Advance (or interim) dividend distributions were formerly only permitted for publicly listed companies under Turkish law which meant private companies could only distribute annual dividends following the end of the relevant financial year. The New Turkish Commercial Code (in effect since 1 July 2012) introduced the possibility for private companies to distribute advance dividends in principle but left the details to be regulated by further secondary legislation. The long awaited communique regarding advance dividend distributions (the "Advance Dividend Communiqué") was published in the Official Gazette on August 9, 2012.
Under the Advance Dividend Communiqué:
- Both joint stock and limited liability companies may distribute advance dividends.
- Companies may start distributing advance dividends by reference to their 2012 interim financials.
- A company may distribute advance dividends on the basis of its quarterly financials. We understand these quarterly financials do not need to be audited, however, this has to be confirmed with the secondary legislation on audit.
- The company should have net profits in its quarterly financials which will be the basis of the advance dividend distribution. Only half of the net profit under such quarterly financial may be distributed by way of an advance dividend.
- If the company distributes advance dividends more than once in a financial year, the communique clarifies that advance dividend payments made in the previous quarters should be deducted from the net profit available for distribution. Again, only half of the net profits (after deduction of the previous advance dividends) may be distributed.
- 10% of the distributable advance dividend shall be set aside as reserve.
- The privilege for dividend distribution is not applicable in case of advance dividend distributions.
- If a shareholder is indebted to the company, the advance dividend amount must be set off against such receivables.
- The board should issue a report certifying that the quarterly financials to be used for advance dividend distribution purpose reflects a truth and fair view of the company and the calculation of the advance dividend amount is compliant with the Advance Dividend Communiqué.
- A general assembly resolution is required to distribute advance dividends.
- If the company, on the basis of its yearly financials, does not make sufficient profits (i.e. a net profit amount at least equal to or more than the advance dividend already distributed) or is in a net loss position for the financial year, then the advance dividend payment amount made must be deducted from the free reserves of the company (and the statutory reserves, if the company was in a net loss position) available under the balance sheet of the previous financial year. If the amount of such reserves are not sufficient to cover the amount of the advance dividend distribution, the advance payments must be repaid to the Company upon notification by the Board. Ω
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.