Corporate Tax Law No. 5520 introduced provisions to the Turkish
tax legislation designed to encourage the establishment of
international holding structures in Turkey. This
"international holding structure" refers to companies
whose main activity is participating in foreign companies. The law
is meant to attract foreign companies to invest in Turkey, and to
incentivize local investors.
Pursuant to the regulations specified in Clauses (b) and (c) of
Article 5 and Clause 4 of Article 30 of the Corporation Tax Code,
if investments abroad are carried out through resident joint stock
companies incorporated in Turkey (holding companies, investment
companies), they enjoy a participation income exemption under
certain conditions. An advantage is introduced on dividend
withholding tax as well.
Corporation tax exemption granted to dividend income
acquired by holding companies incorporated in Turkey
Participation income acquired by companies participating in the
capital of joint stock companies, and limited companies whose legal
or business headquarters are not located in Turkey, shall be exempt
from corporation tax only if:
The company that holds the participatory (interest) share owns
at least 10% of the paid-in capital of the participation
The participatory (interest) share is held for at least 1 year
on a continuous basis, as of the date the income is acquired;
The participation income acquired abroad bears a total tax
burden of at least 15%, like income and corporation tax, including
taxes paid over earnings used as the source of dividend
distribution pursuant to the tax laws applicable in the country
where the entity participated in is resident. If the main activity
of the company participated in is providing financial or insurance
services or securities investment, including financial leasing, it
should bear a total tax burden at least equal to the corporation
tax applicable in Turkey (20%), pursuant to the tax laws applicable
in the country where the entity participated in is resident;
The participation income is transferred to Turkey by the date
of the corporation tax return for the period in which the
participation income is acquired.
Corporation tax exemption granted to earnings
acquired by disposing of the overseas participatory (interest)
shares of the holding company incorporated in
Participation income acquired by companies that participate in
the capital of joint stock companies and limited companies whose
legal or business headquarters are not located in Turkey, and
generated from disposal of this participation, shall be exempt from
corporation tax if:
The entity acquiring the income is a resident joint stock
company in Turkey;
75% or more of the total assets of the holding company
– excluding liquid assets – consists of the
shares of a joint stock or limited company that has not had its
legal or business headquarters in Turkey for at least 1 year on a
continuous basis, as of the date the income is acquired;
The minimum participation ratio is 10%; and
The participatory (interest) shares disposed of are held for at
least two full years.
Low withholding tax applicable on dividend distribution of
holding companies incorporated in Turkey
Dividends distributed to nonresident shareholders that have the
status of a joint stock or a limited company by holding companies
that have resident joint stock company status in Turkey, on
participation earnings acquired by these holding companies from
their participation abroad and exempted from corporation tax as
defined above, shall be subject to withholding tax of only
It is evident that the international holding regime brought into
the Turkish Tax System, as applied in certain other countries,
introduces serious tax advantages regarding international holding
structures, especially for foreigners. In our opinion, this regime
will become a source of interest for holding structures in Turkey,
and will become much more visible internationally in the years
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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