| CRITERION |
GROUP COMPANY STRUCTURE |
HOLDING COMPANY STRUCTURE |
| Establishment & Type |
Independent companies can be established subject to general provisions. For example, a business chooses to operate as a joint stock company or a limited liability company and registers with the trade registry; no special permission is required, as in the case of a holding structure. |
A holding company can only be established as a joint stock company and its main purpose is to participate in other companies. Legally, a joint stock company with the title ‘holding’ cannot engage in direct production or sales activities; it can only operate in these areas through its subsidiaries. However, the establishment of a holding company is subject to the approval of the Ministry of Trade in accordance with the Communiqué dated 15 November 2012 and numbered 28468, and approval must be obtained in order to include the term ‘holding’ in the articles of association.
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| Amendment to the Articles of Association |
Only a general assembly resolution is required to amend the company’s articles of association; no additional official permission is required. Ministry approval or similar procedures are not applicable to independent companies (except for special sectors such as banking). |
Any amendment to the articles of association of a holding company is also subject to the approval of the Ministry. For example, for transactions such as capital increase or change of business activity, the approval of the Ministry is required prior to applying to the Trade Registry. |
| Supervision & Oversight |
Independent companies are not required to have a representative of the Ministry present at their general meetings, with certain exceptions. Management bodies operate within the framework of the general provisions of Turkish Commercial Code No. 6102 (‘TTK’) and are not subject to the special conditions applicable to holding companies.
| A ministry commissioner must be present at both ordinary and extraordinary general meetings of holding companies. This representative supervises the legality of the decisions taken. |
| Risk Management & Liability |
Independent companies are legally separate entities. Each company is solely responsible for its own debts and obligations; in the event of bankruptcy or insolvency of one company, the assets of other independent companies cannot be seized. Even if the partners are the same, the creditors of one company cannot claim receivables from other companies because there is no legal link between the companies. This ensures that risks are separated.
In a holding structure, if there is a controlling-subsidiary relationship between the holding company and its subsidiaries (i.e., the holding company holds a majority stake or management control in the subsidiary), the Turkish Commercial Code imposes special liability provisions on this relationship. Pursuant to Article 202 of the TCC, the controlling (holding) company cannot use its control in a manner that causes damage to the subsidiary. In addition, if one of the companies belonging to a holding company experiences financial difficulties or goes bankrupt, the holding company and its shareholders are also adversely affected in proportion to their shareholding. This is the same as the principle of limited liability in an independent structure. However, since the holding company closely monitors all its subsidiaries, it can establish early warning mechanisms (e.g., weekly financial reports). |
| Dividend Distribution Withholding Tax |
Companies distribute their profits directly to the natural persons who are shareholders. A 15% income tax withholding is applied to each distribution. For example, a partner receiving dividends from three companies will see withholding deducted from the gross amount of each dividend.
Since profits can be pooled and planned at the holding company level, there is greater opportunity for tax optimisation, but this is not generally seen in group structures.
In new partnerships/affiliated companies to be invested in by a non-holding joint stock company, dividends transferred without withholding tax can be used as investment capital without tax (without withholding tax). This situation is the same as for holding companies. |
The holding company exempts the profit shares it receives from its fully tax-liable subsidiaries from corporate tax under Article 5/1-a of the Corporate Tax Law No. 5520 (‘KVK’). In this context, profits transferred from subsidiaries within the holding company to the holding company are not subject to corporate tax. If the holding company has other income, such as management service income, it pays corporate tax on such income.
When a subsidiary distributes its profits to the holding company, no withholding tax is applied because the payment is made to a legal entity. Therefore, group profits can be transferred to the holding company without withholding tax during the year. When the holding company distributes these profits to individuals, a single 15% withholding tax is paid. Only one withholding tax payment is made for the same income. This mechanism defers the tax for one year and potentially reduces the total withholding tax burden. This situation will alleviate the withholding tax burden in the current inflationary environment of the country.
For example, when a subsidiary company transfers the profits it earns from its activities to the holding company, this income is exempt from both corporate tax and income tax withholding. The holding company records this income in its accounting records as ‘exempt income from subsidiaries’ without paying tax.
At the same time, profit shares transferred without withholding tax to new joint ventures/subsidiaries in which the holding company will make investments can also be used as investment capital without being subject to tax (withholding tax).
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| Profit from Sale of Subsidiary Shares |
In an independent company structure, since companies are not partners, intra-group share sales are not possible. Pursuant to Article 80 of the Income Tax Law (‘ITL’), when real person partners wish to transfer their company shares, they are exempt from personal income tax if they have held the shares for at least two years.
| If a holding company disposes of its shares in a subsidiary, a 50% corporate tax exemption applies (the previous rate of 75% was reduced to 50% by Presidential Decree No. 9160 published in the Official Gazette on 27 November 2024). In addition,the sale of shares in subsidiaries held for two full years is exempt from VAT. |
| Intra-group financing |
There is no direct capital transfer mechanism between independent companies. A partner wishing to transfer capital from one company to another must first distribute it as a dividend and pay withholding tax during this process, and then invest the dividend received as capital in another company. Alternatively, companies can lend directly to each other; however, in this case, the financial relationships between the companies must be clearly defined. High-value loans may carry the risk of hidden capital, especially if the loan transaction is carried out indirectly through company partners, as tax authorities may consider this as hidden profit distribution or hidden capital use and impose additional tax liabilities.
| A holding company can act as a financial centre within the group. For example, it can obtain loans from banks more easily and on more favourable terms and transfer them to affiliated companies; this will not be considered hidden capital. The holding company can increase its capital when necessary or transfer profits from strong companies to weaker ones. This ensures financial optimisation across the group.
At the same time, the holding company must pass on the interest on the loan it has used to the affiliated company. |
| Management and Decision-Making
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Institutionalisation |
Each company is managed separately; even if strategic decisions are coordinated by the partner(s), there are officially independent boards of directors. Control by a single entity is limited, and even if the same owner manages the companies, there are no legal ties between them. The partner must devote time to each company, and decision-making processes may be fragmented.
| Centralised management provides a single decision-making mechanism. The holding company’s board of directors determines the group’s strategy and approves important decisions of the subsidiaries. This enables fast and consistent decision-making. For example, investments and budgets are evaluated and prioritised at the holding company level. The management hierarchy is clear: The holding’s top management (CEO, CFO, etc.) can monitor and direct the performance of all subsidiaries. The following directorates may be established within this scope:
| Finance |
Human Resources |
Legal and Compliance |
| Finance (+Investment) |
Information Technology |
Internal Audit |
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| Prestige and Image |
The group is not perceived as a single entity by outsiders; each company operates under its own name. Banks and large customers view the companies individually, as smaller entities.
| Companies united under a single brand name with a holding title can inspire trust and respect in the market. Financial institutions may give more favourable credit ratings when they see consolidated financial strength at the holding company level. By controlling large capital with relatively small capital, the company can dominate the market by expanding its field of activity and strength, and its field of activity can be expanded with different sectors and services. |
| Shared Services and Costs |
Each company carries out support functions such as accounting, finance, and human resources within its own structure. This can lead to waste of resources and differences in standards.
| Holdings achieve economies of scale by establishing shared service units. A single central accounting/finance team, IT system or legal unit can serve the entire group. This reduces overall costs and ensures that similar standards are applied across all companies. These centralised expenses can be invoiced to subsidiaries and recorded as expenses for tax planning purposes.
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| Legal Obligations |
Each company separately complies with its own legal obligations (e.g., tax returns, trade registry notifications, audit thresholds, etc.). Since the group company status is not official, there are no special obligations at the group level.
| With the holding structure, the provisions on ‘group of companies’ come into effect. Pursuant to Article 199 of the Turkish Commercial Code, since the holding company is the controlling company, the management of the subsidiaries prepare a report on their affiliation each year. Since the holding company is the owner of a company subject to approval, a ministry representative must be present at general assembly meetings. Therefore, the legal procedures, bureaucratic and procedural applications, trade registry registration and publication processes in a holding structure are more intensive than those of independent companies. |
