reference to the annual financial statements. Similar principles apply to a Ltd., for which Article 608 provides that dividends may be distributed only from net profit for the period and reserves set aside for that purpose.

The existence of an accounting profit does not by itself establish the amount available for distribution. Before a dividend is determined, the company must consider accumulated losses, statutory reserves, reserves required by the articles of association and any other restrictions affecting distributable equity.

For an AŞ, the general assembly may also decide to retain additional reserves where the statutory conditions are satisfied, including where this is justified by the company’s continuing development and the interests of all shareholders. A Ltd. is subject to its own corresponding rules on additional reserves under Article 608.

The financial reporting framework applicable to the company should be considered when determining the relevant profit and equity figures. A distribution analysis should therefore be based on the financial statements legally applicable to the company rather than on a management account or tax return in isolation.

Corporate Approval

The decision on the use of annual profit is a matter reserved to the general assembly. In an AŞ, the board of directors normally prepares the proposal concerning the use of profit and presents the annual financial statements and the proposed distribution to the general assembly. The general assembly then decides whether profit will be distributed, retained or allocated to reserves, subject to the applicable legal and contractual restrictions.

For a Ltd., the general assembly likewise approves the year-end financial statements and decides on dividends. The company agreement should be reviewed for any specific rules on profit allocation, preferential rights or additional reserve requirements.

Dividend entitlements are generally calculated in proportion to the relevant shareholding or capital interest unless the articles of association or company agreement validly provide otherwise. Any dividend privileges attached to particular classes of shares must also be taken into account.

There is no general rule under the current TCC requiring every profitable company to distribute a minimum dividend equal to 5% of paid-in capital. The 5% figure appearing in the statutory reserve rules has a different function and should not be treated as a mandatory first dividend.

Statutory Legal Reserves

First Legal Reserve

Under Article 519 of the TCC, 5% of annual profit is allocated to the general statutory legal reserve until that reserve reaches 20% of paid-in capital. Once the 20% threshold is reached, the annual 5% allocation is no longer required unless the articles of association impose a higher reserve requirement.

Additional Statutory Reserve on Distributions

Article 519 also requires an additional allocation to the general statutory legal reserve in connection with profit distributions. After shareholders have received an amount equal to 5% of paid-in capital, 10% of the further amounts distributed to persons participating in profit is added to the statutory legal reserve.

This rule is sometimes described in practice as the “second legal reserve”. The underlying 5% amount is a threshold used in calculating the reserve; it does not, by itself, create an obligation to distribute a 5% dividend.

Use of Legal Reserves

Until the general statutory legal reserve exceeds one-half of the company’s capital or issued capital, it may be used only for the purposes permitted by Article 519, including covering losses and taking measures intended to maintain the business during difficult periods or to prevent or mitigate unemployment. The statutory exceptions applicable to certain holding companies and companies subject to special legislation should be considered separately.

Amounts exceeding the protected statutory level may, subject to the company’s circumstances and any other applicable restrictions, form part of the reserves available for broader corporate purposes. A proposed distribution from reserves should therefore be analysed by reference to the source and legal character of the relevant reserve rather than by looking only at the total balance shown within equity.

Payment of Dividends

Once a valid distribution resolution has been adopted, the company may pay the dividend in accordance with the terms of that resolution. The resolution should identify the amount to be distributed, the source of the distribution, the shareholders entitled to participate and the payment date or payment framework.

For foreign shareholders, the Foreign Direct Investment Law No. 4875 expressly permits foreign investors to transfer net profits and dividends abroad through banks or special financial institutions. There is therefore no general foreign-exchange restriction preventing the repatriation of a lawfully declared dividend.

In practice, the company and the remitting bank may require corporate resolutions, financial statements, tax documentation and information concerning the recipient. The documentation required for a cross-border payment should therefore be coordinated before the payment date, particularly where treaty relief is intended to be applied at source.

Dividend Withholding Tax

As a general rule, dividends distributed by a Turkish resident company to resident individual shareholders, non-resident individuals and non-resident corporate shareholders that do not receive the dividend through a permanent establishment in Türkiye are subject to Turkish dividend withholding tax.

The domestic withholding tax rate is 15% for dividend payments made from 22 December 2024 onwards. The withholding is made at the time the dividend is paid or otherwise made available to the shareholder, in accordance with the applicable tax rules.

The 15% rate is the domestic-law rate. A lower rate may apply under an applicable double taxation treaty, subject to the relevant treaty conditions and the availability of appropriate supporting documentation, including a valid certificate of tax residence where required.

Non-Resident Shareholders and Treaty Relief

Türkiye’s tax treaties commonly limit the Turkish withholding tax that may be imposed on dividends paid to a resident of the other contracting state. The applicable treaty rate depends on the particular treaty and may vary according to matters such as the legal status of the shareholder, its percentage ownership and, in some treaties, the taxation of the underlying profits.

Treaty relief should not be assumed solely from the country of incorporation of the shareholder. The company should confirm that the recipient is entitled to treaty benefits, satisfies the relevant ownership and other conditions and can provide the required residence documentation. Beneficial ownership and other treaty anti-abuse provisions should also be considered where relevant.

Where no treaty reduction is available, the domestic 15% withholding rate generally applies. For a non-resident shareholder whose Turkish dividend income has been fully subject to withholding and is not attributable to a Turkish permanent establishment, the withholding will generally represent the final Turkish tax on that dividend, subject to the circumstances of the recipient.

Resident Corporate Shareholders

Dividends received by a Turkish resident corporate taxpayer from another Turkish resident company generally benefit from the domestic participation exemption under Article 5(1)(a) of the Corporate Income Tax Law. The purpose of the exemption is to avoid repeated corporate-level taxation as profits move between Turkish resident companies.

A dividend paid to an ordinary Turkish resident corporate taxpayer is generally not subject to dividend withholding tax. Different rules may apply to tax-exempt entities and certain specially regulated recipients, and the status of the shareholder should therefore be checked before payment.

Resident Individual Shareholders

For Turkish resident individuals, 50% of dividends received from Turkish resident companies is exempt from personal income tax. The remaining 50% is taken into account for annual income tax purposes.

For income derived in 2026, an annual return is generally required if the taxable portion of the dividend, together with other income subject to the same declaration threshold, exceeds TRY 400,000. The dividend withholding tax suffered at company level is creditable in full against the income tax calculated on the declared dividend, including the portion of the withholding attributable to the exempt half of the dividend.

The shareholder-level result can therefore differ materially from the 15% withholding collected at source. For significant distributions to individual shareholders, the personal income tax position should be modelled separately before the distribution is implemented.

Capitalisation of Profits

The tax legislation provides that adding profit to share capital is not treated as a dividend distribution for dividend withholding tax purposes. A company may therefore capitalise qualifying retained earnings or other internal resources without triggering dividend withholding solely as a result of the capitalisation.

The source of the amount capitalised should nevertheless be reviewed carefully. Certain equity accounts and inflation-adjustment differences may carry separate tax consequences if later withdrawn from the business or distributed following a capital reduction or liquidation. Capitalisation should therefore not be treated as eliminating the underlying tax character of every equity item in all future circumstances.

Advance Dividends

Turkish law permits advance dividend distributions, but the applicable framework differs between companies subject to capital markets legislation and other companies.

For non-public companies falling within the Ministry of Trade Communiqué on Advance Dividend Distributions, the general assembly must resolve to distribute an advance dividend and the company must have generated a profit according to its three-, six- or nine-month interim financial statements for the relevant accounting period.

The distributable advance amount is calculated after deducting prior-year losses, taxes, funds and financial provisions, statutory and contractual reserves and the amounts required for privileged shareholders or other persons entitled to participate in profit. The advance dividend may not exceed one-half of the resulting amount.

Where more than one advance is paid during an accounting period, earlier advance payments are taken into account in calculating subsequent amounts. Previous-period advances must also be set off against the profit of the period to which they relate before a further final dividend or new advance dividend is distributed.

If the final annual result does not support the amount advanced, the applicable rules require the excess to be dealt with through available reserves and, where necessary, recovered from shareholders. The year-end position should therefore be monitored before additional distributions are made.

Tax Treatment of Advance Dividends

Advance dividends are subject to withholding tax according to the legal status of the recipient when the advance is distributed. The withholding is reported for the month in which the advance payment is made.

For shareholder-level income recognition, the Corporate Income Tax General Communiqué contains specific timing rules linking the definitive acquisition of the dividend income to the finalisation of the annual profit and the set-off of the advance against the dividend resolved from that profit. These rules should be considered separately from the company’s withholding obligation at the time of the advance payment.

Where the annual result is a loss or is insufficient to support the amount previously advanced, amounts recovered under the applicable corporate rules may also have tax consequences, including the transfer-pricing treatment described in the Corporate Income Tax General Communiqué.

Public Companies and Regulated Entities

Public companies are subject to the Capital Markets Law and the Capital Markets Board’s Dividend Communiqué (II-19.1), in addition to the relevant provisions of the TCC. Their distribution policy, disclosure obligations, calculation of distributable profit and advance dividend procedures should therefore be analysed under the capital markets rules.

In particular, listed and other public companies are required to operate within a disclosed dividend policy. Certain non-listed public companies are also subject to minimum distribution rules under the Capital Markets Board framework. Banks, insurance companies and other regulated businesses may be subject to further prudential or supervisory restrictions.

Accordingly, the absence of a general restriction under the TCC or the Foreign Direct Investment Law does not override a sector-specific limitation applicable to a particular company.

Practical Considerations

A profit distribution should be approached as a combined corporate, accounting and tax exercise. In practice, the following matters should be reviewed before the general assembly resolution is adopted:

• the financial statements and reporting framework on which the distributable profit calculation is based;

• accumulated losses and the availability and legal character of reserves;

• the first and additional statutory legal reserve requirements;

• the company’s articles of association or company agreement, including any dividend privileges or additional reserve requirements;

• the identity and tax status of each shareholder;

• the domestic 15% dividend withholding rate and the availability of treaty relief for non-resident shareholders;

• the documentation required for a cross-border remittance, including residence certificates where treaty relief is claimed;

• the personal income tax implications for Turkish resident individual shareholders;

• any earlier advance dividends that must be set off before a further distribution; and

• any capital markets, banking, insurance or other sector-specific rules applicable to the company.

The corporate resolution and the tax treatment should be aligned. A distribution described differently in the accounts, the general assembly resolution and the withholding tax filings can create avoidable legal and tax risk.

Conclusion

Profit distribution in Türkiye is generally flexible, including for companies with foreign shareholders, but the amount available for distribution is determined by the corporate law rules governing net profit, losses and reserves rather than by accounting profit alone.

The general assembly plays the central role in deciding whether profit will be distributed. The statutory reserve rules must be applied correctly, and the 5% threshold used in the additional reserve calculation should not be confused with a mandatory minimum dividend.

From a tax perspective, the principal current rule is the 15% domestic dividend withholding rate, subject to treaty relief. Resident corporate and individual shareholders are then subject to different shareholder-level rules. Advance dividends, public-company distributions and payments to foreign shareholders require additional procedural analysis.

A well-structured distribution process should therefore combine the corporate approvals, financial statement analysis, reserve calculations, withholding tax position and cross-border documentation before the payment is made.