Can a Turkish Company Borrow from Abroad or from Its Foreign Shareholder? 2026 — Decree No. 32, Art. 17: FX Income Condition and USD 15 Million Threshold, Use Through Banks, Withholding Tax, VAT, KKDF, Stamp Duty, Thin Capitalisation and Transfer Pricing

Turkish version (Türkçe sürüm): Türk Şirketi Yurt Dışından Kredi veya Yabancı Ortağından Borç Alabilir mi?

A company established in Turkey may borrow from a bank abroad, from its foreign shareholder or from a group company. Under the foreign exchange rules, such borrowing is a “loan obtained from abroad” and is governed by Article 17 of Decree No. 32 on the Protection of the Value of the Turkish Currency. Obtaining a Turkish lira loan from abroad is unrestricted; for foreign currency loans, however, an important limit has applied since 2 May 2018: a company without foreign currency (FX) income cannot obtain an FX loan from abroad, except in the cases listed in the Decree and the Circular, and for a company whose loan balance is below USD 15 million, the new loan plus the existing balance may not exceed its FX income in the last three financial years. Every loan is used and repaid through a bank in Turkey, and a loan from a foreign shareholder is also subject to these rules and included in the loan balance. The tax burden depends on the lender: interest paid to a foreign bank bears 0% withholding tax and no VAT, whereas interest paid to a parent company bears 10% withholding tax and reverse-charge VAT; FX loans with an average maturity of less than three years are subject to the Resource Utilisation Support Fund levy (KKDF). If a shareholder loan exceeds three times equity, the thin capitalisation rules apply, and if the interest rate is not at arm’s length, the transfer pricing rules apply. This guide explains, with reference to the legislation, the ways of borrowing from abroad, the conditions for FX loans, the role of banks and the Central Bank, withholding tax, VAT, stamp duty and KKDF, thin capitalisation and the financing expense limitation, converting a shareholder loan into capital and the points to watch in the loan agreement.

How can a Turkish company borrow from abroad?

Foreign-owned companies often finance their operations in Turkey with money from the parent company. That money can come in two forms: as capital or as a loan. Capital is a contribution registered with the trade registry which, as a rule, cannot be taken back unless the company is liquidated; a loan is repaid at maturity and interest may be paid on it. The loan route offers flexibility, but it is subject to separate rules under foreign exchange legislation, tax legislation and company law. The main sources from which a Turkish company can borrow abroad are foreign banks and financial institutions, the foreign shareholder, group companies and international institutions.

Whatever the source, the transaction is governed by Article 17 of Decree No. 32. As a rule, Article 17 does not distinguish between lenders according to whether the lender is a bank, a parent company or another person; the Circular, however, ties some exceptions to the nature of the lender (for example, intra-group loans to wholly foreign-owned companies). The main difference arises on the tax side. The guarantee given to foreign investors on transfers abroad also covers foreign loan payments: net profits, dividends, sale, liquidation and compensation proceeds arising from foreign investors’ activities in Turkey, amounts payable under licence, management and similar agreements, and foreign loan principal and interest payments may be transferred abroad freely through banks or special finance institutions (Foreign Direct Investment Law No. 4875, Art. 3(c)).

Decree No. 32, Art. 17: the basic rules

Article 17 of Decree No. 32 on the Protection of the Value of the Turkish Currency, headed “Loans obtained from abroad”, was rewritten by Council of Ministers Decision No. 2018/11185; the amendment was published in the Official Gazette on 25 January 2018 and entered into force on 2 May 2018. According to the consolidated text published by the Ministry of Treasury and Finance in 2025, the article has not been amended since then.

The article’s basic rules are as follows. Persons resident in Turkey are free to obtain Turkish lira loans from abroad, and these loans must be used through banks (Art. 17(1)). Persons resident in Turkey may obtain FX loans from persons resident abroad within the principles set out in the article; these loans must also be used through banks (Art. 17(2)). Natural persons resident in Turkey may not obtain FX loans from abroad (Art. 17(6)), and FX-indexed loans may not be obtained from abroad (Art. 17(7)). The monitoring procedures for these loans are set by the Central Bank in line with principles determined by the Ministry (Art. 17(11)); transfers of principal repayments, interest and other payments on these loans are made through banks (Art. 17(12)).

The details are set out in two pieces of secondary legislation. Under Article 11 of the Communiqué on Foreign Exchange Legislation (Communiqué No. 2008-32/34, the “FX Communiqué”), persons resident in Turkey use loans obtained from abroad through banks; the procedures for bringing a loan into Turkey and using it through a bank in Turkey are set by the Ministry of Treasury and Finance (FX Communiqué, Art. 11(1), as amended by Communiqué No. 2025-32/71, Official Gazette of 24 January 2025). The detailed rules to be applied by banks are in the Capital Movements Circular of the Central Bank of the Republic of Turkey (the “Circular”). The fifth part of the Circular governs the general principles of loans obtained from abroad, loans based on FX income, loans exempt from the FX income condition, reporting to the Central Bank, repayment and Turkish lira loans. As the Circular changes frequently (at the time of writing, the last amendment was on 15 June 2026), the current text should be checked with the intermediary bank before the loan is drawn.

Denominating a loan agreement with a lender abroad in foreign currency should not be confused with the ban on FX-denominated contracts in Article 4(g) of Decree No. 32. That provision lists sales of movable and immovable property, leases, leasing, and employment, service and works contracts; loan relationships are governed separately by Article 17. The ban on FX-denominated contracts and the exception for foreign-owned companies are explained in our guide Turkey’s Ban on Foreign-Currency Contracts and the Foreign-Owned Company Exception.

FX loans: FX income and the USD 15 million threshold

The purpose of the 2018 rules is to restrict companies without FX income from taking on FX debt exposed to currency risk. Article 17(3) of Decree No. 32 therefore lays down a clear rule: “Persons resident in Turkey who have no FX income may not obtain FX loans from abroad.” The same paragraph lists the cases in which this condition does not apply: public institutions, banks, financial leasing, factoring and financing companies; FX loans to be used by persons whose loan balance on the date of use is USD 15 million or more; loans under an investment incentive certificate and the financing of certain machinery; domestic tenders announced internationally and defence projects approved by the Presidency of Defence Industries; public-private partnership projects; loans to persons who had no FX income in the last three financial years, up to the amount of the contracts and expected FX income they evidence; and loans to be used within principles to be set by the Ministry.

For a company that has FX income but a loan balance below USD 15 million, there is a second limit: if the loan balance on the date of use is below USD 15 million, the requested loan amount plus the existing loan balance may not exceed the total FX income of the last three financial years (Art. 17(4)(a)). Intermediary banks are obliged to check compliance with this rule (Art. 17(4)(b)); if the limit is exceeded, the portion causing the excess is recalled or converted into a Turkish lira loan (Art. 17(4)(c)). This limit does not apply to loans falling within the exceptions in the third paragraph (Art. 17(5)). A company whose loan balance is below USD 15 million must, when requesting an FX loan, evidence its FX income for the last three financial years with documents approved by certified accountants (FX Communiqué, Art. 11(5)(b)). The Capital Movements Circular also provides that FX income is declared on FX income declaration forms prepared and approved by a certified public accountant (SMMM) or a sworn financial adviser (YMM).

To illustrate: a company that earned a total of USD 4 million of FX income in the last three financial years, has an existing FX loan balance of USD 1 million and falls within no exception may use a new FX loan from abroad of at most USD 3 million, because the new loan plus the existing balance may not exceed USD 4 million. A company with no FX income at all that falls within no exception cannot use an FX loan from abroad; its options are a Turkish lira loan from abroad or a capital increase. Having the excess recalled or converted into Turkish lira because FX income could not be documented can later upset the financing plan; the calculation should therefore be made with the intermediary bank before the loan agreement is signed.

Loans from a foreign shareholder or group company

In foreign-owned companies, the most common form of financing is a loan from the parent company or a group company abroad to the Turkish company. Under the foreign exchange rules, such a loan is no different from a bank loan: Article 17 of Decree No. 32, as a rule, does not distinguish between lenders, and an FX loan from a shareholder is also subject to the FX loan rules. The Capital Movements Circular says so expressly: loans obtained from persons resident abroad other than banks and financial institutions are also included in the firm’s loan balance, and in the written declaration obtained from the firm for transfers from abroad above a certain amount whose purpose cannot be determined, it is expressly stated that the term “loan” also covers borrowings from shareholders abroad.

The practical consequence is this: a foreign-owned company that has no FX income and falls within no exception cannot borrow in foreign currency from its parent company either; it may, however, borrow in Turkish lira. For a company with FX income, an FX loan from the parent company is taken into account in calculating the USD 15 million threshold and the three-year FX income limit. An important exception for foreign-owned companies is found in the Circular: on the basis of Article 17(3)(f) of the Decree, FX loans to be used by Turkish-resident group companies wholly owned by foreign-capital companies resident abroad from foreign-capital group companies resident abroad are listed among the loans exempt from the FX income condition (Circular, Art. 21(15)(d)). The direct or indirect 100% ownership must be evidenced to the intermediary bank by the loan agreement, the repayment plan and the trade registry gazette or official letters. As the Circular changes frequently (last amendment 15 June 2026), a company wishing to rely on this exception should confirm the current text with the intermediary bank before drawing the loan.

Borrowing from a shareholder and lending to a shareholder are subject to different rules. Shareholders may not borrow from the company unless they have performed their matured obligations arising from their capital commitment and the company’s profit, together with free reserves, is sufficient to cover losses from previous years (Turkish Commercial Code (TCC), Art. 358). This ban concerns a shareholder borrowing from the company; it does not restrict a shareholder lending to the company. The legal nature of cash pooling and day-to-day fund transfers between group companies is explained in our articles Grup Şirketlerinde Nakit Havuzu and Holding ve Grup İçi Transferlerde MASAK (both in Turkish).

The bank’s role, reporting and repayment

A loan obtained from abroad must, as a rule, be brought into Turkey and used through a bank in Turkey. This is subject to the limited cases listed in Article 22 of the Circular on loans that may be used without being brought into Turkey (such as business abroad, imports backed by an export credit agency, ship imports and refinancing); these loans are also repaid through a bank in Turkey. The intermediary bank both checks compliance with the USD 15 million and FX income limits (Decree No. 32, Art. 17(4)(b)) and reports the loan to the Central Bank. Under the Capital Movements Circular, if the bank establishes that an amount received from abroad is a loan, it asks the borrower for the loan agreement containing the loan’s maturity, interest rate and similar information, and obtains a copy of the loan agreement and the repayment plan from the borrowing firm. Drawdown and repayment information on cash loans is reported loan by loan by the intermediary bank in accordance with the Central Bank’s instructions; the reporting date is the date on which the loan is credited to the intermediary bank’s correspondent account. FX loans and FX income declarations are also reported to the Risk Centre.

Repayment is also made through banks: transfers of principal repayments, interest and other payments on loans obtained from abroad are made through banks (Decree No. 32, Art. 17(12)). For foreign investors, Article 3(c) of Law No. 4875 guarantees that foreign loan principal and interest payments may be transferred abroad freely. This guarantee does not remove the obligations to document the payment and pay the tax due; before the transfer, the bank may ask for the loan agreement, the repayment plan and, where applicable, documents relating to withholding tax and VAT payments. What to do if a transfer abroad is stopped at a correspondent bank or by a MASAK decision is explained in our article Şirketin Yurt Dışı Transferi Durduruldu (in Turkish).

Withholding tax on interest

Interest paid by a Turkish company to a lender abroad is investment income earned in Turkey by a non-resident corporation, and the Turkish company paying or accruing the interest withholds corporate tax (Corporate Tax Law No. 5520, Art. 30(1)(ç)). The withholding rate is set by Council of Ministers Decision No. 2009/14593 and depends on the lender. The rate is 0% on interest payable on all kinds of loans obtained from foreign states, international institutions or foreign banks, or from institutions customarily authorised to lend in their country that lend to all natural and legal persons and not only to their related institutions; the rate on other interest payments is 10%.

As a result of this distinction, if the parent company or group company abroad is not an institution authorised to lend, 10% is withheld on the interest paid to it; the tax administration’s rulings also state that 10% must be withheld on interest on a loan from a foreign shareholder. For group finance companies, what matters is that the institution is authorised to lend in its country and lends to everyone, not only to related institutions. In a case where the loan was provided through special-purpose intermediary companies but the actual lenders were financial institutions licensed in their country, the Council of Tax Chambers of the Council of State accepted that the intermediary companies merely acted as intermediaries in securing the financing and held that the 0% rate applied to the interest (E.2023/338, K.2025/6, 5 February 2025).

If Turkey has a double tax treaty with the lender’s country of residence and the rate in the treaty’s interest article is lower than the rate under Turkish domestic law, the treaty rate may be applied; for this, the lender’s certificate of residence must be given to the company before the payment or accrual. If the domestic rate is already lower, the domestic rate applies. If the loan agreement provides for interest to be paid “net”, the withholding tax is borne by the Turkish company and the tax base is grossed up; the tax clause in the agreement should therefore be drafted carefully. Withholding tax and reverse-charge VAT on other payments abroad are explained in our guide Paying Royalties, Licence and Service Fees Abroad from Turkey.

VAT, BITT and stamp duty

For value added tax, too, the nature of the lender is decisive. According to the VAT General Implementation Communiqué, foreign loan transactions not subject to banking and insurance transactions tax in Turkey are, by their nature, no different from domestic banking services subject to that tax; therefore no VAT is calculated on foreign loan transactions either, under Article 17(4)(e) of the Law. If the lender is not an institution authorised to lend, for example a parent company, the interest is treated as consideration for a service subject to VAT, and the Turkish company declares and pays that VAT under the reverse-charge mechanism (VAT Law, Art. 9). Reverse-charge VAT may be deducted under the general conditions; however, in the tax administration’s view, VAT on the part of the interest that is treated as thin capital or disguised profit distribution cannot be deducted under Article 30(d) of the VAT Law.

Banking and insurance transactions tax (BITT) is levied on amounts received in their favour by banks and bankers in Turkey in respect of their transactions (Expenditure Taxes Law No. 6802, Art. 28). A lender abroad does not fall within this scope; the VAT Communiqué passage quoted above also proceeds on the basis that foreign loan transactions are not subject to BITT in Turkey.

As regards stamp duty, papers issued for obtaining and repaying loans to be extended by banks, foreign credit institutions and international institutions, and annotations on those papers, are exempt from stamp duty, excluding the use of the loans (Stamp Duty Law No. 488, Table (2), item IV-23). The Capital Movements Circular also states that papers issued for obtaining and repaying loans from banks abroad, international institutions and foreign credit institutions are exempt from stamp duty and fees, and defines a foreign credit institution as an institution authorised under the law of its country of residence to provide financial resources and one of whose main activities is lending. According to the tax administration’s rulings, the exemption applies if the lender’s authority is documented; if it is not, for example where the lender is merely a parent company, a loan agreement stating a definite amount of money may be subject to stamp duty. The stamp duty rate for contracts stating a definite amount of money is 0.948% (Table (1), item I/A-1).

Resource Utilisation Support Fund (KKDF)

Loans obtained from abroad by persons resident in Turkey other than banks and financing companies are among the transactions subject to the KKDF levy (KKDF Communiqué No. 6, Art. 2). Since the rules do not distinguish according to the lender, a loan from a parent company or group company is, like a loan from a foreign bank, regarded as within scope. For loans in foreign currency and gold, the rate depends on the loan’s average maturity and, for FX loans, is calculated on the principal amount on the date the loan is drawn (Council of Ministers Decision No. 2012/4116, Art. 11). If a loan is closed before maturity and, as a result, the average maturity becomes shorter and therefore falls into a higher-rate bracket, a retroactive penalty KKDF is levied on the basis of the period between drawdown and closing.

For Turkish lira loans obtained from abroad, Council of Ministers Decision No. 2017/9973 applies; a 2017 ruling of the Revenue Administration states that the rate on these loans is 1% for an average maturity of up to one year and 0% for one year or more, and that the levy is calculated on the accrued interest. For loans from the European Bank for Reconstruction and Development (EBRD) and the International Finance Corporation (IFC), the rate was reduced to 0% by Presidential Decision No. 4091 (Official Gazette of 22 June 2021). As KKDF rates change frequently by Presidential decision, the current rate and how the levy is to be made should be confirmed with the intermediary bank before drawdown. Setting the average maturity at three years or more is the simplest way to eliminate the KKDF burden on FX loans; with instalment repayments, the average maturity may be below three years even if the final maturity is three years; however, if early repayment is planned, the risk of a penalty levy should be taken into account.

Thin capitalisation

For tax purposes, the most important limit on a shareholder loan is the thin capitalisation rule. The part of the borrowings that corporations obtain directly or indirectly from their shareholders or from persons related to their shareholders and use in their business which, at any time during the accounting period, exceeds three times the corporation’s equity is deemed thin capital for that accounting period (Corporate Tax Law, Art. 12(1)). The equity used in the calculation is the equity at the beginning of the accounting period as determined under the Tax Procedure Law. Borrowings from banks or similar credit institutions related to the shareholders are taken into account at 50% in the thin capitalisation calculation. The Law defines shareholders and related persons by reference to a direct or indirect holding of at least 10% of capital, voting rights or dividend rights.

Interest, exchange differences and similar expenses paid or calculated on thin capital cannot be deducted in determining corporate income (Corporate Tax Law, Art. 11(1)(b)). In addition, interest and similar payments or calculated amounts on thin capital, excluding exchange differences, are deemed a distributed dividend, or, for non-resident (limited) taxpayers, an amount transferred to the head office, as of the last day of the accounting period in which the thin capitalisation conditions are met (Corporate Tax Law, Art. 12(7)). The rules on the taxation of dividends apply to the dividend deemed distributed to the foreign shareholder and the earlier taxation is corrected; in the tax administration’s view, the 10% already withheld on the interest payment is credited against the dividend withholding tax. Reverse-charge VAT paid on interest attributable to thin capital cannot be deducted either (VAT Law, Art. 30(d)); the withholding rate on dividends distributed to non-resident corporations is 15% under Presidential Decision No. 9286 (Official Gazette of 22 December 2024). The transfer and taxation of dividends are explained in our guide Dividend Repatriation from Turkey for Foreign Shareholders.

To illustrate: if a company with beginning-of-period equity of TRY 10 million reaches, on some date during the year, a loan balance of TRY 40 million owed to its foreign parent company, the three-times limit is TRY 30 million and the excess of TRY 10 million is thin capital. Interest attributable to this TRY 10 million cannot be deducted and is deemed a distributed dividend; exchange differences attributable to this part cannot be deducted either. If the loan balance fluctuates during the year, the highest balance must be monitored, because it is enough for the limit to be exceeded “at any time”. In companies with low equity, or equity eroded by losses, a shareholder loan can quickly reach the thin capitalisation limit.

Transfer pricing and the financing expense limitation

Nor can the interest rate on a shareholder loan be set freely. If corporations buy or sell goods or services with related persons at a price or amount set in breach of the arm’s length principle, the profit is deemed to have been distributed, in whole or in part, in disguised form through transfer pricing (Corporate Tax Law, Art. 13(1)). If interest above market terms is paid to the foreign parent company, the part exceeding the arm’s length interest cannot be deducted and is deemed a distributed dividend; reverse-charge VAT paid on that part cannot be deducted either. In determining arm’s length interest, factors such as the loan’s currency, maturity and security and the borrower’s credit risk should be taken into account, and how the interest rate was determined should be documented. General principles of transfer pricing and disguised profit distribution in intra-group transactions are also discussed in our article Grup Şirketlerinde Nakit Havuzu (in Turkish).

In addition to thin capitalisation and transfer pricing, there is a financing expense limitation for companies whose debt exceeds their equity. In businesses other than credit institutions, financial institutions, financial leasing, factoring and financing companies whose borrowed funds exceed their equity, the portion, determined by the President and not exceeding 10%, of the total of expenses and cost items incurred under the names of interest, commission, maturity difference, profit share, exchange difference and similar on the borrowed funds used in the business, limited to the excess and excluding amounts added to the cost of investment, is a non-deductible expense (Corporate Tax Law, Art. 11(1)(i)). This rate was set at 10% by Presidential Decision No. 3490 for periods beginning on or after 1 January 2021 (Official Gazette of 4 February 2021). The limitation applies not only to shareholder loans but to all borrowed funds, domestic and foreign; financing expenses already treated as non-deductible because of thin capitalisation or disguised profit distribution are not counted again in the limitation calculation.

Converting a shareholder loan into capital or subordinating it

As a shareholder loan grows, so do the risks of thin capitalisation, the financing expense limitation and over-indebtedness. The first solution in that case is to convert the loan into capital. Money, receivables, securities and shares in capital companies may be contributed as capital (TCC Art. 127(1)(a)); a foreign shareholder’s receivable from the company may therefore be set off against the capital commitment subscribed in a capital increase. In Ministry of Trade practice, the existence of the receivable and its presence in the company’s records are evidenced by a report of a sworn financial adviser (YMM) or certified public accountant (SMMM); the documents required should be confirmed with the relevant trade registry office before applying. Adding the receivable to capital increases the company’s equity, removes the interest burden and widens the thin capitalisation limit in later periods. The steps of a capital increase are explained in our article Anonim Şirkette Sermaye Artırımı ve Azaltımı (in Turkish).

The second tool is subordinating the shareholder’s claim to those of the other creditors. If there are signs giving rise to a suspicion that the company is over-indebted, the board of directors prepares an interim balance sheet and, if the balance sheet shows over-indebtedness, notifies the court; unless, before the bankruptcy decision is given, the creditors of company debts in an amount that will cover the company’s deficit and eliminate its over-indebtedness have agreed in writing that their claims rank after those of all other creditors, and the appropriateness, genuineness and validity of that declaration or agreement have been verified by experts appointed by the court to which the board would notify the bankruptcy request (TCC Art. 376(3)). Subordination of its claim in this way by the foreign parent company can prevent the Turkish company’s bankruptcy notification; however, verification by the experts is required. The board’s obligations in the event of over-indebtedness are explained in our article Şirketim Borca Batık: Yönetim Kurulunun İflas Bildirimi (in Turkish).

Points to watch in the loan agreement

The agreement with the lender abroad determines both the FX and the tax consequences. The parties may choose the law applicable to the agreement: contractual obligations are governed by the law expressly chosen by the parties (Law No. 5718 on International Private and Procedural Law (IPPL), Art. 24(1)). Whichever law is chosen, however, Decree No. 32, the tax laws and the mandatory provisions of the TCC continue to apply to the Turkish company. Arbitration may also be agreed for disputes; the elements of an international arbitration clause are explained in our article Milletlerarası Tahkim (in Turkish).

Checklist

Common mistakes

• Treating a shareholder loan as outside the FX rules. A loan from a foreign shareholder is also a loan obtained from abroad and is included in the loan balance.
• Borrowing in foreign currency from the parent company without FX income. A company without FX income cannot obtain an FX loan from abroad, except in the listed cases (Decree No. 32, Art. 17(3)); the intra-group exception for wholly foreign-owned companies applies only if its conditions are documented. If, for a company with FX income, it later turns out that the loan balance exceeds FX income of the last three financial years, the excess is recalled or converted into a Turkish lira loan (Art. 17(4)(c)).
• Bringing the money in outside the banking system. Loans obtained from abroad must be used and repaid through banks in Turkey.
• Structuring an FX-indexed Turkish lira loan. FX-indexed loans may not be used from abroad (Decree No. 32, Art. 17(7)).
• Applying 0% withholding to interest paid to the parent company. The 0% rate is for foreign states, international institutions, foreign banks and authorised institutions that lend to everyone; the rate on interest paid to a parent company is 10%.
• Forgetting VAT on interest paid to the parent company. If the lender is not an authorised credit institution, the Turkish company pays reverse-charge VAT.
• Checking the thin capitalisation limit only at year-end. It is enough for the limit to be exceeded at any time during the accounting period.
• Ignoring KKDF on short-term FX loans. KKDF is 3% on an FX loan with an average maturity of up to one year; closing before maturity may trigger a penalty levy.

Frequently asked questions

Can a Turkish company borrow from abroad?

Yes. Persons resident in Turkey are free to obtain Turkish lira loans from abroad, and FX loans may also be obtained within the principles of Article 17 of Decree No. 32. In both cases the loan must be used and repaid through banks in Turkey (Decree No. 32, Arts. 17(1), 17(2) and 17(12)).

Is a loan from a foreign shareholder a loan from abroad?

Yes. Article 17 of Decree No. 32, as a rule, does not distinguish between lenders. Under the Capital Movements Circular, loans obtained from persons resident abroad other than banks and financial institutions are also included in the firm’s loan balance, and the term “loan” also covers borrowings from shareholders abroad.

Can a company without FX income obtain an FX loan from abroad?

As a rule, no: persons resident in Turkey without FX income may not obtain FX loans from abroad (Decree No. 32, Art. 17(3)). Borrowers with a loan balance of USD 15 million or more, public institutions, banks, loans under an investment incentive certificate, public-private partnership projects and certain loans listed in the Capital Movements Circular (for example, an FX loan to a wholly foreign-owned company from a foreign-capital group company abroad) are exempt from this condition.

What is the USD 15 million rule?

For a company whose loan balance on the date of use is below USD 15 million, the requested loan plus the existing loan balance may not exceed the total FX income of the last three financial years (Decree No. 32, Art. 17(4)(a)). The FX income condition does not apply to those with a balance of USD 15 million or more.

How is FX income documented?

A company with a loan balance below USD 15 million must, when requesting an FX loan, evidence its FX income for the last three financial years with documents approved by certified accountants (FX Communiqué, Art. 11(5)(b)). The intermediary bank checks the loan’s compliance with the limit (Decree No. 32, Art. 17(4)(b)).

Can a Turkish lira loan be obtained from abroad?

Yes. Persons resident in Turkey are free to obtain Turkish lira loans from abroad; there is no FX income condition, but the loan must be used through banks (Decree No. 32, Art. 17(1)). FX-indexed loans, however, may not be obtained from abroad (Art. 17(7)).

Can the loan be used without going through a bank?

As a rule, no. Loans obtained from abroad are used through banks in Turkey (except for the limited loans that may be used without being brought into Turkey, listed in Article 22 of the Capital Movements Circular); transfers of principal, interest and other payments are also made through banks (Decree No. 32, Arts. 17(1)-(2) and 17(12); FX Communiqué, Art. 11(1)). The intermediary bank reports the loan to the Central Bank.

What is the withholding tax rate on interest paid abroad?

The rate is 0% on interest on loans from foreign states, international institutions, foreign banks and institutions authorised to lend in their country that lend to everyone, and 10% on interest paid to other lenders such as a parent company (Corporate Tax Law, Art. 30(1)(ç); Decision No. 2009/14593), subject to any applicable double tax treaty.

Is there VAT on interest paid to the parent company?

If the lender is not an institution authorised to lend, the interest is subject to VAT, and the Turkish company declares and pays that VAT under the reverse-charge mechanism (VAT Law, Art. 9). On interest on loans from banks abroad, however, no VAT is calculated under Article 17(4)(e) of the VAT Law, according to the VAT General Implementation Communiqué.

Is there KKDF on a loan from abroad?

Yes. Loans obtained from abroad by persons resident in Turkey other than banks and financing companies are within the scope of KKDF. For FX loans the rate, by average maturity, is 3% up to one year, 1% between one and two years, 0.5% between two and three years and 0% for three years or more, calculated on the principal (Decision No. 2012/4116, Art. 11).

Is a foreign loan agreement subject to stamp duty?

Papers issued for obtaining and repaying loans extended by banks, foreign credit institutions and international institutions are exempt from stamp duty (Stamp Duty Law, Table (2), item IV-23). If the lender’s lending authority cannot be documented, for example where it is merely a parent company, an agreement stating a definite amount of money may be subject to stamp duty at 0.948%.

What is thin capitalisation?

It is the part of the borrowings obtained from shareholders or persons related to them that, at any time during the accounting period, exceeds three times the beginning-of-period equity (Corporate Tax Law, Art. 12(1)). Interest and exchange differences on that part are not deductible, and interest, excluding exchange differences, is deemed a distributed dividend (Corporate Tax Law, Arts. 11(1)(b) and 12(7)).

How should the interest rate on a shareholder loan be set?

The interest rate must be at arm’s length. If a transaction with related persons is carried out at a price contrary to the arm’s length principle, the profit is deemed distributed in disguised form through transfer pricing (Corporate Tax Law, Art. 13(1)); interest above arm’s length is not deductible and is deemed a dividend. The basis for the rate should be documented, taking into account currency, maturity, security and credit risk.

Does the financing expense limitation apply to shareholder loans?

Yes. In businesses other than credit and financial institutions whose borrowed funds exceed their equity, 10% of the interest, exchange differences and similar financing expenses attributable to the excess is non-deductible (Corporate Tax Law, Art. 11(1)(i); Presidential Decision No. 3490). The limitation applies to all borrowed funds, including shareholder loans.

Can a shareholder loan be converted into capital?

Yes. Receivables may also be contributed as capital (TCC Art. 127(1)(a)); a foreign shareholder’s receivable from the company may be set off against the capital commitment subscribed in a capital increase. In Ministry of Trade practice, the existence of the receivable is evidenced by a report of a sworn financial adviser or certified public accountant.

Can the principal and interest of a foreign shareholder’s loan be transferred abroad?

Yes. Foreign loan principal and interest payments may be transferred abroad freely through banks or special finance institutions (Law No. 4875, Art. 3(c)); transfers are made through banks (Decree No. 32, Art. 17(12)). Withholding tax on the interest and, where applicable, reverse-charge VAT must be paid.

Related guides

• Legal Guide for Foreign Investors in Turkey — company, stock exchange, mining, energy, real estate, tax and arbitration
• Turkey’s Ban on Foreign-Currency Contracts and the Foreign-Owned Company Exception — Decree No. 32, Art. 4(g)
• Dividend Repatriation from Turkey for Foreign Shareholders — dividend withholding, certificate of residence and transfer
• Paying Royalties, Licence and Service Fees Abroad from Turkey — withholding tax and reverse-charge VAT
• Company Formation in Turkey for Foreigners — capital, documents and formation
• Can a Foreigner Be a Board Member or Manager of a Turkish Company? — managers’ liability for tax and social security debts
• Grup Şirketlerinde Nakit Havuzu — cash pooling, thin capitalisation and transfer pricing (in Turkish)
• Şirketin Yurt Dışı Transferi Durduruldu — transfers stopped at a correspondent bank or by MASAK (in Turkish)
• Şirketim Borca Batık — TCC Art. 376 and bankruptcy notification (in Turkish)
• Türk Şirketi Yurt Dışından Kredi veya Yabancı Ortağından Borç Alabilir mi? — Turkish version of this article