Amendment to the participation exemption regime for foreign sourced dividends

In detail

Dividends received by a Turkish company from non-Turkish companies may benefit from a full exemption from corporate tax further to the participation exemption rule regulated under Article 5/1/b of the Corporate Tax Law. If the exemption is available, the Turkish company does not have to pay corporate tax on the dividends it receives. The exemption is subject to the following conditions:

• a minimum holding of 10% in the share capital of the foreign company,
• a minimum holding period of one year,
• subject to tax rule: the dividends received must have been subject to tax at the level of distributing foreign company at a rate of 15% at a minimum.
• the dividends must be remitted to Turkey by the date corporate income tax return is due.

The law number 7491 published in the official gazette on 28 December 2023 does not make any amendment to the full exemption explained above but adds a new provision which allows tax exemption on 50% of the dividends from non-resident companies. The only requirements to benefit from the 50% exemption are:

• a minimum holding of 50% in the share capital of the foreign company,
• The dividends must be remitted to Turkey by the date corporate income tax is due.

Turkish companies that previously could not benefit from the full tax exemption (i.e. because the foreign subsidiary did not meet the requirement of being subject to 15% taxation) now may have possibility to claim a partial (50%) exemption on their dividend income from foreign companies.