Taxation of Share Transfers in Joint Stock and Limited Liability Companies in Turkey

When shareholders sell or transfer their shares in a Turkish company, any profit from that transaction may be subject to taxation. However, under certain conditions, the seller can benefit from generous tax exemptions, especially if the shares meet specific structural and holding requirements.

In this guide, we break down the core principles behind share sales taxation, explore scenarios where no tax is due, and explain the strategic choices you can make to reduce or eliminate tax liability.

📌 What Are "Shares" or "Stocks"?

In this context, shares (or stocks) refer to equity ownership in a private company—typically documented by share certificates or share ledgers. These represent legal ownership rights and determine each shareholder’s stake, voting rights, and dividend entitlements.

There are two main types of share certificates in Turkey:

1. Registered Shares (Nama Yazılı): Issued in the name of the holder and tracked in the company’s records.
2. Bearer Shares (Hamiline Yazılı): Not assigned to a specific person and transferable by physical delivery.

This guide focuses on registered shares in private companies (not publicly traded stock).

🧾 What Is a Share Certificate?

A share certificate is an official document that confirms a person's ownership in a company. It does not have to be physical, as ownership is also recorded in the company’s share ledger. However, physical certificates are required to benefit from certain tax exemptions.

🗂️ The Share Ledger

Companies are legally required to maintain a Share Ledger, which includes:

1. Names and ID details of shareholders
2. Number and type of shares held
3. Acquisition and transfer dates
4. Sale or transfer records

📄 Are Physical Share Certificates Mandatory?

Not always—but they are essential for tax incentives.

The Board of Directors decides whether to issue share certificates. They are signed and distributed only after the capital is fully paid. While they can be printed on basic A4 paper, professional-grade versions are recommended for clarity and legal formality.

🕒 What Is a Temporary Share Certificate?

A temporary share certificate serves the same legal function as a permanent one and can also be used for tax exemptions. It proves ownership until the final share certificate is printed and issued.

💰 When Are Share Sale Profits Taxed?

If you sell your shares at a profit, the gain is generally subject to tax unless certain conditions are met.

Example:

You establish a company with 10,000 TL, grow it, and sell your shares for 1,000,000 TL. Your capital gain is 990,000 TL, and this is the amount the tax office is concerned with.

✅ When Do Tax Incentives Apply?

👤 For Individuals:

You are exempt from income tax on share sale profits if all of the following apply:

1. The company is a Joint Stock Company (AŞ)
2. The shares are physically issued (or you have a valid temporary share certificate)
3. You have held the shares for at least 2 full years

🏢 For Companies:

A company (either an AŞ or a Limited Liability Company - Ltd. Şti.) selling shares may exempt 75% of the profit from corporate tax if:

1. The shares have been held for at least 2 full years
2. The exempted amount is retained in a reserve account for 5 years
3. The profit is not withdrawn or distributed within this period

📊 How Is the Exemption Calculated?

For Individuals:

1. 100% of the gain is tax-free (no income tax applies)
2. No declaration is required

For Companies:

1. 75% of the gain is exempt
2. The remaining 25% is taxed at the standard corporate tax rate (currently 25%)
3. Must be declared in the annual corporate tax return
4. Conditions must be met (holding period, capital fully paid, reserve retained)

⚠️ What If You Don't Qualify for Tax Incentives?

Individuals:

1. The gain is treated as capital income.
2. If applicable, inflation adjustments may reduce taxable profit.
3. You must declare this income in your annual income tax return.

Companies:

1. The entire profit is considered commercial income.
2. Declared in the corporate tax return and taxed at the applicable rate.

🔄 How Are Share Transfers Carried Out?

🏢 For Joint Stock Companies (AŞ):

1. Share transfer can be done by endorsing the physical share certificate and updating the share ledger.
2. No need for a notary unless required by company bylaws.
3. The buyer is entered into the ledger with acquisition date and share amount.

🧾 For Limited Liability Companies (Ltd. Şti.):

1. The share transfer must be approved by the General Assembly.
2. A notarized share transfer agreement is required.
3. The decision and share structure must be registered at the Trade Registry Office.

📦 Is VAT or Invoicing Required in Share Transfers?

1. Share sales are not subject to VAT.
2. No commercial invoice is required.
3. However, proper documentation (contract, transfer records, share ledger updates) is crucial for legal and tax purposes.

⏳ How Is the Two-Year Holding Period Calculated?

The two-year rule is key to qualifying for tax exemptions. It is calculated from:

1. The purchase date of the shares (if bought)
2. The company registration date (if founding shareholder)
3. The registration date of capital increase (if new shares were acquired via increase)

If Ltd. shares are converted into AŞ shares, the original acquisition date continues to count.

💡 Final Thoughts from Bayraktar Attorneys

Selling company shares can generate significant profits, but it also triggers legal and tax obligations. To optimize your tax outcome, it’s crucial to:

1. Structure your company as an AŞ if you intend to attract investors or sell shares later
2. Print physical share certificates to unlock tax exemptions
3. Ensure proper holding periods are met
4. Document all transactions accurately

Whether you're a shareholder planning an exit or an investor entering a deal, consult a qualified legal or financial advisor to avoid costly mistakes.

At Bayraktar Attorneys, we help entrepreneurs, companies, and investors navigate Turkey’s corporate and tax landscape with precision and confidence.

Need legal assistance for a share transfer or company setup in Turkey? Contact Bayraktar Attorneys today for expert guidance.