Proit distribution policies of the companies are carried out in accordance with the provisions of Turkish Commercial Code, tax laws, articles of association, and the Capital Markets Law and the resolutions taken at general assembly meetings. In accordance with Article 507 of the Turkish Commercial Code, every shareholder has the right to participate in proportion to his/her shares into the distribution of the net proit for the period which is agreed to be distributed to the shareholders in accordance with the articles of association.
Pursuant to this provision, the franchises and special interests speciied in the articles of association and the relevant legislative provisions of the Capital Markets Board are reserved. Article 509 of the Turkish Commercial Code stipulates that dividend may be distributed only from the net proit for the period and free reserves. In accordance with this statement, the net period proit is based on the proit distributable to the shareholders. In accordance with Turkish Accounting Standards, the net period proit is shown on the inancial statements issued after the provision for taxes is set aside. It is stated in Article 508 of the Turkish Commercial Code that the annual proit is determined according to the balance sheet. With this regulation, when considered together with the net period proit stated in Article 507, the proit distributable to the shareholders is the net proit for the period.
There are certain legal obligations in relation to proit distribution. Accordingly, shareholders do not have unlimited disposition right in respect of the company’s proit, and the company is to set aside a portion of the proit as reserve. Reserves may be subjected to a triple classification according to the resources necessitating them to be set aside.
The proit distribution made by fully accountable taxpayers to their shareholders is generally subjected to withholding at a rate of 15%; however, no withholding is made on the dividends distributed from fully accountable taxpayers to fully accountable taxpayers. Addition of proits to the capital is not subjected to withholding tax as it is not considered as distribution of proits. Similarly, 15% tax deduction is made on amounts transferred by limited taxpayers to headquarters after deduction of the corporate tax. Withholding tax is imposed on the amount that remains after deducting corporate tax from the profit of branches subjected to taxation.
If the proit distribution will be made to a company whose registered office is abroad, the withholding rate in proit distribution is the rate determined by the agreement for prevention of double taxation. Taking into consideration the countries having an agreement for avoidance of double taxation with Turkey, the withholding rate in profit distribution ranges from 5% to 15%.
Resident corporations are subjected to 15% withholding tax when dividends are paid out to shareholders. However, dividends paid by resident corporations to resident corporations are not subjected to withholding tax. As a share capital increase by the Corporation using the retained earnings is not considered to be a dividend distribution, no withholding tax applies to dividends. Similarly, nonresident corporations are subjected to a 15% withholding tax during remittance of such proits to the headquarters. Withholding tax is applied on the amount after the deduction of corporate income tax from taxable branch proits.