Capital Advances by Foreign Shareholders in a Turkish Company.
An amendment has been made to the Circular on Capital Movements (“Circular”) Article 6 Paragraph 5 via the decision of the Republic of Turkey Ministry of Treasury and Finance (“Ministry”) dated 04.11.2019 and numbered 468620. This amendment has introduced a new regulation on the share price payment obligations that foreign shareholders will pay for planned capital increase.
Prior to this new amendment, funds submitted by a foreign shareholder of a company in Turkey (transferred abroad to a Turkish bank) to that Turkish company were classified as either a fulfillment of the capital commitment or as a credit, and the transaction became subject to legal consequences arising from that. Following this new amendment, in the event of a planned capital increase (i.e. without any related General Assembly Resolution in place) the necessity to only classify the funds transferred as either a fulfillment of the capital commitment or as a credit has been removed, since classifying the transfer as a capital advance has been introduced as an option for foreign shareholders.
Provisions existed allowing capital advances within the Ministry’s Circular, until the Central Bank of the Turkish Republic’s Circular numbered 2013/YB-7 was announced on 29.03.2013 (“Decision of CBTR”). However, within this Decision of CBTR, allowance of ‘capital advance’ under Article 1.2. and all subsequent articles related to capital advance payments for planned capital increases were removed. After this removal of the capital advance option for foreign shareholders transferring funds in anticipation of a capital increase, amounts sent from abroad had to be classified as either fulfillment of the capital commitment or as a credit.
The new amendment by the Ministry on 04.11.2019 reverses the situation to be similar to that prior to the 2013 Decision of CBTR. Foreign shareholders now, once again, have the opportunity to send capital advance for planned capital increases. However, in a change to the pre-2013 environment, the Circular states that any capital increase needs to be completed and documented within three months of the date on which the capital advance was deposited. If the capital increase is not finalized within the three months, the amounts deposited by the foreign shareholder can no longer be used by the company as a capital advance and these amounts will be classified as credit pursuant to Article 6/(6) of the Circular. This credit will then become subject to additional restrictions found in Article 14 and other related articles. Stamp tax and resource utilization support fund deduction may also become a consideration if the credit classification occurs.
Full text of the Circular is available via the following link:
Buyukdere Cad. No: 193/4, 34394 Levent, Istanbul, Türkiye