The share premium exemption in Turkey refers to the corporate tax exemption granted on income generated by joint-stock companies when issuing their own shares at a price above their nominal value during incorporation or capital increase.
This income is known as a “share premium” (or “emission premium”) and represents a capital contribution rather than operating income.
The purpose of this exemption is to encourage equity strengthening, enhance investor confidence, and support companies’ access to capital markets in Turkey.
Conditions for the Exemption
Under Article 5/1-ç of the Turkish Corporate Tax Law (Law No. 5520), the following conditions must be met for the exemption to apply:
- Type of Company:
The issuer must be a Turkish resident joint-stock company (anonim şirket). - Nature of the Income:
The gain must arise from the company issuing its own shares at a price exceeding their nominal (par) value. - Timing:
The issuance must occur either at incorporation or during a capital increase.
When these requirements are met, the amount exceeding the nominal value is treated as a capital surplus, not as taxable corporate income, and is therefore exempt from corporate tax in Turkey.
Application and Explanation
In Turkish tax practice, a share premium represents the difference between the issue price and the nominal (par) value of a company’s shares.
Because this income results from capital transactions rather than commercial activities, it is classified as an increase in shareholders’ equity, not as business profit.
For this reason, share premiums are not subject to corporate tax in Turkey.
However, profits derived from the sale of shares belonging to other companies are not covered by this exemption; those gains fall under separate capital gains provisions.
This exemption supports Turkish companies by strengthening their equity base and facilitating fundraising through public offerings or private placements, thus reinforcing confidence in capital markets.
Example
A Turkish joint-stock company increases its capital and issues shares with a nominal value of TRY 1.00 at an issue price of TRY 1.50.
The TRY 0.50 difference constitutes a share premium (emission premium) and is fully exempt from corporate income tax in Turkey.
This amount is credited directly to the equity account rather than being treated as taxable income.
Legal Basis
The Share Premium Exemption is regulated under Article 5/1-ç of the Turkish Corporate Tax Law (Law No. 5520).
Its primary objective is to promote equity-based financing and protect capital inflows that do not represent trading or operational profits.
By exempting these premiums, Turkey encourages companies to strengthen their capital structure and raise funds through equity rather than debt, improving corporate transparency and financial resilience.
For professional advice on corporate tax exemptions and tax incentives in Turkey, contact the expert team at ÖzbekCPA.
