The tax withholding (withholding) on stock buybacks has been reduced from 15% to zero.
Presidential Decision No. 6791, Published in the Official Gazette No. 32104 (Repeated) dated 14/02/2023)
With the Published Decision, the withholding rate made within the scope of the fourth paragraph of Article 94 of the Income Tax Law over the amounts considered as distributed dividends related to their own shares or partnership shares acquired by full-fledged capital companies has been determined as 0% (zero percent).
As it is known, companies usually make share purchases (Buy Back) to increase the value of their existing shares or sometimes to prevent an investor or shareholder trying to have a controlling interest. This method is widely used especially in the USA and Europe.
In our country, according to Article 379 of the Turkish Commercial Code No. 6102, it has been accepted that companies can purchase their own shares up to 10% of their capital with the decision of the General Assembly. According to Article 520/1 of the Commercial Code, a reserve fund should be set aside in liabilities according to the value of the shares to be repurchased.
Capital Market legislation also allows these transactions in publicly traded companies. The rules regarding the subject have been determined with the “II-22.1 Communiqué on Repurchased Shares” of the Capital Markets Board published in the Official Gazette dated 03.01.2014 and numbered 28871. In the conditions of the earthquake disaster, with the CMB’s principle decision dated 14.02.2023 and numbered 9/177, changes were made in the time and limitation conditions in the communiqué[2].
In this context; Publicly held corporations, whose shares are traded on the stock exchange, may initiate a buyback program with the decision of the board of directors, to be submitted to the information of the shareholders at the first general assembly to be held, without seeking the resolution of the general assembly. In addition, the limitation regarding the nominal value of the shares to be repurchased not to exceed 10% of the paid or issued capital, and the obligation to sell off or reduce the capital within one year at the latest from the date of purchase has been abolished.
Tax withholding on share buyback
Now, we can move on to the subject of the tax deduction on share repurchases, which was determined as 0% as per the decision taken by the President.
In accordance with the regulation brought by the Law No. 7256, which amended the Tax Laws on 17.11.2020, the companies repurchased the shares;
– If it is redeemed by reducing the capital, when the capital reduction is registered in the trade registry over the difference between the acquisition price and the nominal value of the shares or partnership shares;
– If it resells for a price below the repurchase price, on the date of disposal, over the difference between the acquisition price and the disposal price;
– If there has been no capital reduction or disposal within 2 years after the buyback, the difference between the acquisition price and the nominal value of the shares or partnership shares on the last day of the two-year period is over the amount.
15% income tax withholding due to profit distribution is required. Because these amounts are considered as distributed dividends.
Essentially, this article was introduced to prevent the partners from withdrawing tax-free money from the company. In technical terms, it is a tax security institution.
As explained above, the tax withholding is not in question during the share buyback, but in the following processes, in the cases mentioned above.
According to the article of the law; The President has been given the authority to reduce the 15% withholding tax rate to zero. With the decision of the President on 14/02/2023, the tax withholding rate was determined as 0%.[4] Accordingly, if the above-mentioned three situations occur as of 15/02/2023, there will be no tax deduction.
Tax withholding on share buyback:
Now, we can move on to the subject of the tax deduction on share repurchases, which was determined as 0% as per the decision taken by the President.
In accordance with the regulation brought by the Law No. 7256, which amended the Tax Laws on 17.11.2020, the companies repurchased the shares;
– If it is redeemed by reducing the capital, when the capital reduction is registered in the trade registry over the difference between the acquisition price and the nominal value of the shares or partnership shares;
– If it resells for a price below the repurchase price, on the date of disposal, over the difference between the acquisition price and the disposal price;
– If there has been no capital reduction or disposal within 2 years after the buyback, the difference between the acquisition price and the nominal value of the shares or partnership shares on the last day of the two-year period is over the amount.
15% income tax withholding due to profit distribution is required. Because these amounts are considered as distributed dividends.
Essentially, this article was introduced to prevent the partners from withdrawing tax-free money from the company. In technical terms, it is a tax security institution.
As explained above, the tax withholding is not in question during the share buyback, but in the following processes, in the cases mentioned above.
According to the article of the law; The President has been given the authority to reduce the 15% withholding tax rate to zero. With the decision taken by the President on 14/02/2023, the tax withholding rate was determined as 0%. Accordingly, if the above-mentioned three situations occur as of 15/02/2023, there will be no tax deduction.
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