Dividend Distribution
"What are the rules for distributing dividends in Turkey?"
Quick Answer
In Turkey, dividends may be distributed only from distributable profits shown in duly approved annual financial statements, after allocating statutory legal reserves and subject to capital maintenance restrictions. The general assembly resolves on the amount and payment date(s). Dividend payments may be subject to withholding tax, which can vary depending on the recipient and any applicable double tax treaty.
Key Aspects Under Turkish Law
Understanding dividend distribution is crucial for businesses operating in Turkey. The Turkish Commercial Code provides the legal framework governing this area, with specific provisions that differ from other jurisdictions.
Key Points to Remember
- Corporate approval & financial basis: Dividends may be distributed only based on duly approved annual financial statements and a valid general assembly resolution, subject to statutory legal reserves and capital maintenance rules.
- Trade Registry registration is typically required for enforcement
- Foreign investors have equal rights with domestic entities
- Proper documentation and corporate formalities are essential
Common Pitfalls
- Distributing dividends without sufficient distributable profits
- Failing to allocate statutory legal reserves before distribution
- Ignoring capital impairment / insolvency considerations
- Applying treaty withholding relief without proper residency documentation
Tax Treatment (Withholding)
Dividend payments may be subject to withholding tax in Turkey. The applicable treatment can vary depending on whether the recipient is a resident company, a non-resident (foreign) shareholder, or an individual, and whether a double tax treaty applies. Where treaty relief is intended, proper documentation (e.g., a valid tax residency certificate) is typically required.
Practical Checklist
- Prepare and approve the annual financial statements: The dividend decision must be based on duly approved financial statements (typically the annual balance sheet and profit/loss).
- Determine distributable profits: Identify the net profit and any distributable retained earnings / free reserves, and confirm there is sufficient distributable profit.
- Allocate statutory legal reserves: Set aside mandatory legal reserves before any dividend distribution.
- Adopt a general assembly resolution: The general assembly decides whether to distribute dividends, the amount, and payment terms/date(s) (often based on a proposal and supporting calculations).
- Check capital maintenance constraints: Ensure the distribution does not breach restrictions related to capital impairment or insolvency risk.
- Tax and documentation: Assess withholding tax obligations; if treaty relief is expected, obtain and retain the necessary residency documentation.
- Execute payment and bookkeeping: Pay dividends in accordance with the resolution and record the transaction properly in the company accounts.
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