Turkey: Whether Share Certificates Of Limited Liability Company Qualify As Securities And Status Thereof Vis-À-Vis Tax Law

Last Updated: 9 May 2013
Article by Tayfun Ercan

Under new the Commercial Code of Turkey No. 6102, limited liability companies are allowed to issue share certificates. This new regulation raises an important tax concern with respect to sales of limited liability company share certificates.

Limited liability companies are quite high in number, and the tax-related aspect of this new regulation which enables limited liability companies to issue share certificates is of particular concern to owners of limited liability companies.

Enabling limited liability companies to issue share certificates raises a question as to whether sales of limited liability company shares will be taxed after the expiry of a two-year period, as in the case of joint-stock companies, if the sale is effected by the transfer of a share certificate, and whether the transfer will be subject to value added tax if the transfer of shares is accompanied by a share certificate.

Transfer of Share Certificates of Limited Liability Company vis-à-vis Income Tax

In order to be able to make a thorough evaluation of whether share certificates of limited liability companies will be treated as securities and therefore be exempt from income tax, the definition of "securities" should initially be reviewed. With the enactment of the new Capital Market Law No. 6362, an amendment has been made in the definition of "securities" by Article 3 of the Law. According to the new Capital Market Law, securities mean shares, other marketable instruments similar to shares, depository receipts for shares, debt instruments or securitised asset- and income-backed debt instruments, and depository receipts for these instruments, excluding monies, cheques, policies and bonds.

Although the definition of "securities" in the new Capital Market Law directly rejects monies, cheques, policies and bonds as securities, share certificates of limited liability companies have not been included in this scope. Besides, in using the phrase "shares, other marketable instruments similar to shares", the scope of securities has been broadened. It is concluded from the wording of the Capital Market Law that share certificates of limited liability companies qualify as securities, and such an approach leads us to conclude that the transfer of share certificates of limited liability companies is able to benefit from the exemption included in Article 80/1 bis. of the Income Tax Law.

Meanwhile, the new Commercial Code of Turkey furnishes a different perspective, according to which share certificates of limited liability companies do not meet the criteria for qualifying as securities. The new Commercial Code of Turkey deals with the share certificates of joint-stock companies under the section entitled "Securities", whereas the share certificates of limited liability companies are regulated in the section entitled "Rights and Duties of Partners". Moreover, the commentary on the new Commercial Code of Turkey relating to articles on share certificates of limited liability companies states that share certificates in limited liability companies will not provide the shares with transfer and circulation ease. This situation indicates the share certificates of limited liability companies cannot by law qualify as securities. Therefore, it should be accepted that share certificates of limited liability companies do not qualify as securities, and the transfer thereof may not benefit from the exemption included in Article 80/1 bis. of the Income Tax Law.

Transfer of Share Certificates of Limited Liability Company vis-à-vis Value Added Tax

With regard to value added tax, the issue should be dealt with from a different angle. Article 17, sub-paragraph 4-g of the Value Added Tax Law that regulates exemption on value added tax does not make a distinction between joint-stock company share certificates, which qualify as securities, and limited liability company share certificates, which do not qualify as securities, but rather uses the term "share certificate". In this respect, exemption on value added tax may also apply to limited liability company share certificates.

Furthermore, Article 17, sub-paragraph 4-g of the Value Added Tax Law states that in addition to share certificates, the delivery of marketable securities is exempt from value-added tax. Even if it is argued that limited liability company share certificates do not qualify as share certificates as defined by the Law, then limited liability company share certificates are at least required to be deemed as negotiable instruments. Therefore, since limited liability company share certificates having the nature of negotiable instruments are marketable securities, the transfer of share certificates should be entitled to value-added tax exemption.


If it is not possible for share certificates of limited liability companies to benefit from the exemption included in Article 80/1 bis. of the Income Tax Law, they should be entitled to the exemption under Article 17/4-g of the Value Added Tax Law. However, these assessments are our personal opinion on the matter, whereas the practice will be established by jurisprudence, doctrine and position of fiscal authority.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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Tayfun Ercan
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