In brief
With the Presidential Decree no.6791 published in the official gazette on 14 February 2023, the withholding tax rate on deemed dividends in connection with share buybacks by Turkish resident companies has been reduced to 0% from 15%.
In detail
The Article 94 of the Income Tax Law was amended in 2020 to introduce an anti-avoidance measure, intended to prevent arrangements where a company could transfer funds to its shareholders without payment of a dividend withholding tax.
As per the concerned amendment, in accordance with article 94/4 of the Income Tax Law following events that may occur after share buybacks by Turkish resident companies are deemed as a dividend distribution, subject to a withholding tax.
1. Capital reduction:
If the company (buying its shares from its shareholder) makes a capital reduction, the difference between the repurchase price and the nominal value of the shares is accepted as dividend distributed on the date the capital reduction is registered in the Trade Registry.
2. Sale of shares below the repurchase price:
If the repurchased shares are sold at a sales price lower than the repurchase price, the difference between the repurchase price and the sale price is accepted as dividend distributed on the date of sale.
3. If the repurchased shares are not sold or cancelled by capital reduction within two years of the date of repurchase, the difference between the repurchase price and the nominal value of the shares is treated as dividend distributed on the last day of the period of two years from the date of repurchase.
Amended provision
Before the enactment of the Presidential Decree, these deemed dividends were subject to a withholding tax rate of 15%. With the enactment of the Presidential Decree no.6791 on 14 February 2023, the withholding tax rate has been reduced to 0%.
