M&A – Main differences between Share Deals and Asset Deals in Turkey

First of all, most of the share transfer agreements (STA) in Turkey are made through a joint stock company rather than a limited liability company. This is due to the fact that, under Turkish law, STA of a limited liability company must be conducted at the public notary office; however, parties are free to negotiate and conclude the STA of a joint stock company without interruption of any governmental bodies, such as public notary and/or trade registry. The Turkish commercial code and code of obligations regulate the commercial companies' activities, including the STA. Under Turkish law, registered shares of a company can freely be transferred to any third party unless otherwise provided in the articles of association of the company or a mandatory article specified in the law. For instance, in the articles of association, it can be stated that the transfer of shares requires that company’s board approval.

The transfer of shares is carried out through the endorsement and delivery of share certificates. One should note that any new shareholder must be registered in the share ledger of the company. In other words, there are no official requirements, such as public notary (unless it is a limited liability company, as explained above), endorsement or any governmental bodies involvement in the STA. Apart from that, some shareholders prefer to publish an announce of the share transfer at the official trade registry gazette, although it is not mandatory.

An Asset Transfer Agreement (ATA) in Turkey, is a legal contract used to transfer specific assets and liabilities from one party to another. Like in similar jurisdictions, the main features of an ATA typically include the following: conditions precedent, material adverse changes, warranties, clearance from the antitrust and any other governmental bodies, consents obtained from relevant parties, in case of change of control clauses, announcements to relevant parties, and a disclosure letter, if needed.

In an ATA, the buyer must notify creditors through announcements published at the trade registry gazette. For the announcement, the buyer must conduct a shareholders’ meeting. One should note that the seller is jointly and severally liable with the buyer for debts in connection with the transferred assets for two years starting from the announcement date. For an STA, this procedure is not required, as the shares are transferred with all liabilities at completion.

Transferring shares of a company in Turkey involves a specific process that must comply with Turkish laws and regulations.

Below are the general steps to transfer shares of a company in Turkey, the main document, of course, is the signing of an STA and its annexes.

• letter indicating that the representations and warranties are true, accurate, complete and not misleading, on or as of the closing date
• disclosure letter, if necessary
• letters from the tax and social security authorities saying that the company has no outstanding debts
• company’s powers of attorneys
• resignation letters of ex-board members and acceptance letters and signature circulars for new board members
• shareholders’ meeting minutes related to resignations and appointments of board members, and amendment of the articles of association
• any written waivers or consents obtained from third parties or government authorities, if required
• company board decision to approve and register the STA in the share ledger, in the buyer’s name
• registration of the shares in the company’s share ledger in the buyer’s name
• transfer endorsements on the share certificates and their delivery
• issuance of new share certificates in the name of the buyer.

Transferring the assets or business of a company in Turkey involves a structured process. It is important to note that the specific requirements and procedures may vary depending on the nature of the business, the assets involved, and other factors. The buyer must notify creditors or announce the ATA in the trade registry gazette.

In an asset sale, a detailed ATA is prepared. Closing an asset sale transaction is usually more complex, since the assets must be transferred individually. Separate procedural steps and additional transfer agreements may be needed based on the assets being transferred. For instance: a transfer agreement for vehicles must be signed before a notary public, a transfer agreement for immovable property must be signed before the competent title deed registry, a trademark transfer agreement must be signed before a notary public and the agreement must be registered with the Turkish Patent and Trademark Institute.

In Turkey, transfer taxes for a share deal can include several different taxes and fees, depending on the specific circumstances of the transaction. Share sales are exempt from stamp tax. However, the gains from a share transfer agreement are taxable. Corporate tax in Turkey in 2024 is 25% and 75% of taxable gains from the sale of shares held by a tax resident legal entity for at least the two years before the sale is exempt from corporate tax.

Income obtained from the sale of share certificates by a joint stock company is not subject to income tax, provided that the bearer sells the share certificates after two years from acquiring them. Since limited liability companies cannot issue share certificates and interim certificates, their shareholders do not benefit from this exemption and must pay income tax on each share transfer transaction. One should note that, if a joint stock company has not issued any share certificates, the share transfer transaction will be subject to income tax.

Companies that are not tax resident in Turkey can also benefit from double tax treaties. The Corporate Tax Law numbered 5520 sets out certain tax exemptions for mergers, subject to certain conditions. If these conditions are met, merger profits are not subject to corporate tax.

In Turkey, transfer taxes and fees for an asset deal can vary depending on the nature of the assets being transferred, the location of the assets, and other specific circumstances. 

Below are some of the main taxes and fees associated with asset transfers in Turkey:

Stamp tax must be paid on asset sale agreements that include a monetary amount. The current stamp tax rate is 0.948%, calculated on the highest amount of all undertakings in the agreement.

The sale of immovable assets (for example, a factory facility and land) can be exempt from VAT, if the transferred assets are held for more than two years.