Introduction: Can a Foreign Shareholder Lend Money to a Turkish Company?

Yes. A foreign individual or foreign company may, subject to Turkish foreign-exchange, tax, banking and corporate rules, finance a Turkish company through a shareholder loan rather than providing all of the funding as share capital.

Shareholder loans are extremely common in international corporate structures.

A German parent company may establish a Turkish subsidiary with EUR 2 million of equity and provide another EUR 5 million as a loan.

A foreign investor may acquire shares in an existing Turkish business and provide working-capital financing after closing.

A multinational group may finance its Turkish subsidiary through intercompany debt instead of repeatedly increasing registered share capital.

A foreign venture investor may also use debt or, in more limited circumstances, convertible financing as part of an investment structure.

Turkey’s Foreign Direct Investment Law generally protects freedom of investment and equal treatment and expressly provides that repayments and interest arising from foreign loans can be transferred abroad through banks or financial institutions.

However, the fact that a shareholder loan is legally possible does not mean that the foreign shareholder can simply wire money to Turkey, charge any interest rate it wants and later withdraw the money without additional consequences.

A cross-border shareholder loan potentially engages several separate legal regimes:

• Turkish foreign-exchange legislation;
• Central Bank capital-movement rules;
• corporate law;
• transfer pricing;
• corporate income tax;
• withholding tax;
• VAT;
• thin capitalisation;
• financing expense limitation;
• KKDF;
• stamp tax;
• accounting and foreign-exchange valuation rules;
• and banking/AML documentation.

The first rule for foreign investors is therefore:

A shareholder loan should be structured before the money is transferred, not after it reaches the Turkish company’s bank account.

The loan agreement, shareholder or board approvals, SWIFT payment description, bank documentation, accounting entry and tax treatment should all tell the same legal story.

This guide explains the principal legal and tax risks of lending money from a foreign shareholder to a Turkish company in 2026.

1. What Is a Shareholder Loan?

A shareholder loan is financing provided by a shareholder to the company without increasing the company’s registered share capital at the time of financing.

Suppose:

Foreign Parent GmbH owns 100% of Turkish Subsidiary A.Ş.

The Turkish company needs EUR 6 million.

The foreign parent could finance it as:

EUR 6 million capital

or:

EUR 2 million capital + EUR 4 million shareholder loan.

Under the second structure, the Turkish company records the EUR 4 million as a liability rather than equity.

The parent therefore has two legally distinct positions:

shareholder

and

creditor.

This distinction is commercially important.

Share capital is not ordinarily repayable simply because the shareholder requests its money back.

A genuine shareholder loan, by contrast, can generally be repaid according to its maturity and contractual terms, subject to Turkish legal, tax, banking and solvency considerations.

This repayment flexibility is one of the main reasons international investors use shareholder loans.

2. Share Capital and Shareholder Loans Should Not Be Confused

A foreign investor should determine clearly whether money entering Turkey is:

equity or debt.

The legal consequences are very different.

A transfer should therefore not be described vaguely as:

“financial support from shareholder.”

It should be clear whether it represents registered capital, a capital advance intended to be converted to capital, or debt.

The Central Bank’s capital-movements framework specifically deals with money initially transferred for capital that is not ultimately documented as capital. In qualifying circumstances, such amounts can become treated as foreign borrowing and be subjected to the foreign-loan compliance regime.

3. A Written Shareholder Loan Agreement Is Essential

A cross-border shareholder loan should normally be governed by a written agreement.

At a minimum, the agreement should address:

• lender;
• borrower;
• principal amount;
• currency;
• purpose;
• drawdown mechanism;
• maturity;
• interest;
• payment dates;
• default interest;
• voluntary prepayment;
• mandatory repayment;
• tax withholding;
• gross-up provisions where applicable;
• security, if any;
• subordination;
• representations;
• events of default;
• governing law;
• dispute resolution;
• conversion into equity if contemplated;
• and notices.

The document should not be regarded merely as evidence prepared for tax authorities later.

Banks may need to determine whether incoming funds are capital or foreign borrowing and whether the Turkish borrower satisfies the conditions for receiving a foreign-currency loan.

Current Central Bank rules provide detailed controls over foreign borrowing and contemplate documentary evidence supporting the relevant credit relationship.

A shareholder loan should therefore be documented before drawdown.

4. Can the Loan Be Denominated in EUR or USD?

Potentially—but Turkish companies are subject to important restrictions on foreign-currency borrowing.

The current Central Bank Capital Movements Circular provides the general rule that Turkish residents without foreign-currency income may not use foreign-currency loans except within specified statutory exceptions.

For Turkish residents that do have foreign-currency income, the Circular also contains a significant USD 15 million credit-balance test. Where the borrower’s foreign-currency credit balance is below USD 15 million at the time of borrowing, the requested credit together with the existing balance generally cannot exceed the borrower’s total foreign-currency income of the previous three financial years, subject to the detailed exceptions and calculation rules.

Therefore, a newly incorporated Turkish company with no export or foreign-currency revenue should not simply assume it can receive a EUR 5 million foreign-currency shareholder loan because the lender owns the company.

Whether a particular shareholder loan qualifies must be checked against the current FX borrowing rules.

There are statutory exceptions, but they are fact-specific.

5. A Shareholder Relationship Does Not Automatically Exempt the Loan From FX Rules

This is a common misunderstanding.

A foreign parent may say:

“It is our wholly owned subsidiary, so this is internal group funding.”

From a corporate perspective, that is correct.

From an FX regulatory perspective, the Turkish subsidiary remains a Turkish resident borrower receiving a foreign loan.

The Central Bank’s rules can therefore still apply.

Banks act as important compliance gatekeepers.

The intermediary bank may review:

• loan agreement;
• borrower identity;
• lender identity;
• currency;
• maturity;
• foreign-currency income;
• existing foreign-currency credit balance;
• applicable exception;
• and purpose of funds.

The fact that the lender owns 100% of the borrower does not automatically remove that analysis.

6. What If Money Was Sent as Capital but Is Later Treated as a Loan?

This issue deserves particular caution.

A foreign shareholder might transfer EUR 1 million with the statement:

“capital contribution.”

The Turkish company then fails to complete the required capital-registration process.

Months later, the parties decide:

“We will treat it as a shareholder loan instead.”

Current Central Bank guidance expressly deals with situations in which funds transferred for capital are not properly evidenced as having been added to capital or the Turkish company later states that the money will be used as a loan.

In such circumstances, the intermediary bank may apply the foreign-currency loan eligibility tests. If the required conditions are satisfied, the amount may be treated as credit and included in the company’s credit balance; if the requirements are not met, repayment abroad may become necessary. The guidance also recognises specified documents between the foreign shareholder and company as capable of functioning as the loan documentation in relevant circumstances.

The better approach is obvious:

Decide whether the money is equity or debt before sending it.

7. The Interest Rate Must Satisfy Turkish Transfer Pricing Rules

A shareholder and its subsidiary are related parties.

A loan between them is therefore a controlled transaction.

Turkey’s transfer-pricing rules require related-party transactions to comply with the arm’s-length principle.

The Turkish Revenue Administration has expressly stated in the context of a foreign shareholder loan that the interest rate charged by the foreign related party must be determined on an arm’s-length basis.

This means the parties should not simply choose:

0.5%, 6%, 15% or 25%

because that rate is convenient for the parent company’s tax planning.

The correct rate should be commercially supportable.

Relevant factors can include:

• currency;
• maturity;
• borrower credit risk;
• collateral;
• seniority;
• country risk;
• group credit rating;
• comparable bank rates;
• comparable group financing;
• market conditions;
• and repayment profile.

A foreign group should retain evidence supporting the selected rate.

8. What Happens if the Interest Rate Is Too High?

An excessive interest rate can allow profit to be shifted out of Turkey.

Suppose an independent lender would reasonably charge 7%.

The shareholder charges:

22%.

The Turkish company deducts the interest expense while the parent receives the payment abroad.

The tax authority may argue that the transaction does not satisfy the arm’s-length principle.

Depending on the facts, part of the payment can be treated as hidden profit distribution through transfer pricing.

That can result in:

• denial of deductions;
• additional corporate tax;
• withholding consequences;
• tax penalties;
• interest;
• and dividend recharacterisation.

The shareholder loan should therefore be defensible as a real financing transaction rather than merely a mechanism for extracting Turkish profits.

9. What If the Interest Rate Is Zero?

An interest-free shareholder loan is not automatically risk-free either.

The transfer-pricing analysis should still ask whether independent parties would provide comparable funding on those terms and whether Turkish tax law creates any imputed-pricing implications in the specific structure.

There may be commercial reasons for interest-free funding, particularly in early-stage group companies.

But the decision should be documented rather than assumed to have no tax relevance.

In cross-border tax planning, charging excessive interest and charging no interest can both create questions—although the risk profile is different.

10. Turkish Withholding Tax on Interest Paid to the Foreign Shareholder

Interest paid by a Turkish company to a non-resident corporate lender can be subject to Turkish withholding tax.

The Turkish Revenue Administration’s guidance distinguishes between qualifying foreign lenders and ordinary foreign creditors.

Where credit is obtained from foreign states, international institutions, foreign banks or institutions that are authorised to lend in their home country and ordinarily lend to real and legal persons generally rather than only related companies, domestic withholding can fall within a 0% category.

For other receivable interest, the published domestic rate is generally 10%.

An ordinary parent company lending only to its subsidiaries will therefore not automatically be treated like a foreign bank.

Example

German Parent GmbH lends EUR 3 million to Turkish Subsidiary A.Ş.

German Parent is not a bank or licensed credit institution.

Annual interest:

EUR 180,000.

The Turkish company should analyse the domestic 10% interest-withholding framework together with the Germany–Turkey double taxation treaty before payment or accrual.

11. Always Check the Applicable Double Taxation Treaty

Domestic Turkish withholding rates are only the first step.

Turkey has an extensive double taxation treaty network.

The applicable treaty may place a ceiling on Turkey’s taxation of interest where:

• the foreign lender is treaty resident;
• beneficial ownership requirements are met;
• the treaty applies to the relevant payment;
• and the necessary residency documentation is available.

The exact treaty rate differs by country.

Therefore, there is no single correct answer to:

“What is the tax rate on interest paid to a foreign shareholder?”

The answer requires:

Turkish domestic rate + treaty analysis + lender status + beneficial ownership + documentation.

Foreign groups should verify this before determining the net interest payment.

12. Reverse-Charge VAT Can Apply to Foreign Shareholder Interest

This issue is frequently overlooked.

Where the foreign shareholder is not a qualifying bank or financial institution and provides financing to its Turkish subsidiary, the Turkish Revenue Administration has treated the financing as a service for VAT purposes.

In an official ruling concerning foreign shareholder debt, GİB concluded that interest on financing provided by an ordinary foreign shareholder should be subject to Turkish VAT through the reverse-charge mechanism, while ordinary exchange differences arising from period-end foreign-currency valuation were not themselves consideration for a service and therefore did not attract VAT in the circumstances described.

The same ruling distinguished qualifying foreign financial institutions from an ordinary shareholder lender.

Accordingly, the tax cost of a foreign shareholder loan cannot be calculated by looking only at withholding tax.

A proper model should also consider VAT.

13. Reverse-Charge VAT and Interest Withholding Are Different Taxes

The following should not be confused:

interest withholding tax

and

reverse-charge VAT.

The first taxes income derived by the foreign lender.

The second arises from the Turkish VAT treatment of the financing service.

Depending on the Turkish borrower’s own VAT position, reverse-charge VAT may potentially be creditable, but the cash-flow, reporting and deductibility consequences need separate analysis.

A foreign investor should therefore request an integrated tax model rather than asking only:

“What tax is deducted from the interest payment?”

14. The Three-Times-Equity Thin Capitalisation Rule

One of the largest tax risks in foreign shareholder financing is thin capitalisation — örtülü sermaye.

Article 12 of the Turkish Corporate Tax Law provides that loans obtained directly or indirectly from shareholders or shareholder-related persons and used in the business become thin capital to the extent that qualifying debt exceeds three times the company’s equity at any point during the accounting period, subject to the statutory details and exceptions.

GİB has repeatedly confirmed this three-times-equity rule in its guidance on foreign shareholder financing.

Example

Relevant equity:

TRY 20 million

Foreign shareholder loan:

TRY 90 million equivalent

Three-times-equity threshold:

TRY 60 million

Potential thin-capital portion:

TRY 30 million

This does not mean the entire shareholder loan automatically becomes unlawful.

It means the excess portion enters a significantly less favourable Turkish tax regime.

15. Thin Capitalisation Is Tested During the Accounting Period

A particularly important feature is the phrase:

at any time during the accounting period.

The analysis should therefore not be based solely on the balance shown on December 31.

A company may temporarily exceed the statutory threshold during the year.

Treasury teams should monitor the balance of:

• shareholder loans;
• related-party debt;
• and relevant equity

throughout the period.

A foreign group that checks the ratio only while preparing the annual corporate tax return may discover the issue too late.

16. What Happens When the Loan Becomes Thin Capital?

The consequences can be substantial.

Interest, foreign-exchange losses and similar expenses attributable to thin capital can become non-deductible for corporate tax purposes under the applicable Corporate Tax Law framework.

GİB confirms the disallowance of financing costs attributable to thin capital and explains the interaction with other financing restrictions.

Moreover, interest and similar payments relating to the thin-capital portion—excluding exchange differences for this particular recharacterisation rule—can be treated as distributed dividends as of the last day of the relevant accounting period.

This can change the withholding-tax analysis.

The current Turkish dividend withholding rate under the domestic regime is generally 15%, following the increase effective from December 22, 2024.

Treaty relief may again need to be considered.

17. Thin Capitalisation Can Produce a Double Tax Adjustment Problem

Assume:

EUR 200,000 interest is paid.

The Turkish company initially treats it as interest and applies the relevant interest withholding.

Later, part of the borrowing is classified as thin capital.

That portion of interest may then be recharacterised as a dividend for Turkish tax purposes.

An official GİB ruling explains that where interest has already been subjected to ordinary interest withholding and the amount is subsequently treated as distributed profit because of thin-capital or transfer-pricing rules, the earlier withholding can be relevant in determining the additional withholding required.

The actual calculation should be made transaction by transaction and treaty by treaty.

This is another reason the thin-capital ratio should be modelled before financing is drawn.

18. Financing Expense Limitation Creates a Separate Restriction

Even if a shareholder loan does not become thin capital, there may still be a deduction restriction.

Turkey’s financing expense limitation applies, with statutory exclusions, where a business’s foreign liabilities exceed its equity.

Under the current rule, the applicable non-deductible percentage is 10% of qualifying financing expenses attributable to the excess foreign liabilities, excluding financing costs capitalised into investment cost and taking account of the detailed computation rules.

Relevant financing expenses include items such as:

• interest;
• commissions;
• maturity differences;
• profit-share amounts;
• exchange-rate losses;
• and similar financing costs.

This is a different test from thin capitalisation.

A company can therefore avoid thin capitalisation but still be caught by the financing expense limitation.

19. Thin Capitalisation and Financing Expense Limitation Should Not Be Applied Twice to the Same Amount

The Corporate Tax General Communiqué contains coordination rules between the different non-deductibility regimes.

For example, financing expenses already treated as non-deductible because they relate to thin capital are taken into account when calculating the financing-expense limitation so that the same item is not simply penalised twice through mechanical duplication.

This is technically important for heavily leveraged foreign-owned companies.

The tax calculation should therefore be performed systematically rather than by simply adding 10% on top of every interest expense.

20. Exchange-Rate Losses Can Be a Major Hidden Cost

A Turkish company may borrow:

EUR 5 million

when EUR/TRY is significantly lower than at year-end.

Even if principal never changes in euro terms, the Turkish-lira equivalent of the liability can increase sharply.

That can create:

• accounting foreign-exchange losses;
• taxable profit volatility;
• financing-expense limitation exposure;
• and thin-capitalisation consequences.

The Corporate Tax General Communiqué expressly includes qualifying FX losses among financing expenses considered for financing-expense limitation and sets out rules for netting exchange gains and losses relating to the same financing source during the same accounting period.

Foreign shareholders should therefore avoid analysing an intercompany loan only in its contractual currency.

The Turkish-lira tax impact matters.

21. KKDF Can Apply to Foreign Currency Loans

Another major cost is Kaynak Kullanımını Destekleme Fonu — KKDF, commonly translated as the Resource Utilisation Support Fund.

For foreign-currency and gold loans obtained abroad by Turkish residents other than banks and financing companies, the published KKDF framework generally depends on average maturity.

The applicable structure is:

GİB confirms these maturity-based rates for foreign-currency loans obtained abroad.

This makes maturity a significant tax-cost variable.

22. Example: Why Loan Maturity Matters

Assume a foreign shareholder lends:

EUR 4 million.

A one-year shareholder loan can potentially carry a KKDF cost that would not arise under the same framework if the average maturity qualified for the three-years-or-more 0% category.

Therefore, before choosing:

12 months

simply because that is the group’s standard intercompany template, the investor should calculate the Turkish cost.

Loan maturity should be selected based on:

• cash-flow needs;
• banking rules;
• KKDF;
• pricing;
• group treasury policy;
• and refinancing plans.

Not merely convenience.

23. Early Repayment Can Affect KKDF Analysis

Where a financing structure is designed around a particular average maturity to benefit from a lower KKDF rate, early repayment or amendments can create tax consequences.

For this reason, the loan agreement should not permit prepayment casually without assessing the Turkish implications.

Treasury teams should coordinate with Turkish tax advisers before:

• changing repayment dates;
• shortening maturity;
• refinancing;
• or accelerating the loan.

A contract can be perfectly valid commercially while creating an unexpected tax cost.

24. Do Not Assume Every Foreign Loan Agreement Is Stamp-Tax Exempt

Turkey provides important stamp-tax exemptions for loan documents relating to credits granted by:

• banks;
• foreign credit institutions;
• and international institutions,

subject to the statutory conditions. GİB expressly confirms the relevant exemption for documents connected to those qualifying credits and their security and repayment.

However, an ordinary foreign parent company is not automatically a foreign credit institution merely because it lends to its Turkish subsidiary.

Therefore:

A shareholder loan agreement should not automatically be assumed to qualify for the banking/foreign-credit-institution stamp-tax exemption.

The lender’s legal status and the document should be reviewed separately.

This can be material for large loan agreements.

25. Security Documents Need Separate Review

A shareholder loan may be:

unsecured

or secured by:

• share pledge;
• receivables pledge;
• account pledge;
• mortgage;
• movable pledge;
• guarantee;
• or other collateral.

Security can materially strengthen the foreign shareholder’s creditor position.

But it also introduces:

• corporate authority questions;
• perfection/registration requirements;
• enforcement procedures;
• stamp-tax issues;
• and potentially financial assistance or capital-maintenance considerations depending on the structure.

A loan agreement saying:

“The borrower grants all assets as security”

does not itself necessarily create valid security over all Turkish assets.

Each security interest should be perfected according to the law governing that asset.

26. Consider Whether the Shareholder Loan Should Be Subordinated

Banks or future investors may require shareholder debt to be subordinated.

Subordination means that the foreign shareholder agrees that specified senior creditors will be paid before repayment of the shareholder loan.

This is common where a company also receives project finance or third-party bank debt.

The shareholder should understand that a nominally repayable loan may therefore behave economically more like equity.

The loan documentation should identify clearly:

• whether repayment is permitted;
• whether interest can be paid;
• whether bank consent is needed;
• and what occurs on insolvency or restructuring.

27. Shareholder Loans Can Affect Work Permit and Investment Optics

A foreign investor may believe that EUR 5 million of shareholder debt demonstrates a heavily capitalised Turkish operation.

Legally, however:

debt is not registered capital.

This distinction may matter in areas where law or administrative criteria refer specifically to:

• paid-up capital;
• shareholder capital participation;
• equity;
• or fixed investment.

For example, foreign shareholder work-permit criteria contain specific capital requirements. A shareholder loan should not automatically be treated as satisfying a paid-up capital requirement.

Therefore, the equity/debt split should be coordinated with non-tax objectives as well.

28. A Shareholder Loan Is Not a Substitute for Adequate Equity

Highly leveraged financing may look attractive because the parent expects to receive interest and repayment.

But excessive debt can:

• trigger thin capitalisation;
• worsen balance-sheet ratios;
• reduce borrowing capacity;
• produce foreign-exchange volatility;
• trigger financing expense limitation;
• and create concerns for suppliers or banks.

For many foreign subsidiaries, the optimal structure will therefore involve a combination of:

equity + shareholder debt.

Example

Total required funding:

EUR 8 million.

Possible structure:

EUR 3 million equity

EUR 5 million shareholder loan

rather than:

TRY 250,000 minimum A.Ş. capital + EUR 7.95 million shareholder debt.

The latter may be formally possible in some circumstances but can be economically and tax inefficient.

29. Converting a Shareholder Loan Into Capital

A shareholder loan can later be converted into equity where Turkish corporate procedures are properly followed.

This may be useful where:

• the Turkish company becomes too leveraged;
• a bank requires stronger equity;
• the shareholder wants to eliminate repayment obligations;
• the company is preparing for an investment round;
• or thin-capital concerns are increasing.

However, debt-to-equity conversion should not be treated as a simple accounting journal entry.

The Turkish Commercial Code capital-increase procedures, receivable status, valuation/certification requirements and Trade Registry process should be reviewed.

The accounting and tax consequences should also be confirmed before conversion.

30. Convertible Debt Is a Separate Regulated Structure

Foreign startup investors sometimes ask whether they can use a US-style convertible note or SAFE.

Turkey’s current Capital Movements Circular contains a specific foreign-currency convertible debt regime for qualifying arrangements with, among others, certain foreign venture capital funds, foreign collective investment organisations and licensed foreign angel investors.

Under this framework, the contract must contain conditions including:

• conversion to capital within a maximum of 12 months from transfer;
• mandatory conversion rather than indefinite continuation as debt, subject to specified exceptions;
• and conversion of the entire transferred amount into capital.

Where the statutory requirements are met, some ordinary foreign-currency loan eligibility conditions are not required.

This regime should not be confused with a conventional shareholder loan.

A foreign investor should not simply download a Silicon Valley SAFE and assume it functions identically under Turkish law.

31. E-TUYS: Does a Shareholder Loan Count as Share Capital?

Foreign-invested companies use E-TUYS for specified foreign investment reporting.

The official system includes:

• FDI Activity Information;
• FDI Capital Data;
• FDI Share Transfer Data.

A shareholder loan is legally distinct from registered share capital.

Accordingly, companies should not simply record debt as foreign equity capital.

Where shareholder debt is later capitalised, the resulting capital change should be reflected through the appropriate corporate and E-TUYS processes.

The finance, accounting and corporate secretarial teams should coordinate so the same funding is not described inconsistently across systems.

32. Can the Turkish Company Repay the Loan Abroad?

Yes, subject to the applicable contractual, banking, foreign-exchange and tax requirements.

Turkey’s Foreign Direct Investment Law expressly allows transfers abroad of repayments and interest arising from foreign loans through banks or financial institutions.

A bank processing repayment may require supporting documentation such as:

• original loan agreement;
• amendments;
• drawdown evidence;
• payment schedule;
• interest calculation;
• tax documentation;
• withholding evidence;
• borrower corporate approval;
• and proof of the underlying incoming credit.

The borrower should therefore preserve the original transaction file throughout the life of the loan.

A three-year loan should not depend on locating a six-year-old SWIFT message the day repayment becomes due.

33. Can the Foreign Shareholder Repatriate Interest?

Generally yes, after applicable Turkish tax and banking obligations are satisfied.

Foreign investment legislation expressly permits interest payments relating to foreign loans to be transferred abroad.

But the Turkish borrower should first determine:

• gross interest;
• applicable withholding;
• treaty benefit;
• reverse-charge VAT;
• thin-capital adjustment;
• transfer-pricing adjustment;
• and any other relevant tax amounts.

The contract should also state whether the interest rate is:

gross

or

net of Turkish withholding.

This becomes especially important where the agreement includes a tax gross-up clause.

34. Gross-Up Clauses Can Transfer the Turkish Tax Cost Back to the Borrower

Suppose the agreement states:

The lender must receive EUR 100,000 net of all Turkish withholding taxes.

If Turkish law requires withholding, the Turkish company may have to increase the gross payment so that the lender receives EUR 100,000 after tax.

This means the effective financing cost to the Turkish company becomes greater than the stated coupon.

A shareholder loan agreement should therefore specify whether:

• the lender bears withholding;
• the borrower bears withholding;
• treaty relief must first be pursued;
• and gross-up applies to every tax or only specified taxes.

For large intercompany loans, this can materially affect the expected return.

35. The Loan Should Have a Genuine Commercial Purpose

The Turkish company should be able to explain why it borrowed the money.

Typical legitimate purposes include:

• working capital;
• construction;
• machinery investment;
• acquisition financing;
• R&D;
• market expansion;
• or refinancing.

A loan whose funds immediately leave the Turkish company through unrelated shareholder transactions may attract additional scrutiny.

Corporate approvals should therefore state a plausible financing purpose and treasury records should show how the company used the funds.

This is especially relevant where the company later claims substantial interest deductions.

36. Example: Ordinary Foreign Parent Loan

Assume:

Dutch Parent B.V. owns 100% of Turkish Subsidiary A.Ş.

Loan:

EUR 3,000,000.

Term:

4 years.

Interest:

6%.

Before drawdown, the parties should consider:

1. Can the Turkish borrower legally use the EUR-denominated foreign credit under current FX rules?
2. Is 6% arm’s length?
3. Does the Netherlands–Turkey treaty reduce the domestic interest withholding rate?
4. Is reverse-charge VAT applicable based on the lender’s status?
5. Does the loan create thin capitalisation?
6. Do total foreign liabilities exceed equity for financing-expense limitation purposes?
7. Does the four-year maturity produce the intended KKDF treatment?
8. Is the loan agreement stamp-tax exempt? The answer depends in part on whether the lender qualifies within the statutory categories.
9. What corporate approvals are required?
10. How will repayment be documented?

Only after these questions are answered should the EUR 3 million be transferred.

37. Example: Turkish Startup With Very Low Equity

Suppose a Turkish startup has:

TRY 2 million relevant equity

and the foreign shareholder proposes a loan equivalent to:

TRY 20 million.

The simple three-times-equity level is:

TRY 6 million.

The proposed related-party debt is far above that figure.

The company should not assume that all interest on TRY 20 million will remain fully deductible.

A large portion may create thin-capital consequences, including non-deductible financing costs and potential dividend recharacterisation.

A better structure might involve increasing equity before drawing the full shareholder loan.

38. Example: One-Year EUR Loan

Foreign shareholder lends:

EUR 5 million.

Maturity:

11 months.

The parties focus only on a 5% interest rate.

But the Turkish financing calculation may also need to consider:

• ordinary interest withholding;
• treaty rate;
• reverse-charge VAT;
• 3% KKDF under the published maturity framework;
• foreign-exchange gains/losses;
• thin capitalisation;
• financing-expense limitation;
• and potentially stamp tax.

The real after-tax cost can therefore be substantially higher than:

5% × EUR 5 million.

This is why international group treasury models need a Turkish tax layer.

39. Example: Loan From a Foreign Bank vs Loan From the Parent

Consider two alternative lenders:

Option A

International commercial bank.

Option B

Foreign parent company.

Even with the same principal and nominal interest, the Turkish tax result can differ.

Official GİB guidance applies a 0% domestic interest withholding category to qualifying foreign banks and qualifying foreign institutions authorised to make loans generally, whereas ordinary foreign shareholder interest generally falls into the 10% domestic category before treaty analysis.

VAT and stamp-tax treatment can also differ.

Therefore, group financing should not assume:

“A loan is a loan.”

The identity and regulatory status of the lender matter.

40. Shareholder Loan Due Diligence Checklist

Before a foreign shareholder transfers funds to a Turkish company, the parties should review at least:

1. Lender identity and jurisdiction
2. Borrower company type
3. Shareholding relationship
4. Loan amount
5. Currency
6. Foreign-currency borrowing eligibility
7. Purpose
8. Maturity
9. Repayment schedule
10. Interest
11. Arm’s-length benchmark
12. Double taxation treaty
13. Interest withholding tax
14. VAT / reverse charge
15. Thin capitalisation ratio
16. Financing expense limitation
17. KKDF
18. Stamp tax
19. Security
20. Subordination
21. Corporate approvals
22. Bank documentation
23. SWIFT payment wording
24. Accounting treatment
25. FX valuation
26. Potential conversion to equity
27. E-TUYS implications
28. Repayment mechanics
29. Tax gross-up
30. Exit/refinancing strategy

If several of these questions remain unanswered, the transfer should not be treated as routine treasury activity.

Frequently Asked Questions About Foreign Shareholder Loans in Turkey

Can a foreign shareholder lend money to its Turkish subsidiary?

Yes, subject to Turkish foreign-exchange, tax, banking and corporate rules. Turkey’s foreign investment framework expressly recognises transfers abroad of repayments and interest relating to foreign loans.

Does the money have to be converted into share capital?

Not necessarily. It can remain a genuine loan where the transaction complies with the applicable legal rules.

Can the loan be in euros or US dollars?

Potentially. However, Turkish residents are subject to foreign-currency borrowing restrictions. Companies without foreign-currency income generally cannot use FX loans unless an exception applies, while additional limits apply to borrowers with FX income and lower foreign-currency credit balances.

Is a written loan agreement required?

It is strongly advisable and can be important for banking, tax and evidentiary purposes. Current Central Bank rules contemplate documentary evidence for foreign borrowing.

Can the parent company charge any interest rate?

No. Related-party financing should comply with Turkey’s arm’s-length transfer-pricing rules. GİB specifically requires foreign shareholder loan interest to be arm’s length.

What is the ordinary Turkish withholding rate on shareholder-loan interest?

For an ordinary foreign shareholder that is not within the qualifying foreign bank/credit institution category, the published domestic rate is generally 10%, before application of any relevant double taxation treaty.

Can withholding be 0%?

Potentially for qualifying foreign banks, international institutions and certain foreign lenders authorised and regularly lending to unrelated real and legal persons, subject to the statutory conditions.

Can VAT apply to shareholder-loan interest?

Yes. GİB has treated financing by an ordinary foreign shareholder as a service requiring reverse-charge VAT in Turkey in the circumstances addressed by its official ruling.

What is Turkey’s thin-capitalisation limit?

The core rule treats qualifying shareholder/related-party debt exceeding three times equity as thin capital to the extent of the excess, subject to statutory exceptions and detailed calculation rules.

What happens to interest on thin capital?

Relevant financing costs can become non-deductible, and interest and similar amounts—other than exchange differences for the dividend-recharacterisation rule—may be treated as distributed dividends.

What is the current Turkish dividend withholding rate?

The general domestic rate is currently 15% following the change effective December 22, 2024, subject to treaty analysis for non-residents.

What is financing expense limitation?

For covered businesses whose foreign liabilities exceed equity, part of qualifying financing expenses attributable to the excess can become non-deductible; the applicable rate is currently 10% under the detailed rules.

Does KKDF apply?

It can apply to foreign-currency loans from abroad. The published maturity-based framework is 3% up to one year, 1% for one-to-two years, 0.5% for two-to-three years and 0% for maturities of three years or more.

Is every foreign shareholder loan agreement exempt from stamp tax?

No. The statutory loan-document exemption specifically covers qualifying credits provided by banks, foreign credit institutions and international institutions. An ordinary parent-company shareholder should not automatically assume it qualifies.

Can the loan later be converted into capital?

Potentially yes, provided the required Turkish corporate, accounting and registration procedures are followed.

Can the company repay the loan abroad?

Yes, subject to contractual, tax, banking and FX requirements. Turkish FDI law expressly protects transfers of foreign-loan repayments and interest abroad through banks or financial institutions.

Conclusion: What Is the Safest Way for a Foreign Shareholder to Lend Money to a Turkish Company?

A shareholder loan can be an effective way to finance a Turkish company.

It can provide greater repayment flexibility than share capital and can allow international groups to manage liquidity across jurisdictions.

But it should not be treated as a simple bank transfer between related companies.

A properly structured foreign shareholder loan should be tested through at least six separate legal and tax filters.

First: Foreign Exchange Legality

The Turkish borrower must actually be eligible to receive the proposed financing in the proposed currency.

Under current Central Bank rules, foreign-currency borrowing is restricted, particularly for Turkish residents without foreign-currency income. Borrowers with foreign-currency income can also face the USD 15 million credit-balance and previous-three-years FX-income test where applicable.

The shareholder relationship does not automatically create an exemption.

Second: Transfer Pricing

The loan should contain an arm’s-length interest rate and commercially reasonable terms.

The Turkish tax administration expressly requires interest on a foreign related-party shareholder loan to comply with the arm’s-length principle.

The foreign group should therefore document:

rate + maturity + currency + borrower risk + security + market comparables.

Third: Withholding and VAT

An ordinary foreign shareholder will generally not be treated like a foreign bank merely because it lends money.

Under the published domestic framework, ordinary foreign-creditor interest commonly falls under a 10% Turkish withholding rate, subject to treaty relief. Qualifying foreign banks and authorised credit institutions can fall within a 0% category.

Foreign shareholder interest can also create reverse-charge VAT where the foreign lender is an ordinary shareholder rather than a qualifying financial institution.

The investor should therefore calculate the gross Turkish tax cost, not just the contractual coupon.

Fourth: Thin Capitalisation

This is frequently the most important structural issue.

If qualifying related-party borrowing exceeds three times the Turkish company’s equity, the excess can constitute thin capital.

The consequences can include non-deductible financing expenses and dividend recharacterisation.

Foreign shareholders should therefore model:

proposed shareholder debt / Turkish company equity

before drawdown.

If the ratio is excessive, part of the financing can instead be structured as equity.

Fifth: Financing Expense Limitation and KKDF

Even debt that does not constitute thin capital can still interact with Turkey’s financing-expense limitation where total foreign liabilities exceed equity.

For foreign-currency loans, KKDF can produce an additional material cost depending on maturity.

The published rates currently range from 3% for short-term financing to 0% for qualifying loans with an average maturity of at least three years.

The maturity should therefore be tax-modelled before the agreement is signed.

Sixth: Documentation and Repayment

The transaction file should contain:

loan agreement + corporate approval + bank documentation + transfer-pricing support + SWIFT records + withholding/tax documents + repayment schedule.

When the Turkish company eventually pays principal and interest abroad, the bank must be able to identify the transaction as repayment of the properly documented foreign credit.

Turkey’s Foreign Direct Investment Law expressly protects the ability to transfer foreign-loan principal repayments and interest abroad through the banking and financial system.

The critical distinction is therefore:

A shareholder loan is legally repayable financing—but only if it has genuinely been structured and treated as a loan.

A foreign investor should avoid the following structure:

send EUR 5 million → book it temporarily somewhere → decide later whether it is capital or debt → create a loan agreement retroactively → try to transfer it back abroad.

The stronger process is:

determine financing need → model equity/debt ratio → check FX borrowing eligibility → determine arm’s-length interest → check treaty → calculate withholding/VAT → model thin capital → model financing expense limitation → calculate KKDF → review stamp tax → prepare loan and corporate documents → coordinate with bank → transfer funds → monitor ratio and taxes → repay or convert according to plan.

For many international investments, the commercially optimal structure will not be:

100% equity

or

100% shareholder debt.

It will be a combination.

For example:

EUR 3 million equity + EUR 4 million long-term shareholder loan

may provide a stronger balance sheet while retaining repayment flexibility.

But the correct ratio depends on:

• the company’s existing equity;
• projected earnings;
• currency revenues;
• planned bank borrowing;
• work-permit or regulatory capital requirements;
• treaty jurisdiction;
• interest rate;
• maturity;
• and intended investment horizon.

Foreign investors should therefore ask three questions before making a shareholder loan to a Turkish company:

Can the Turkish company legally borrow this amount in this currency?

Will Turkey allow the interest and foreign-exchange costs to be deducted as expected?

What taxes and banking requirements will apply when principal and interest are transferred back abroad?

If all three questions are answered before drawdown, shareholder debt can be a highly effective financing tool.

If they are ignored, the same loan can produce unexpected:

withholding tax + VAT + KKDF + non-deductible interest + thin-capital dividend treatment + FX losses + financing expense limitation + compliance difficulties.

For substantial foreign investments in Turkey, shareholder loan structuring should therefore be treated as corporate finance and tax planning, not merely as an accounting entry between group companies.

This article reflects Turkish corporate, foreign-exchange and tax rules and publicly available official guidance as of August 2026. It is intended for general informational purposes only and does not constitute transaction-specific legal, tax, accounting or financial advice. Shareholder-loan treatment depends on the lender’s jurisdiction and regulatory status, applicable double taxation treaty, borrower equity and FX income, loan currency, maturity, interest, security, use of funds and the overall financing structure.