Withholding Rates Changed: 15% for Dividends Again, 0% for Listed Shares
As is well known, with the amendment made by Law No. 7256 published in the Official Gazette dated November 17, 2020, under Article 94 of the Income Tax Law, it has been stipulated that for full taxpayers, capital companies acquiring their own shares or partnership interests:
- If they redeem them through capital reduction, the difference between the acquisition cost and the nominal value of the shares or partnership interests will be considered as distributed profit at the date of registration of the capital reduction decision in the trade registry;
- If they dispose of the shares or partnership interests for a price lower than the acquisition cost, the difference between the acquisition cost and the disposal price will be considered as distributed profit at the date of disposal;
- If they do not redeem them through capital reduction or dispose of them within two full years from the acquisition date, the difference between the acquisition cost and the nominal value of the shares or partnership interests will be considered as distributed profit on the last day of the two-year period from the acquisition date.
In such cases, a 15% withholding tax will be applied on the aforementioned amounts.
With this arrangement, the President has been authorized to separately or collectively determine the ratio, which can be reduced to zero or increased up to one time, based on factors such as whether the shares of the full taxpayer capital company are traded on Borsa Istanbul, the proportion of the traded shares to the total shares, whether the repurchased shares are among the shares traded on Borsa Istanbul, whether the shares are repurchased from other full taxpayer institutions, and the total amount of the company’s annual sales revenue and other income.
Under this authority, with the Presidential Decree No. 6791 published in the Official Gazette dated February 14, 2023 (No. 32104, 1st Repeated Issue), the withholding tax rate on the distributed profit of full taxpayer capital companies’ own shares or partnership interests was reduced to 0% (See our Circular No. 15.02.2023/32).
However, with the Presidential Decree No. 7343 published in the Official Gazette dated July 7, 2023 (No. 32241), an amendment was made to the withholding tax rates under Article 94 of the Income Tax Law, and a change was made in the Decree No. 2009/14592, whereby the discounted withholding tax rate is now specifically applicable to full taxpayer capital companies whose shares are listed on Borsa Istanbul. Accordingly, a 0% withholding tax will apply only to those full taxpayer capital companies that acquire their own shares listed on Borsa Istanbul.
On the other hand, for other full taxpayer capital companies, as of July 7, 2023, a 15% withholding tax will apply to the distributed profit of shares or partnership interests acquired by them.
You can access our Circular dated February 15, 2023, No. 23 here.
You can access the relevant Presidential Decree here.
Sincerely,
BİLGENER
