In a recent development that has significant implications for the Turkish corporate landscape, Presidential Decision No. 6791, published in the Official Gazette on 14 February 2023, brought about a notable change in the withholding tax (WHT) rates applicable to dividends resulting from share-buy-back transactions. The decision initially introduced a 0% withholding tax rate for dividends deemed as a result of share-buy-back transactions carried out by Turkish full tax-liable corporations. This move was met with enthusiasm and was seen as a step towards promoting investment and shareholder returns within the country.
However, the evolution of this policy did not stop with Presidential Decision No. 6791. On 7 July 2023, the government introduced a further modification to the withholding tax regime through Presidential Decision No. 7343. This decision was enacted to specifically define the scope of the 0% WHT on dividends arising from share-buy-back transactions. According to the revised regulation, the 0% withholding tax rate will only be applicable to corporations that are not only full tax-liable but also have their shares traded on Borsa Istanbul, the Istanbul Stock Exchange.
The change in policy reflects a nuanced approach to incentivizing investment in Turkish corporations, particularly those that have a significant presence on the national stock exchange. By concentrating the 0% withholding tax benefit exclusively on corporations with shares listed on Borsa Istanbul, the government aims to further encourage public trading and investment in companies that are more deeply integrated into the national economic landscape.
It is important to note that Presidential Decision No. 7343 came into effect on 7 July 2023, with a retroactive application to shares acquired on or after the same date. This emphasizes the government’s intention to establish a clear distinction between the categories of corporations eligible for the 0% withholding tax rate and those that are not. The decision seeks to streamline the taxation process and align it with the government’s broader economic objectives.
The series of Presidential Decisions, starting with No. 6791 and culminating in No. 7343, has brought about a significant shift in the withholding tax rates applicable to dividends resulting from share-buy-back transactions in Turkey. The refined policy, concentrating the 0% withholding tax benefit on corporations listed on Borsa Istanbul, underlines the government’s strategic approach to fostering investment, boosting shareholder value, and promoting a healthy and vibrant stock market ecosystem. As Turkey continues to position itself as an attractive destination for investors, these regulatory changes play a crucial role in shaping the corporate landscape and economic dynamics of the nation.
