Corporate restructuring in Turkey is governed by two bodies of law that have to be satisfied at the same time. The Commercial Code sets out how a merger, division or conversion is carried out; the Corporate Tax Law decides whether the transaction is tax-neutral or taxed as a liquidation. Getting the first right and the second wrong produces a valid restructuring with a corporate tax bill attached.
This page covers the routes available, the conditions each one attaches, what happens to accumulated losses, and the capital loss threshold that triggers restructuring whether or not the shareholders had planned one.
The Routes, and Which Are Tax-Neutral
The Commercial Code permits mergers, divisions and conversions of legal form. The Corporate Tax Law then treats some of those transactions as taxable events and others as transfers at book value with no tax arising. The distinction is not optional and it is not a matter of election after the fact: the conditions have to be met in the structure itself.
| Route | What it does | Tax treatment |
|---|---|---|
| Merger | One company absorbs another, or two combine into a new one | Taxed as a liquidation of the absorbed company unless it qualifies as a transfer |
| Transfer | A merger in which the whole balance sheet passes at book value between full taxpayers | Tax-neutral |
| Full division | A company splits entirely into two or more companies and ceases to exist | Tax-neutral where the conditions are met |
| Partial division | A production or service business, or participations held for at least two years, are contributed in kind at book value | Tax-neutral where the conditions are met |
| Share exchange | A company acquires shares in another so as to obtain management and voting control, giving its own shares in return | Tax-neutral where the conditions are met |
| Conversion of legal form | A limited liability company becomes a joint stock company, or the reverse | Legal personality continues; the tax number, contracts and permits carry over |
Transfer: the Tax-Neutral Merger
A merger qualifies as a transfer, and therefore escapes taxation, where two conditions hold together: the legal seat and place of management of the surviving company are in Turkey, and the dissolving company’s balance sheet passes to it as a whole and at its recorded values. Both companies must be full taxpayers.
Where those conditions are met, only the income the dissolving company earned up to the transfer date is taxed. No gain is computed on the combination itself. Two procedural steps are conditions rather than formalities: the transfer return must be signed jointly by both companies, and the surviving company must undertake to pay the taxes that will accrue.
Transferring the balance sheet at book value means exactly that: no revaluation, no cherry-picking, no leaving liabilities behind. A restructuring that revalues assets on the way through, or that transfers the business while leaving a disputed liability in the old company, does not qualify as a transfer — and the whole transaction is then taxed as a liquidation.
This is discovered late because the commercial and registry side proceeds perfectly well without it. The Commercial Code does not require book values; the Corporate Tax Law does. A merger can be validly registered and still be fully taxable.
What Happens to Accumulated Losses
This is usually the reason the restructuring is being considered, and it carries the tightest conditions in the whole regime. Losses of the transferring company may be deducted by the acquirer in a transfer or a full division, subject to three limits that apply cumulatively.
The other two conditions can be verified before signing: equity is a number on the balance sheet, and whether the returns were filed on time is a matter of record. The third cannot. The acquirer must carry on the acquired business for at least five years from the accounting period in which the transaction took place.
Discontinuing it earlier removes the deduction retrospectively, with the tax and interest that follow. A group that acquires a loss-making company intending to wind the business down and keep the losses has misread the rule: the losses are attached to continuing the activity, not to owning it.
Losses do not transfer on a partial division or a share exchange. Where the commercial objective can be met either by a full division or by a partial one, and there are losses worth preserving, that difference is usually decisive.
Partial Division: the Most-Used Route and a Recent Narrowing
A partial division allows a company to contribute part of itself into another company at book value, without triggering tax. It is the route most often used to separate a business line, to isolate an asset before an investor comes in, or to prepare a business for sale.
| What can be contributed | Condition |
|---|---|
| Production or service businesses | Contributed as a whole and at recorded values, capable of operating independently |
| Participations | Held for at least two full years |
| Immovable property | Removed from the scope of partial division; transfers of real estate no longer qualify |
Immovable property used to be within the scope of partial division, and a very large number of restructurings were built around moving property into a separate company at book value. That possibility has been removed. Guidance written before the change still describes it, and it is the single most common reason a partial division plan drafted from older material fails.
The related exemption on gains from selling immovable property was also restricted at the same time. Any structure whose logic rests on property moving tax-free between group companies should be re-modelled from current legislation rather than adapted from a previous transaction.
Share Exchange
A share exchange allows one company to acquire shares in another so as to obtain management and voting control, giving its own shares to the transferring shareholders in return. Where the conditions are met the exchange is tax-neutral, which makes it the standard mechanism for placing a holding company above an existing operating company without a taxable disposal.
Two points decide whether it works. The acquisition must confer control rather than a minority stake, and the consideration must be shares rather than cash — a cash element beyond the permitted limit takes the transaction outside the regime. Losses do not transfer.
Value Added Tax, Stamp Duty and Fees
- Transfers, divisions and conversions carried out under the Corporate Tax Law are exempt from value added tax
- The same transactions are exempt from stamp duty and from registry fees
- Input tax carried forward passes to the acquirer in a transfer
- Adjustment of input tax is not required on the exempt transfer itself
- Documents relating to capital increases and share transfers are separately exempt from stamp duty
- The exemptions follow the tax-neutral characterisation, not the commercial label
The last point is the one to hold on to. These exemptions attach to transactions that qualify under the Corporate Tax Law. A restructuring that fails the book value or completeness conditions loses not only corporate tax neutrality but the VAT, stamp duty and fee exemptions with it — three separate costs arriving from one failed condition.
Capital Loss: the Trigger Nobody Plans For
Most restructurings on this page are chosen. This one is imposed. Article 376 of the Commercial Code sets two thresholds measured against capital plus statutory reserves, and crossing either one obliges the board to act.
Half is lost
- Trigger
- Half of capital and statutory reserves unmet by assets
- Board duty
- Call the general assembly immediately
- What is presented
- Remedial measures the board considers appropriate
- Consequence of inaction
- Director liability, and the position worsens untreated
Two thirds are lost
- Trigger
- Two thirds unmet by assets
- Assembly must choose
- Make good the capital, or continue with one third
- Alternative
- Increase capital so that at least the lost part is covered
- If neither
- The company is deemed to have terminated itself
Beyond those two thresholds lies insolvency on the balance sheet, where liabilities exceed assets on both going concern and liquidation values. There the board must notify the court, unless creditors of sufficient rank agree to subordinate their claims or a credible improvement project is presented.
A temporary provision allows unrealised losses arising from foreign currency liabilities to be left out of the Article 376 calculation, together with a portion of certain other expenses. It was introduced during a period of sharp currency movement and has been extended more than once.
Because it is temporary and has been repeatedly renewed, the version in force for the relevant financial year should be confirmed rather than assumed. A company that is within the thresholds only because of the exclusion is within them only for as long as the exclusion lasts.
Two related deadlines interact with this. Companies incorporated before 2024 whose capital remains below the current statutory minimum must increase it by 31 December 2026 or be deemed dissolved. A company that is both below the minimum and inside the Article 376 thresholds is dealing with two obligations at once, and the capital increase that solves one can be structured to address the other.
Financial Restructuring of Debt
Where the difficulty is debt rather than structure, Turkey offers two formal frameworks. Neither is an accounting exercise, and the choice between them is made on how many creditors are involved and whether they are financial institutions.
A framework agreement under banking legislation allowing debts owed to banks and other financial institutions to be restructured — extended maturities, new facilities, debt converted into shares — where the debtor is assessed as able to repay after restructuring. It binds participating creditors and carries defined tax and fee exemptions.
A court procedure covering ordinary creditors as well as financial ones. A temporary moratorium halts enforcement while a project and a commissioner’s report are prepared; creditor approval at the statutory majorities and court confirmation then bind dissenting creditors.
The practical distinction is scope. The financial framework is faster and quieter but reaches only financial creditors; trade creditors remain free to enforce. Composition reaches everyone but is public, slower, and places the company under supervision. A company whose problem is concentrated in bank debt rarely needs the second.
How a Restructuring Runs
- Define the objective and test it against the routesSeparating a business line, absorbing a subsidiary, preserving losses and preparing for a sale point to different routes. The commercial objective is settled first, then the route that achieves it tax-neutrally is identified — not the reverse.
- Fix the balance sheet date and prepare the figuresThe transaction is built on a balance sheet at a stated date, carried at recorded values. Where a valuation is required it is prepared at this stage, together with the equity figure that will cap any loss transfer.
- Prepare the plan, the report and the agreementA merger or division agreement, the plan, and the board’s report explaining the transaction and the exchange ratio. Where the simplified procedure applies because of the level of ownership, several of these requirements fall away.
- Give creditors and shareholders their statutory rightsInspection rights, announcements and the protection creditors are entitled to. Cutting this short is where transactions are later challenged.
- Pass the general assembly resolutionsAt the majorities required for the route chosen, with the resolutions drafted to match the plan rather than paraphrase it.
- Register and announceThe transaction takes effect on registration. Permits, licences and contracts are reviewed for change of control and assignment provisions before this point, not after.
- File the returns and start the five-year clockThe transfer return signed jointly, the undertaking on accruing taxes, and — where losses have been taken over — the continuation of the acquired business monitored from the period of the transaction.
Three to five months from decision to registration is realistic for a straightforward transfer between group companies. Transactions involving outside shareholders, regulated activities or a valuation in dispute take considerably longer, and the balance sheet date chosen at the start constrains how long the rest can take.
Common Mistakes
- Revaluing assets on the way through a transfer. The condition is recorded values; revaluation makes the whole transaction taxable as a liquidation.
- Leaving liabilities behind. The balance sheet must pass as a whole; a transfer that is partial in substance is not a transfer.
- Acquiring losses intending to close the business. The deduction is conditional on carrying the acquired activity on for at least five years.
- Assuming losses survive a partial division. They do not; nor do they survive a share exchange.
- Planning a partial division around real estate. Immovable property has been removed from the scope, and older guidance still describes it as available.
- Not checking the last five years of returns. Late filing in any of them removes the loss transfer entirely, whatever the equity position.
- Treating the exchange loss exclusion as permanent. It is a temporary provision that has been extended repeatedly; the version in force should be confirmed.
- Reviewing change of control clauses after registration. Permits, licences and key contracts should be checked before the transaction takes effect.
Frequently Asked Questions
Is a merger in Turkey tax-free?
Can accumulated losses be transferred in a restructuring?
What happens if the acquired business is discontinued within five years?
Can real estate still be moved by partial division?
What is a share exchange and when is it used?
Are these transactions subject to VAT and stamp duty?
What must a company do when half of its capital is lost?
How long does a corporate restructuring take in Turkey?
As the Ozbek CPA team, we advise on corporate restructuring in Turkey — selecting the route that achieves the commercial objective tax-neutrally, testing the transfer conditions before the structure is fixed, modelling what happens to accumulated losses, preparing the balance sheet and the figures the plan rests on, and handling the returns and post-completion obligations. See also our pages on mergers and acquisitions, business valuation and due diligence. Contact us.
