Distributing Profit From a Technopark Company With Foreign Shareholders: What Happens to Exempt Earnings

In technopark companies with foreign shareholders, the first year usually passes without incident. The problem surfaces when the first profit distribution comes up.

The company spends a year working on the basis that “our earnings are exempt from corporate tax”, and the shareholder assumes those earnings will reach them tax-free as well. The exemption sits at the corporate tax level. Distribution is a separate level with its own tax.

This piece covers that second level: what the rate is, how a treaty provision is applied, and whether a branch differs from a company.

Does the technopark exemption cover profit distribution?

It does not.

The exemption removes earnings arising from software, design and R&D activity carried out in the zone from the corporate tax base. The company pays no corporate tax on those earnings. Where the scope of that exemption begins and ends is covered in the piece on the technopark earnings exemption.

At the distribution level there is a different tax: withholding on the dividend. It does not ask whether the earnings were exempt from corporate tax; it looks at the amount distributed.

The practical consequence: the technopark exemption increases what stays in the company. It does not make what reaches the shareholder tax-free.

What is the rate, and where does it come from?

The general rate is 15%. It was set by a Presidential Decision published in the Official Gazette on 22 December 2024 and took effect on the day of publication. Before that the rate was 10%.

Who receives the dividend changes the picture:

Recipient	Withholding	Note
Resident individual shareholder	15%	Half of the dividend is exempt from income tax; if the remainder exceeds the filing threshold an annual return is filed and the withholding is credited
Resident company shareholder	None	Participation exemption; tax arises when the profit reaches an individual
Non-resident company shareholder	15%	Treaty rate where a treaty applies
Non-resident individual shareholder	15%	Treaty rate where a treaty applies
Branch transferring to head office	15%	On the amount remaining after corporate tax

The second row is often used when structuring: the foreign investor sets up a Turkish holding company and places the technopark company beneath it. Profit moves from the technopark company to the holding without withholding. But that is deferral, not exemption. When the profit leaves the holding for the shareholder abroad, withholding arises at that point.

How is the treaty rate applied?

If the shareholder’s country of residence has a treaty with Turkey and the treaty sets a lower rate for dividends, withholding is applied at that rate.

Treaties are not uniform on this. Most contain two tiers tied to the size of the holding: a lower rate for a corporate shareholder above a stated participation threshold, and a higher one otherwise. Which tier applies has to be confirmed from the text of that particular treaty; there is no single rate worth memorising.

The condition for applying it is the certificate of residence: a document for the relevant year, issued by the competent authority of the shareholder’s country, held by the company making the payment, together with its translation.

Sequence matters. If the certificate is not in hand at the time of distribution, withholding is applied at the general rate and the difference has to be recovered afterwards. That route works, but it takes time. Asking for the certificate before the distribution decision is cheaper than correcting the filing later.

What happens if the profit is not distributed?

Dividend withholding arises on distribution. While the profit remains in the company, none is applied.

There are two routes:

Leaving it in the company. The earnings stay in reserves and no withholding arises. For a foreign shareholder this is usually a temporary decision: if the money is going to leave eventually, the tax arises on that day.

Adding it to capital. Capitalising profit is not treated as a distribution, so no withholding arises. But the amount does not reach the shareholder in cash; it converts into the company’s equity.

What decides this is not the rate but where the money is going. A shareholder who will grow the investment in Turkey and one who will take the profit abroad do not make the same decision.

Does the minimum corporate tax change this calculation?

The domestic minimum corporate tax is often explained incorrectly for technopark companies, so a note belongs here.

The technopark earnings exemption is among the items that can be deducted from the minimum tax base. Exempt earnings from activity in the zone therefore stay out of that calculation, which is run on any out-of-scope earnings the company has.

Its relevance to distribution is simple: the minimum tax is an item that reduces distributable profit. Until the tax at corporate level is settled, the distributable amount is not settled either.

How does the venture capital fund obligation affect distributable profit?

Companies using the exemption can be required to set aside part of the exempt earnings as a venture capital fund. The amount sits in a fund account under equity and cannot be distributed.

That has two effects on the distribution decision: distributable profit falls by the amount of the fund, and failure to set the fund aside costs that portion of the exemption. How the obligation works is covered in the piece on the 3% fund.

Arriving at the distribution meeting without the fund calculated means a distribution resolution that has to be corrected afterwards.

Branch or company?

For a foreign investor the two structures are taxed the same way on distribution and behave differently in operation:

	Company in Turkey	Branch in Turkey
Legal personality	Separate	Part of the head office
Tax on earnings	Corporate tax	Corporate tax
Withholding on distribution	15% on dividends	15% on transfers to head office
Treaty provision	Available	Available
Adding partners, transferring shares	Straightforward	Structure not suited to it
Technopark application	Common and uncomplicated	More cumbersome in practice

For an operation that will sit in a technopark, a company is the better fit in most cases. What happens after incorporation is covered in registering a company in Turkey as a foreigner, and the banking side in opening a business bank account as a non-resident.

Which documents are asked for in a review?

The file examined after a distribution is short, but it has to be complete:

• The shareholders’ resolution and the profit distribution table
• The share ledger entry showing the ownership structure
• Where a treaty rate was applied, the certificate of residence for that year and its translation
• The withholding tax return on which the deduction was declared, and proof of payment
• Bank records for the transfer
• The calculation separating exempt earnings, and a certification report where one exists

The piece most often missing from that file is the certificate of residence: withholding was applied at the reduced rate, but the certificate was obtained after the distribution rather than before it.

In short

The technopark exemption protects the earnings, not the distribution. Earnings leave the corporate tax base and then meet dividend withholding on the way to the shareholder.

The general rate today is 15%. A treaty can lower it, but not on its own: a reduction whose certificate is not in hand at the time of distribution is a reduction that was never applied.

I have been at this table since 2003, and the mistake I see in technopark files with foreign shareholders is always the same: the calculation is treated as finished at the corporate tax level. The number the investor looks at is the one that reaches their own account.