Tax Advantages of Joint Stock Companies
There are significant differences in favor of the joint stock company partners as opposed to the limited liability company partners in taxing the income generated by withdrawal from the company. The most important reason for this is the significant taxation of limited liability company share transfers which is due to the fact that the shares of the limited liability company partners are not represented by share certificates. Share transfers in joint stock companies are not subject to tax 2 years after the transfer date. For instance, the income earned from transferring the share of a real person in a joint stock company after holding the shares for 2 years is not subject to any income tax pursuant to the article 87 of the Income Tax Law (bis). As for the legal entity partners, if the equity in a limited liability company or the share certificates in a joint stock company are transferred after 2 years as of the date of acquisition, 75% of the profit is exempted from corporate tax provided that it is not distributed to the shareholders, and such a sales transaction benefits from VAT exemption regardless of being attached to a share certificate or not. On the other hand, if the equity or the share certificate is sold before the expiration of 2 years, the earned sale income shall be subject to corporate tax. As for the VAT obligation, the delivery of shares before 2 years is exempt from VAT in any case, while there is no exemption of VAT for the transfer of limited liability company shares. Thus, if the period between acquisition and transfer does not exceed 2 years, corporate taxpayers should also calculate 18% VAT on the transfer fee if they sell their shares in limited liability companies.
1. What are the Tax Advantages of Joint Stock Companies in Comparison to the Limited Liability Companies?It becomes clear to say that the joint stock companies are advantageous compared to the limited liable companies.
|JOINT STOCK COMPANY||LIMITED LIABILITY COMPANY|
|Transfer of Shares||– Bearer shares, only by delivery (with the transfer of possession); – Registered share certificates or interim share certificates are transferred by endorsement and delivery. There is no obligation to transfer before a notary and to be approved and registered in the general assembly. Thus, there is no tax obligation for the share transfers.||It is obligatory for the share transfer to be made by a notarized transfer agreement, to have the approval of the general assembly for the transfer and to be registered to the trade registry.|
|Tax for Share Transfers of Real Persons||Earnings from the sale of shares held for more than two years after the expiration of this period are not subject to income tax. In addition, the cost value in the sale of shares is determined by applying the rate of increase in the wholesale price index. In order to make this indexing, the rate of increase must be 10% or higher.||Regardless of the time limit, the income from the share transfer is subject to income tax in any case. In addition, the cost value in the sale of shares is determined by applying the rate of increase in the wholesale price index. This index depends on the rate of increase which must be %10 or higher.|
|Tax for the Share Transfer of Legal Persons||VAT does not arise in the share transfer, provided that there is a provisional share certificate or a share certificate. 75% of the profit gained from the sale of the shares held for at least two years will be exempted and 25% will be taxed.||VAT is not levied on the sale of shares held for at least two years. 75% of the profit gained from the sale of the shares held for at least two years will be exempted and 25% will be taxed.|
|Liability for the Public Debts||The shareholder has no liability for the public receivables that cannot be collected from the company. However, if the shareholder is also a member of the board of directors, he has unlimited responsibility. Legal representatives (if the authority of representation has not been delegated to third parties as a managing member or manager, the board of directors; if it has been delegated to third parties, these persons) are liable for the public debts with all of their personal assets. The shareholder who is not a member of the board of directors is not liable for tax and social security premiums (4 / a) that cannot be collected from the company. For this, the entire capital must be paid. The chairman of the board of directors may be appointed externally and does not have to be a shareholder. In this way, it becomes possible for the shareholder to be discharged form such personal liability. This is particularly important especially for tax offenses that are punishable by smuggling penalties.||The shareholder is liable for the public receivables that cannot be collected from the company in proportion to his shares in the share capital. Legal representatives (partner/s or third parties who act as directors) are liable with their personal assets. They are liable for the company’s tax and social security (4 / a) premium debts that cannot be collected from the company and the manager with their “entire assets”. Company shareholders are liable not only for the amount of capital they contribute, but also in proportion to their capital ratio. For example, if the company’s capital is 10 thousand liras, but the tax debt is 100 thousand liras; the liability of the shareholder with the 50% of shares will be 50 thousand liras. If the shareholder in question is a partner manager, he is liable for the entire debt.|
2. Tax Advantage on Transfer ExpensesThe person liable for these expenses in limited liability companies is not only the transferee but also the transferor. With respect to the transfer of shares in a limited liability company, the following notifications were made by the Circular No. 14 of the Turkish Union of Notaries on 20 July 2012 and a Special Ruling No. 062857 of the Ministry of Treasury and Finance on 12 June 2012:
- In share transfer of the limited liability companies, the transfer transaction is subject to stamp tax at the rate of “8.25 per thousand of the share value” considering the number of copies (The Ministry of Treasury and Finance has amended its administrative opinion and stated that since a share transfer agreement does not amend the articles of association of the companies, the share transfer fee shall be subject to a stamp tax of 8,25 per thousand).
- The person who acquires the shares of a limited liability company, even as a new shareholder, will pay the relative fee not over the entire company capital, but at the share transfer fee as also applied to the transferring person.
- In termination of the limited liability company share transfer agreements, regardless of who requested the termination request, a stamp tax of 1.65 per thousand “over the share value subject to the transfer” and a charge of 0.99 per thousand “for each signature” over the same value (no less than 43,90 TL for 2012 and no more than 22,499.75 TL) shall be applicable.
3. Advantages for Joint Stock Companies in Terms of Income TaxIn addition to the stamp tax and the duties mentioned above, an “income tax” may be applicable in the transfer of the limited liability company shares. In accordance with the Article 80/4 of the Income Tax Law (bis), even if the limited liability company share is transferred after 3 years or 10 years, the income earned from the transfer is subject to an income tax as “capital gains”. 8,800 TL of the income tax shall be exempted from and 15-35 percent of the remaining shall be subject to the income tax.
4. Tax Advantages in the Case Where Limited Liability Company Converts to Joint Stock CompanyIn case the limited liability company is converted to a joint stock company:
- Since the transfer of shares will be in the form of “transfer of share certificates” of the joint stock company, the transfer is not subject to stamp duty and tax. In addition, it is not necessary to carry out the transfer before the notary public.
- As for the income tax, if the limited liability company converts into joint stock company and the “share certificate” or “provisional share certificate” is issued immediately afterwards, the acquisition date of the share certificate or the interim share certificate shall be the “date of establishment of the limited liability company.” There shall be no income tax two years after the acquisition date.