Since the new Turkish Commercial Code has entered into force on
July 01, 2012, limited liability companies can now be incorporated
with a sole shareholder provided at least one shareholder is among
the managers of the company. Therefore, if a limited liability
company has one shareholder, then that shareholder will
automatically be a manager.
In this respect, the Turkish Revenue Administration
("Administration") has issued a ruling
("Ruling") on July 31, 2013 to clarify on whether a
manager of a sole shareholder limited liability company can receive
a salary from the company.
In the Ruling, the Administration mainly focused on two issues,
first being the principles and procedures regarding the amount of
the fees paid to the manager and second whether such fees will be
subject to income tax.
Pursuant to the Ruling, if the manager of the limited liability
company is to receive a fee, then the amount of that fee has to be
determined based on the "Arm's Length Principle"
which in this context will be the price or remuneration that would
have been payable for those services as if there was no existing
relationship between the parties.
In the Ruling, the Administration further provides that if a
company determines a fee for its manager in defiance of the
Arm's Length Principle, this will constitute a distribution of
concealed earnings through transfer pricing, by virtue of the
General Communiqué on Distribution of Concealed Earnings
through Transfer Pricing Serial No: 1. These concealed earnings
transferred in this manner are not tax deductible.
The Ruling also addresses whether these fees of the managers
will be subject to income tax. The Income Tax Law defines fee as
"benefits which can be represented by cash and are provided to
the employees in a certain workplace either in cash or in kind in
return for their services". Moreover, it does not make any
difference whether such fees are granted as a wage, bonus, advance
payment, premium payment, remuneration etc". Pursuant to
Income Tax Law, these fees shall be subject to income tax.
Therefore, in light of the information above, the Administration
provided that the manager of a sole shareholder limited liability
company can indeed receive a fee but such fee will be subject to
income tax. However, if the fee is determined in defiance of the
Arm's Length Principle, then the fee of the manager will not be
tax deductible within the context of Corporate Tax Law.
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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