With the development of capital markets in Turkey and the diversification of income types, the taxation of income derived by individuals and legal entities from shares, partnership rights, investment income, interest, and other returns has become increasingly important. The Income Tax Law (ITL) and related legislation regulate the taxation of these incomes through filing, withholding, and tax deduction at source.
This article addresses the taxation of shares and partnership rights, dividend income, stock-exchange transactions, foreign-source gains, and withholding tax applications under ITL Articles 94–97.
Taxation on the Disposal of Partnership Interests and Shares
Pursuant to ITL Article 80 (Repeated) and Article 81, those who hold shares of resident capital companies are liable to income tax on the difference between the acquisition cost and the disposal price or nominal value when shares are disposed of or redeemed via capital reduction.
- Disposal below acquisition cost: The difference is treated as a dividend on the disposal date and is subject to 15% withholding.
- Redemption via capital reduction: 15% withholding applies to the difference between the nominal value of the redeemed share and its acquisition cost.
- Shares not disposed of within two years: The difference between acquisition cost and nominal value is deemed distributed dividend at the end of the two-year period and is subject to withholding.
The President is authorized to reduce the withholding rate to zero or increase it up to one-fold based on criteria such as whether the shares are traded on Borsa İstanbul, the ratio of listed shares to total shares, the status of treasury shares, and the company’s annual revenues.
Taxation of Dividend (Profit Distribution) Income
Under ITL Article 75, dividends distributed by companies are subject to income tax. The framework for dividend income includes:
- Dividends distributed to resident individuals and resident entities
- Dividends distributed to non-resident individuals and non-resident entities (not obtained through a permanent establishment or permanent representative in Turkey)
- Income from investment returns (15% withholding)
- Interest and other investment income; payments via PTT agencies; payments for agricultural products and services
Filing thresholds (2025):
- For dividend income, a TRY 330,000 filing threshold applies.
- For foreign dividends, an exemption of TRY 18,000 applies.
Stock-Exchange Transactions and Foreign Shares
- Borsa İstanbul-listed share gains are taxed through a combination of withholding and filing.
- Gains from foreign stock exchanges and other securities are subject to annual filing for Turkish tax residents.
- Under Provisional Article 67, the taxability of foreign-source gains and the relevant double taxation treaties with Turkey must be considered.
Withholding Tax (ITL Articles 94–97)
Under ITL Article 94, withholding tax is applied on payments made in cash or on account. The main categories include:
- Salaries paid to employees
- Payments for independent professional services
- Payments to entities or non-residents
- Copyrights and patent rights
- Real-estate leasing (foundations, associations, cooperatives, foreign entities)
- Dividends and investment income
- Deposit interest and other investment income
- Games of chance and consumer sales commissions
- Payments for agricultural products and services
- Payments under PTT agency and small trader exemption arrangements
- Withholding rates are generally 25%; however, the President may reduce rates to zero or increase up to one-fold depending on the sector, payment type, and taxpayer status.
- Under Article 95, certain salaries are not subject to withholding (e.g., employees paid directly by foreign employers, staff of foreign embassies and consulates).
- Articles 96 and 97 govern how withholding is effected and reported.
Key Takeaways
In Turkey, the taxation of income from shares, partnership rights, and other capital-market instruments operates through both withholding and the annual return system. Points to watch for taxpayers include:
- Accurate determination of dates and price differences in disposals and capital reductions
- Monitoring withholding rates and exemptions for dividend income
- Proper filing of foreign-source gains
- Correct application and record-keeping for withholding tax
Within this framework, ITL Articles 94–97 and related regulations are continually updated to preserve the integrity of Turkey’s income-tax system and ensure effective collection.
