How to Get Money Out of a Turkish Subsidiary: Dividends vs Management Fees vs Loans (2026)

A foreign parent can take cash out of a Turkish subsidiary through five routes: dividends, intra-group service or management fees, royalties, interest and repayment of intercompany loans, and capital reduction or liquidation. Dividends are the cleanest route and bear 15% Turkish withholding tax, often reduced by a tax treaty. Fees, royalties and interest are deductible in Turkey only when priced at arm’s length and properly documented.

What are the ways to take money out of a Turkish subsidiary?

There are five lawful routes: dividend distribution, intra-group service and management fees, royalties for intellectual property, interest and principal on intercompany loans, and capital reduction or liquidation. Each has a different Turkish tax cost, a different documentation burden and a different audit profile. Most groups combine two or three routes rather than relying on one.

Treaty relief can reduce most of these withholding rates. To apply a treaty rate, the Turkish payer should hold a certificate of tax residence issued by the recipient’s tax authority, as required under the Corporate Tax General Communiqué No. 1.

How are dividends from a Turkish subsidiary taxed?

A Turkish subsidiary first pays 25% corporate income tax. When it distributes the after-tax profit to a foreign corporate shareholder, it withholds 15% dividend withholding tax and pays it to the Turkish Revenue Administration. A double tax treaty can reduce the 15% — for example, to 5% for a German parent holding at least 25%.

Which legal steps are required before a dividend can be paid?

1. Approved annual accounts. The ordinary general assembly must meet within three months of the financial year-end (Turkish Commercial Code No. 6102, Art. 409) and approve the statutory financial statements.
2. Legal reserve. 5% of annual profit is set aside until the general legal reserve reaches 20% of paid-in capital (Art. 519). This cash stays in Turkey.
3. Distribution resolution. The general assembly resolves the amount and date of the dividend, and the resolution is kept in the company records.
4. Withholding. The company withholds 15% (or the treaty rate) when the dividend is paid or credited to the shareholder’s account.
5. Filing. The withholding is declared on the monthly Withholding and Premium Service Return (Muhtasar ve Prim Hizmet Beyannamesi) and paid by the 26th of the following month.
6. Bank transfer. The Turkish bank converts and transfers the funds; banks normally ask for the general assembly resolution and proof that tax has been paid.

Can a Turkish company pay dividends more than once a year?

Yes. The Turkish Commercial Code allows advance (interim) dividends based on interim financial statements, under conditions set by the Ministry of Trade. An advance dividend requires authorisation from the general assembly and is reconciled against the annual profit. If the year ends with less profit than was advanced, the excess becomes a problem to unwind — so advance dividends suit profitable, stable subsidiaries, not volatile ones.

Branch profit remittance vs subsidiary dividend: is there a difference?

Economically, the result is close. A branch of a foreign company pays 25% corporate tax on its Turkish profit and then 15% branch remittance tax when after-tax profit is transferred to head office (Corporate Tax Law, Art. 30/3). A subsidiary pays 25% corporate tax and then 15% dividend withholding. Treaties may reduce either rate.

The practical differences lie elsewhere. A branch does not need a general assembly resolution to transfer profit, but it also cannot limit the head office’s liability, and closing it is administratively similar to liquidating a company. A subsidiary allows cleaner separation, easier sale and access to incentives. For most operating businesses the subsidiary remains the default. See our comparison of subsidiary, branch and liaison office structures.

Can a Turkish subsidiary pay management fees to its foreign parent?

Yes, but only for services that are actually rendered, that benefit the Turkish company, and that are priced at arm’s length. The fee is deductible for corporate tax, is subject to 20% reverse-charge VAT (normally recoverable), and may attract withholding tax if the tax authority treats it as a professional service. Undocumented or duplicated charges are treated as disguised profit distribution.

What does the tax inspector look for?

• Benefit test: would an independent company in Turkey have paid for this service? Shareholder activities — group board costs, parent-level reporting, investor relations — are not chargeable.
• Duplication: is the parent charging for work the Turkish team already does itself?
• Evidence: timesheets, emails, reports, deliverables. A contract and an invoice alone rarely survive an audit.
• Pricing: a cost base plus a mark-up consistent with the transfer pricing rules in Corporate Tax Law Art. 13 and the related General Communiqué on Disguised Profit Distribution through Transfer Pricing.
• Annual reporting: related-party transactions are disclosed in the transfer pricing form filed with the corporate tax return, and larger taxpayers must prepare an annual transfer pricing report.

Is withholding tax due on management fees paid abroad?

Turkish domestic law imposes withholding on specific categories listed in Corporate Tax Law Art. 30/1 — including professional service fees (20%) and royalties (20%). Ordinary commercial services performed entirely abroad are not in that list. The difficulty is classification: consulting, legal, engineering or advisory work is often treated as a professional service. Where a treaty applies and the recipient has no permanent establishment in Turkey, the business-profits or independent-services article of the treaty normally removes the Turkish withholding, provided the residence certificate is on file.

How are royalties paid by a Turkish subsidiary taxed?

Royalties for trademarks, software, patents or know-how paid to a foreign company bear 20% Turkish withholding tax under domestic law, commonly reduced to 10% by treaty, plus 20% reverse-charge VAT. The royalty is deductible if the rate is arm’s length and the intellectual property is genuinely used by the Turkish company. Royalties to a low-substance IP holding company attract close scrutiny.

Two points are often missed. First, software licence payments may be classified either as royalties or as the purchase of a copyrighted article, depending on the rights granted — the contract wording matters. Second, a royalty rate that makes the Turkish entity permanently loss-making is hard to defend: the inspector will ask why an independent distributor would accept that arrangement.

Intercompany loans: how are interest and principal treated?

Repaying the principal of a genuine intercompany loan is not taxable in Turkey. Interest paid to a foreign group lender bears 10% Turkish withholding tax under domestic law and reverse-charge VAT, because a non-bank lender’s financing is a taxable service. Interest is deductible only within the thin capitalisation limit (3× equity) and subject to the finance expense restriction.

Thin capitalisation

Borrowing from shareholders or related persons that exceeds three times the company’s equity at the start of the financial year is treated as thin capital (Corporate Tax Law Art. 12). Interest, foreign-exchange losses and similar costs on the excess are not deductible and are treated as a dividend distributed to the lender at year-end — which triggers dividend withholding.

Finance expense restriction

Where a company’s borrowed funds exceed its equity, 10% of the finance expenses attributable to the excess are not deductible (Corporate Tax Law Art. 11/1-i). This applies in addition to thin capitalisation.

Foreign-currency borrowing

Turkish companies face restrictions on borrowing in foreign currency under Decree No. 32 on the Protection of the Value of the Turkish Currency, unless an exception such as foreign-currency revenue applies. Before a parent lends in euros or dollars, the Turkish company’s eligibility should be checked. Loans may also need to be reported to the bank that intermediates the transfer.

Capital reduction and liquidation: returning the investment itself

Returning paid-in cash capital to a foreign shareholder through a formal capital reduction is not a dividend and does not bear dividend withholding tax. The procedure under the Turkish Commercial Code requires a general assembly resolution, an auditor’s report and three announcements to creditors in the Trade Registry Gazette, so it typically takes several months.

The exemption applies to capital that was contributed in cash. Where capital was increased by converting reserves or retained profits, a later reduction and payment of that portion is generally treated as a profit distribution and taxed as a dividend. Liquidation follows a similar logic: the company is taxed on liquidation profit, and amounts paid to shareholders above their paid-in capital are generally treated as distributed profit. A clean liquidation of a Turkish company typically takes six to twelve months — see our guide on how to close a company in Turkey.

Dividends vs management fees vs loans: which costs less?

On Turkish tax alone, a deductible charge (management fee or interest) usually leaves more cash for the group than a pure dividend, because it reduces the 25% corporate tax. The advantage disappears if the charge is disallowed in an audit, or if the parent’s home country taxes the fee at a higher rate than the Turkish tax it saved.

Illustration: a Turkish subsidiary with TRY 1,000,000 of pre-tax profit, legal reserve already full, no treaty reduction on dividends, and a charge of TRY 300,000 that is fully arm’s length and documented.

Amounts in TRY. Reverse-charge VAT on the fee and interest is ignored because it is normally recovered. The parent’s home-country tax on the fee, interest and dividend is not shown and often changes the ranking: many countries exempt dividends from a qualifying subsidiary but fully tax service fees and interest.

What drives the cost of a repatriation plan?

The professional work — and the risk — depends on a handful of factors:

• Number of routes used: a dividend-only policy needs a year-end close and a resolution; fees and royalties need contracts, benefit evidence and transfer pricing documentation every year.
• Treaty position: which country the parent is resident in, whether it meets the treaty’s holding thresholds, and whether a residence certificate is available on time.
• Clean-up of prior years: missing general assemblies, unbooked legal reserves, shareholder current accounts or undocumented past charges must be fixed first.
• Currency and financing: whether foreign-currency borrowing rules, thin capitalisation or the finance expense restriction are in play.
• Frequency: annual dividends only, or quarterly advance dividends and monthly service charges.
• Audit-readiness: whether the group wants a defence file prepared now rather than during an inspection.

Turkey vs UAE vs Poland: how does repatriation compare?

Turkey’s 15% dividend withholding is higher than the UAE’s 0% and lower than Poland’s 19% statutory rate. The key difference is relief: Turkey is outside the EU, so a European parent relies entirely on the tax treaty, whereas a Polish subsidiary can pay an EU parent free of withholding under the Parent-Subsidiary Directive when conditions are met.

The comparison is only one input. Groups choose Turkey for the market, the talent pool and incentives such as qualified service centers; the repatriation cost is then managed rather than avoided. For a headquarters-location comparison, see Dubai vs Istanbul for a regional headquarters.

Case analyses

Illustrative, anonymised and simplified scenarios based on recurring situations. The result in any real case depends on its facts.

What happens if…

What happens if the subsidiary pays a dividend without withholding tax?

The Turkish company is the withholding agent. It remains liable for the tax that should have been withheld, plus late payment interest and a tax loss penalty under the Tax Procedure Law (Law No. 213, Art. 344). The error is usually corrected more cheaply through voluntary disclosure (pişmanlık) before an audit starts.

What happens if a management fee is disallowed in a tax audit?

The fee is added back to taxable income and taxed at 25%, with a tax loss penalty and late payment interest. Because it is treated as disguised profit distribution, dividend withholding can also be assessed on the amount. The VAT paid under reverse charge may be challenged as well.

What happens if we do not have a residence certificate when we pay?

The company should apply the domestic rate — 15% on dividends, 20% on royalties, 10% on group interest. A refund of the excess can be pursued once the certificate is obtained, but refunds take time. The practical fix is to request the certificate before the payment date.

What happens if the Turkish company has accumulated losses?

A dividend can only be paid out of net profit for the year and distributable reserves after prior losses are covered. A loss-making subsidiary cannot pay dividends; cash can still move through loan repayments or, where justified, arm’s-length service charges.

What happens if the parent simply takes money out without a resolution?

The transfer is recorded as a receivable from the shareholder. The tax authority can impute arm’s-length interest on it as disguised profit distribution, and the balance becomes a finding in any audit or due diligence. It should be regularised through a dividend or a documented loan.

Common mistakes foreign parents make

1. Charging a percentage-of-revenue management fee with no link to actual services.
2. Paying at the treaty rate without a valid residence certificate on file.
3. Forgetting reverse-charge VAT on fees, royalties and non-bank interest.
4. Lending in foreign currency without checking Decree No. 32 eligibility.
5. Ignoring thin capitalisation after losses reduce equity.
6. Holding the general assembly late, so the dividend slips by months.
7. Treating reserve-funded capital as returnable tax-free in a capital reduction.

Decision checklist: which route should your group use?

Frequently asked questions

Conclusion

Getting money out of a Turkish subsidiary is not restricted by currency controls; it is governed by tax cost and documentation. Dividends carry 15% withholding after 25% corporate tax, reduced where a treaty applies, and are the least contested route. Management fees, royalties and interest can lower the overall Turkish tax, but only when they reflect real, arm’s-length transactions that can be proven years later. The right mix depends on the parent’s country, the subsidiary’s profit profile and the group’s appetite for audit risk.

This article is provided for general informational purposes and does not constitute legal, tax, accounting or investment advice. Turkish tax treatment depends on the taxpayer’s residence status, treaty position, legal structure, documentation and specific facts. Professional advice should be obtained before taking action.