The transfer of company shares is one of the most significant thresholds in corporate structuring. However, the tax outcome of a share transfer often does not arise from the economic size of the transaction, but from the type of company in question, the legal instrument through which the transfer is carried out, and the timing of the transaction. In particular, the structural differences between limited liability companies and joint stock companies, whether the share is represented by a share certificate or a temporary share certificate, and the holding period may lead to different tax consequences in respect of the same sale transaction.

The difficulty encountered in practice arises precisely at this point. Although daily language often refers to a single “share sale”, the law distinguishes between the transfer of uncertificated shares, the transfer of registered share certificates, the transfer of bearer share certificates, and transfers made following a change of company type. Each has different formal requirements, evidentiary rules, and tax implications. For this reason, when planning a share transfer, it is not sufficient to focus only on the sale price or the expected gain. The legal instrument through which the transfer is structured, whether the certificates have been duly issued, whether the transferor is a real person or a legal entity, and whether the exemption conditions are fully satisfied in the specific case must be assessed together.

In structures where a limited liability company is converted into a joint stock company through a change of company type, the most critical issue is often the date from which the two year holding period will begin. This is because the actual tax benefit in practice does not arise merely from conversion into a joint stock company, but from how the acquisition date of the share certificate or temporary share certificate issued after the conversion is determined.

1. Distinction Between Share Transfer, Share Certificate, Uncertificated Share and Temporary Share Certificate

Share Transfers in Limited Liability Companies

The transfer of capital shares in limited liability companies is regulated under Article 595 of the Turkish Commercial Code. As a rule, the transfer agreement must be made in writing and the signatures of the parties must be notarised. In addition, unless otherwise provided in the articles of association, the transfer becomes valid upon the approval of the general assembly. For this reason, the transfer of shares in a limited liability company is subject to strict formal requirements.

Article 593 of the Turkish Commercial Code accepts that capital share certificates in limited liability companies may be issued either as evidentiary instruments or as registered certificates. However, these certificates do not produce the same result as joint stock company share certificates in tax practice. In other words, the issuance of a certificate in a limited liability company does not, by itself, give rise to the tax advantages granted to share certificates in joint stock companies.

Uncertificated Shares, Share Certificates and Temporary Share Certificates in Joint Stock Companies

In joint stock companies, the first point to examine is whether the share has been represented by a certificate. Shares for which no share certificate or temporary share certificate has yet been issued are referred to in practice as “uncertificated shares”. Although the law does not provide a regime as detailed as the one applicable to the transfer of share certificates in respect of uncertificated share transfers, a written share transfer agreement and registration in the company share ledger are of substantial importance in practice.

Where share certificates have been issued, the legal regime changes. Under the Turkish Commercial Code, joint stock companies may issue registered share certificates and bearer share certificates. Until share certificates are issued, temporary share certificates may also be issued. The provisions applicable to registered share certificates apply to temporary share certificates by analogy.

As a rule, registered share certificates are transferred by endorsement of the certificate and delivery of possession to the transferee. In bearer share certificates, in addition to the transfer of possession, notification to the Central Securities Depository is also required. Under the current system, unless the Central Securities Depository notification is made, the rights attached to a bearer share certificate cannot be asserted against the company or third parties.

Why the Due Issuance of the Share Certificate Matters

The existence of the share certificate is important, but so is its due issuance. Under Article 487 of the Turkish Commercial Code, joint stock company share certificates must state the company’s trade name, the amount of capital, the date of incorporation, the amount of capital on that date, the series of the issued share certificate, the registration date of that series, the type of the certificate, its nominal value and the number of shares it represents. They must also bear the signatures of at least two persons authorised to sign on behalf of the company. In registered share certificates, the shareholder’s name or trade name, place of residence, and the paid portion of the share price must also be stated.

For tax assessment purposes, it must also be emphasised that the mere issuance of a share certificate or temporary share certificate is not always sufficient in itself. Whether the transfer was actually carried out in accordance with the procedure applicable to the transfer of share certificates is also determinative. Indeed, in certain disputes, although the company had issued temporary share certificates or share certificates, the transfer was treated as an uncertificated share transfer because the transaction was carried out through a notarised share transfer agreement and registration.

2. Taxation in the Transfer of Limited Liability Company Shares

Income Tax for Real Person Shareholders

Where a real person shareholder of a limited liability company transfers their share, the gain obtained is, as a rule, treated as capital gain under repeated Article 80 of the Income Tax Law. At this point, whether the limited liability company share is represented by a certificate does not alter the outcome. The settled approach of the tax administration is that limited liability company shares are not treated in the same manner as joint stock company share certificates.

For this reason, gains arising from the transfer of limited liability company partnership shares are taxed under repeated Article 80 paragraph 4 of the Income Tax Law. For the 2026 calendar year, the exemption amount applicable to capital gains is 150,000 Turkish lira. The portion of the gain exceeding this amount is subject to income tax.

Corporate Tax in the Transfer of Shares by a Legal Entity Shareholder

Where the party transferring the limited liability company share is a legal entity subject to corporate tax, the assessment is made within the framework of the Corporate Tax Law. Under Article 5 paragraph 1 subparagraph e of the Corporate Tax Law, a certain portion of the gain arising from the sale of participation shares held in the assets for at least two full years may be exempt from corporate tax.

By Presidential Decree No. 9160 published in the Official Gazette dated 27 November 2024 and numbered 32735, this exemption rate was determined as 50 percent. Accordingly, for sales made as of 27 November 2024, 50 percent of the sale gain may benefit from the exemption, provided that the conditions are satisfied.

However, it is not sufficient here to consider only the condition of holding the shares for two full years. The sale price must be collected by the end of the second calendar year following the year in which the sale is made, and the exempted gain must be kept in a special fund account under liabilities for five years. It should also be kept in mind that the exemption may become debatable in respect of shares held for the purpose of securities trading, as well as in certain holding structures where the participation purpose cannot be sufficiently established.

3. Taxation in the Transfer of Joint Stock Company Shares

Income Tax for Real Person Shareholders

In the transfer of joint stock company shares, the tax outcome varies according to the legal nature of the share.

In the transfer of shares represented by share certificates or temporary share certificates, a significant advantage may arise under repeated Article 80 paragraph 1 of the Income Tax Law. If share certificates or temporary share certificates belonging to fully liable joint stock companies are disposed of after being held for more than two years from the date of acquisition, the gain obtained is not taxed as capital gain.

By contrast, if the share in the joint stock company has not yet been represented by a share certificate or temporary share certificate, meaning that the transfer is in the nature of an uncertificated share transfer, the gain is taxed as capital gain under repeated Article 80 paragraph 4 of the Income Tax Law. In this case, the two year holding period does not create an exemption.

The point that must be particularly underlined here is this. In joint stock companies, the tax advantage does not arise merely from the status of being a shareholder, but from the fact that the share is represented by a share certificate or temporary share certificate, that these certificates have been duly issued, and that the transfer is genuinely carried out under the share certificate transfer regime.

Corporate Tax in the Transfer of Shares by a Legal Entity Shareholder

Where the party transferring the joint stock company share is subject to corporate tax, Article 5 paragraph 1 subparagraph e of the Corporate Tax Law applies, as in the case of limited liability company shares. If the shares have been held in the assets for at least two full years, the sale price is collected within the prescribed period, and the exempted gain is kept in a special fund account, 50 percent of the sale gain is exempt from corporate tax for sales made as of 27 November 2024.

Here too, it should not be overlooked that shares held for the purpose of securities trading may fall outside the scope of the exemption, and that the distinction between participation purpose and commercial purpose must be made carefully in the specific case.

4. Conversion from a Limited Liability Company into a Joint Stock Company and Its Tax Effects

The conversion of a limited liability company into a joint stock company is subject to the provisions on change of company type regulated under Articles 180 to 190 of the Turkish Commercial Code. In a change of company type, no new company is established. The converted company continues its legal identity. Provided that the conditions under Articles 19 and 20 of the Corporate Tax Law are met, a change of company type is treated as a transfer for corporate tax purposes.

However, the real debate in practice focuses not so much on the change of company type itself, but on the date from which the two year period will begin in respect of joint stock company share certificates or temporary share certificates issued to the shareholders after the conversion. This issue is also the central question of this article. Is the period spent in the limited liability company included in the two year holding period in the joint stock company, or does the period begin to run only from the date on which the share certificate or temporary share certificate is issued?

When Does the Two Year Period Begin?

The practical importance of the question is clear. If the two year period is calculated from the date of first participation in the limited liability company, the sale of the joint stock company share certificates issued after the change of company type may fall outside income tax within a shorter period. By contrast, if the period is deemed to begin from the date on which the share certificate or temporary share certificate is issued, the change of company type alone may not provide the expected tax advantage.

Today, this debate is essentially shaped around two separate approaches. These are the administrative approach and the judicial approach.

(i) Under the first approach, the period of shareholding in the limited liability company may be carried over to the share certificates in the joint stock company.

(ii) Under the second approach, the two year period begins from the date on which the share certificate or temporary share certificate is actually issued.

The Administrative Approach Based on Private Rulings

In certain older private rulings of the Revenue Administration, it was stated that, since a change of company type is accepted as having the nature of a transfer within the meaning of the Corporate Tax Law, the date of first participation in the limited liability company should be taken as the acquisition date of the share certificates given to the shareholders in the structure converted into a joint stock company. Under this approach, the centre of gravity is corporate continuity and the transfer regime.

By contrast, particularly as of the private ruling dated 14 February 2018, the administration has moved towards a distinctly different line. Under this new approach, where a limited liability company share is represented by a share certificate or temporary share certificate after conversion into a joint stock company, the starting point of the two year period is taken as the date on which the shareholders acquire the right of disposal over these certificates, in other words, the date on which the certificates are printed or issued. The same line appears to have been maintained in the private rulings issued in 2023.

The view that has gained weight in current administrative practice is this second approach. Therefore, the assumption that the period spent in a limited liability company will automatically be added to the two year holding period for joint stock company share certificates merely on the basis of the change of company type is not safe from the perspective of administrative practice.

The Judicial Approach Based on the View of the Council of State

In the decisions of the Council of State, the debate proceeds more through the question of whether a change of company type creates legal continuity and how this continuity should be reflected in the acquisition date. In assessments following this line, it is accepted that a change of company type carried out under Articles 19 and 20 of the Corporate Tax Law has the nature of a transfer, and therefore that the acquisition date of the share certificates obtained after the conversion may be linked to the date of participation in the limited liability company.

In particular, the assessment reflected in the decision of the 3rd Chamber of the Council of State dated 1 October 2024, file no. 2024 slash 9 E. and decision no. 2024 slash 5025 K., clearly demonstrates this approach. According to that assessment, it was accepted that the date of participation in the limited liability company that changed type should be taken as the acquisition date of the shares issued after the change of company type. This approach differs from the view adopted by the administration after 2018.

Nevertheless, the judicial approach should not be read in a one dimensional manner. In certain disputes, courts have also examined whether the transfer transaction was genuinely carried out under the share certificate transfer regime, even where share certificates or temporary share certificates had been issued. For this reason, from the judicial perspective as well, the mere fact that “the certificate was printed” is not sufficient. The legal structure of the transfer is also important.

Practical Consequence of the Two Approaches

If the administrative approach is adopted, the two year period is, in most cases, started from the date on which the share certificate or temporary share certificate is issued. If the continuity based interpretation of the judicial approach is adopted, an earlier tax advantage may arise by taking the date of first participation in the limited liability company as the basis.

For precisely this reason, the conversion of a limited liability company into a joint stock company does not, by itself, automatically create an income tax advantage. The essential issue is which approach is more likely to be applied in the specific case, from which date the two year period will be started, and how the transaction is structured by taking these risks into account. In order to determine the tax outcome in a sound manner, the following issues must be assessed together.

(i) Whether the change of company type was carried out under Articles 19 and 20 of the Corporate Tax Law.

(ii) Whether the shares were duly represented by share certificates or temporary share certificates.

(iii) From which date the two year period should be calculated in the specific case.

(iv) Whether the transfer transaction was genuinely carried out under the share certificate transfer regime.

5. In Our View

In our view, the determinative issue in this debate is not whether the change of company type creates continuity in the abstract, but rather the accurate identification of the legal event to which the tax advantage is attached. If the tax advantage is attached to the existence of a joint stock company share certificate or temporary share certificate, the administrative approach that takes the date on which the certificate or temporary share certificate legally comes into existence as the starting point for the two year period rests on a technically stricter basis. Nevertheless, once it is accepted that a change of company type is deemed a transfer within the meaning of the Corporate Tax Law and that corporate identity continues, the judicial approach that takes the date of first participation in the limited liability company as the basis also has a strong systematic foundation. For this very reason, when structuring a concrete transaction, it is necessary to assess not only which view is more persuasive in theory, but also the administration’s current practice, the likely judicial outlook in the event of a dispute, and the level of risk the taxpayer is willing to assume.

6. Matters That Stand Out in Practice

In share transfer transactions, the tax advantage often arises not so much from the economic result of the transaction, but from its legal structure. Particularly in joint stock companies, there is a determinative difference between the issuance of a share certificate or temporary share certificate and the actual execution of the transfer through these instruments.

Similarly, in structures involving a change of company type from a limited liability company into a joint stock company, the theoretical advantage and the actual tax outcome may not always coincide. If the starting point of the two year period, the acquisition date, the timing of issuance of the certificates, and the method of transfer are not assessed together, the expected tax advantage may not be preserved.

7. Conclusion

Taxation in the transfer of limited liability company and joint stock company shares does not depend solely on the size of the sale gain. The legal nature of the transfer, whether the share is represented by a certificate, the holding period, whether the transferor is a real person or a legal entity, and whether the conditions for the corporate tax exemption are fully satisfied directly affect the outcome.

Although the issuance of share certificates or temporary share certificates in joint stock companies may create a significant tax advantage, the mere printing of the certificate is not sufficient for this advantage to arise. The certificate must be duly issued and the transfer must be carried out accordingly. In limited liability companies, the existence of certificated shares does not produce the same result as joint stock company share certificates in tax practice.

A change of company type constitutes a separate area requiring attention. In a conversion from a limited liability company into a joint stock company, the essential issue is whether the two year holding period begins from the date of first participation in the limited liability company or from the date on which the share certificate or temporary share certificate is issued in the joint stock company. This distinction is what primarily determines the tax outcome. For this reason, in planning a change of company type, not only the completion of the conversion process, but also the legal form in which the share is represented afterwards and whether the sale is carried out in accordance with that structure must be treated as determinative.

Accordingly, in high value share transfers, it would be prudent to design the transaction not only from a corporate law perspective, but also from the perspective of income tax and corporate tax, and where necessary, to obtain legal and tax advice tailored to the specific transaction before it is carried out.