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PRINCIPLES RELATED THE DIVIDEND DISTRIBUTION OF CAPITAL COMPANIES HAVE BEEN DETERMINED

Numerous measures have been taken to minimize the negative effects of the coronavirus pandemic. One of them was to add a provisional article 13 to the Turkish Commercial Code with the Law Numbered 7244 regarding the dividend distribution to protect the existing resource structures of companies and to avoid additional financing needs.[1]

I. What is the purpose of this restriction?

The purpose of regulation in the law’s preamble is expressed as follows:

”The effects of the pandemic on public health and the economy are not yet clearly revealed due to the decrease in economic activities, closure of borders, and uncertainties on both supply and demand sides. In this context, in accordance with the precautionary principle, a regulation on dividend distribution to be made until 30.09.2020 is introduced with this provisional article in order not to decrease the company through cash profit distribution, to protect the existing resource structures of our companies and to avoid the need for additional financing.”

II. A Communiqué is published on the procedures and principles regarding the restriction

The Ministry’s “Communiqué on the Procedures and Principles Regarding the Implementation of the Provisional Article 13 of the Turkish Commercial Code Numbered 6102” entered into force by being published in the Official Gazette on 17.05.2020 and the procedures and principles regarding the restriction imposed on the dividend distribution of capital companies were determined. Here are highlights in the Communiqué:

1) Capital increase from internal resources

In the Communiqué, it has been determined that the dividend distribution restriction will not be applied in case of capital increase to be made from internal resources in accordance with the Article 462 of the Turkish Commercial Code (TCC). Accordingly, reserve funds that are not allocated for a specific purpose and separated by the decision of the articles of incorporation or general assembly and freely available parts of legal reserve funds and funds allowed by legislation to be included in the balance sheet and added to the capital can be increased from internal resources converted into capital. In other words, if the profit will be added to the capital, there will be no restriction on dividend distribution.

2) To have taken a distribution decision from free reserve funds

If the general assembly decided to distribute dividends before April 17, 2020, but when the provisional article 13 of the Law came into force, the payments were not made yet to the shareholders or partial payments were made, and  if a distribution decision has been taken from the free reserve funds although the payments related to the part exceeding the limit (25%) in the first paragraph of the article and during the 2019 fiscal period (the last fiscal period completed in those subject to the special fiscal period) have been damaged, all payments for the part not yet paid have been postponed until 30 September 2020. No interest will be charged on these postponed payments.

3) Exceptions to the Dividend Distribution Restriction

According to Article 5 of the Communiqué, companies that meet the following conditions will be out of the dividend distribution restriction:

– Companies that decided to distribute dividend of 120.000 Turkish Liras and below (In accordance with Annex-2 and 23rd provisional article of Unemployment Insurance Law Numbered 4447, Except employers benefiting from short-term work allowance and/or unpaid leave due to the compelling reason originating from the new coronavirus (Covid-19) in accordance with the provisional Article 24 of Law Numbered 4447 and those who use Treasury-backed loan surety and still have unpaid credit debt balance pursuant to the provisional article 20 of the Law Numbered 4749 on Regulation of Public Finance and Debt Management and related Decisions),

– Companies that decided to distribute dividends, provided that more than half of the profit share decided to be distributed by the shareholders is used in cash and at once execution of the capital commitment debt to another capital company within the framework of the provisions of the Law.

– Companies that decided to distribute dividends, provided that the dividend decided to be distributed by the shareholders is used in the execution of the liabilities that have become due until the end of the period specified in the first paragraph of Article 4 within the scope of the loan agreements or project financing agreements  (In these companies, payments related to the amount exceeding the shareholders’ obligations will be postponed until September 30, 2020.),

4) Assent requirement from the Ministry for exceptions

In order to discuss the dividend distributions to be made within the scope of the above-mentioned exceptions at the general assembly, it is mandatory to obtain an assent from the Ministry of Trade. In the application, in addition to the notarized copy of the decision of the managing body regarding general assembly, the financial statement of the company for the fiscal period and the statement of profit or loss, the following documents will be submitted to the General Directorate:

a) In accordance with the exception provided for in Article 5, paragraph (a), In companies to distribute dividends; the document which certifies to be obtained from the relevant institutions that the supports specified in the aforementioned clause are not used,

b) In accordance with the exception provided for in Article 5, paragraph (b), In companies to distribute dividends; the document which certifies the capital commitment obligation of those who have the right to receive more than half of the dividend to be distributed to another capital company,

c) In accordance with the exception provided for in Article 5, paragraph (c), In companies to distribute dividends; the document which certifies performance obligations within the scope of loan contracts and project finance contracts.

5) Financial statements to be taken into consideration for dividend distribution restriction:

According to the 7th article of the Communiqué, following financial statement will be taken into consideration:

– Financial statements prepared in accordance with Article 88 of the Law by those who have to prepare in accordance with the standards determined by the Public Oversight, Accounting and Auditing Standards Authority,

– Other than these, financial statements prepared in accordance with the Tax Procedure Law Numbered 213.

However, the amount of dividend that is foreseen to be distributed will in no way exceed the total amount of the resources subject to dividend distribution in the records kept according to the Tax Procedure Law.


[1] PROVISIONAL ARTICLE 13 – (1) In capital companies, it may be decided to distribute only up to twenty-five percent of the net profit of 2019 until 30/9/2020,  previous year profits and free reserve funds cannot be subject to distribution, and the general assembly cannot authorize the board of directors to distribute dividend advances. The provision of this paragraph shall not apply to the state, special provincial administration, the municipality, the village and other public legal entities and funds which more than fifty percent of its capital is publicly owned, companies with more than fifty percent of their capital directly or indirectly. The President is authorized to extend and shorten the period specified in this paragraph for three months.

(2) If the general assembly has decided to distribute dividends for the fiscal year 2019, but the shareholders have not yet been paid or partial payments, the payments for the part exceeding 25% of the net profit for 2019 will be postponed until 31/09/2020.

(3) The Ministry of Commerce was authorized by taking the opinion of the Ministry of Treasury and Finance, by determining the exceptions regarding the capital companies under the article and the procedures and principles regarding the implementation.


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