Share Transfer and Taxation for International Companies

The sale of shares by international companies remains a significant issue in terms of tax obligations. In this article, we will examine the taxation process when a non-resident company domiciled in Japan transfers its shares in a limited liability company in Türkiye to a company domiciled in Malaysia.

Non-Resident Taxation and Scope of Taxation

According to Turkish tax legislation, entities whose legal and business headquarters are outside Türkiye are classified as “non-residents” and are only taxed on their income derived from Türkiye. Within this framework, it is crucial to determine how the capital gain arising from the sale of shares in a Turkish limited liability company by a company domiciled in Japan will be taxed.

Taxation of Income Derived from Share Sales

According to the relevant provisions of the Corporate Tax Law No. 5520, the income earned by non-resident entities through their permanent establishments or representatives in Türkiye is subject to taxation in Türkiye. The income derived from the sale of shares is classified as a “capital gain” and is calculated under the Income Tax Law.

In this case, the capital gain arising from the sale of shares in a Turkish limited liability company by a company domiciled in Japan may be subject to taxation in Türkiye. Additionally, since there is a double taxation avoidance agreement (DTT) in place between Türkiye and Japan, the tax paid in Türkiye can be deducted from the income tax payable in Japan.

Prevention of Double Taxation

Under the “Agreement for the Avoidance of Double Taxation and Prevention of Tax Evasion with Respect to Taxes on Income” between Türkiye and Japan, the risk of double taxation is eliminated. Article 13 of the agreement regulates which country has the right to tax the capital gains arising from the disposal of real estate and commercial assets.

If a company domiciled in Japan sells its shares in a limited liability company domiciled in Türkiye, Türkiye has the right to tax the gain derived from this transaction. The taxes paid in Türkiye can be credited against the tax liability in Japan.

Tax Declaration and Withholding Rates

  • Corporate Tax: A non-resident entity domiciled in Japan is required to file a tax return for the capital gain derived in Türkiye.
  • Tax Withholding: A withholding tax may be applied to the income earned by the company in Türkiye. According to current regulations, a 15% withholding tax is applied to the amounts transferred by non-resident companies to their headquarters.

Conclusion

If a company domiciled in Japan transfers its shares in a Turkish company to a company domiciled in Malaysia, the capital gain from the sale may be subject to taxation in Türkiye. However, due to the double taxation avoidance agreement between Türkiye and Japan, the amount of tax payable in Japan can be reduced by the tax already paid in Türkiye.

Before proceeding with a share transfer, consulting a qualified tax advisor in Türkiye is highly recommended to ensure compliance with local tax obligations and to facilitate a smooth process.


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