When an investor pays TRY 20 million for shares with a nominal value of TRY 50,000, the TRY 19.95 million difference is share premium (emisyon primi), and where it sits on the balance sheet, what tax it attracts and what the company may do with it are governed by a handful of provisions that founders rarely read before closing. Under the Turkish Commercial Code No. 6102 (TCC) the premium must be paid in full before the capital increase is registered (Article 344), requires a basis in the articles or a general-assembly resolution (Article 347), and is credited, net of issue costs, to the general legal reserve (Article 519(2)(a)), whose use is restricted while it stays below half of capital (Article 519(3)). Under Article 5(1)(ç) of the Corporate Tax Law No. 5520 the premium is exempt from corporate tax. And because it counts towards “capital plus legal reserves”, it is the single most effective protection a startup has against the loss thresholds of Article 376. This article explains the accounting, the tax, the restrictions on use and the drafting points for a premium capital increase, and why booking a round as premium rather than capital is almost always right in Türkiye.
Why rounds are structured as premium
Three reasons converge. Governance: capital is the denominator for every quorum, pre-emption right and dilution calculation, and a small nominal capital with a large premium lets a founder-heavy cap table absorb a large cheque without giving the investor a share of nominal capital that misstates the economics. Flexibility: nominal capital can be reduced only through the creditor-protection procedure of Articles 473 to 475, while premium sitting in the legal reserve can be used within Article 519(3) and, once the reserve exceeds half of capital, more freely. Article 376: the loss thresholds are measured against the sum of capital and legal reserves, so premium in the reserve raises the base against which losses are tested without raising the capital that would have to be “completed” or “reduced” if the two-thirds line is crossed, as we explain in the Article 376 playbook. The one cost is that premium, unlike capital, is not a signal of size to counterparties who read the trade registry; the registry shows nominal capital only.
Corporate law: authorisation, payment and registration
Article 347 prohibits issuing shares below nominal value and permits issuing above it only where the articles so provide or the general assembly so resolves. Most articles contain a standing authorisation; where they do not, the capital-increase resolution itself must state the issue price and the premium. Article 344(1) then sets the payment rule that catches rounds with staged funding: at least 25 per cent of the nominal value of shares subscribed in cash must be paid before registration and the rest within 24 months, but the entire premium must be paid before registration. A round that pays in tranches therefore either registers the increase in tranches or structures the deferred portion as something other than premium on shares already issued. The paid-in amounts are blocked at a bank and evidenced to the trade registry with the bank letter and the report of a sworn financial adviser or CPA; the registry will not register an increase whose premium has not been paid. Pre-emption rights under Article 461 attach to the new shares at the issue price, so existing shareholders who exercise them pay the premium too; where they waive, the waiver should refer to the priced shares.
Accounting: where the premium goes and what it can do
Article 519(1) requires 5 per cent of annual profit to be set aside as general legal reserve until it reaches 20 per cent of paid-in capital. Article 519(2)(a) adds to that reserve, even after that threshold is reached and regardless of profit, the portion of premium from new share issues that has not been used for issue costs, redemption provisions or charitable payments. In the Turkish uniform chart of accounts the premium is booked in account 520 (share premium) within equity, and is treated for the legal-reserve rules as part of the general legal reserve. Article 519(3) then restricts use: as long as the general legal reserve does not exceed half of the share capital, it may be used only to cover losses, to maintain the business in bad times, or to take measures against unemployment. For a startup, “covering losses” is the operative permission: the premium absorbs the accumulated deficit in the equity section, which is exactly what protects the Article 376 ratio. What the premium cannot do while the reserve is below half of capital is be distributed as dividends or used to buy back shares; a company that wants to return capital to shareholders must first take the reserve above the threshold or go through a capital reduction.
Premium can also be capitalised. Article 462 allows capital increases from internal sources using free reserves, the freely usable part of the legal reserves and funds the law permits to be capitalised; converting premium into nominal capital through a bonus issue is common in practice before an IPO or when a counterparty requires a larger registered capital, although whether premium in a legal reserve still below half of capital is “freely usable” for this purpose is debated and should be checked with the trade registry beforehand. The conversion is free of corporate tax, but it moves the amount from the flexible reserve to the rigid capital line, and it raises the Article 35(3) Attorneyship Law threshold question if the new capital reaches TRY 1,250,000.
Tax: the exemption and its edges
Article 5(1)(ç) of the Corporate Tax Law exempts from corporate tax the portion of the price of shares issued by joint-stock companies at formation or on a capital increase that exceeds their nominal value. The exemption is unconditional and applies to the year of issue; it is why a TRY 20 million round does not create a TRY 5 million tax bill. Three edges deserve attention. The exemption is for joint-stock companies; a limited company that receives payments above nominal on a capital increase has no equivalent exemption and should structure the amount differently or convert first, which is one more reason for the pre-round conversion. Capitalising premium later under Article 462 does not create dividend income for shareholders under the Income Tax Law No. 193, since bonus shares from premium are not treated as a profit distribution, but a subsequent capital reduction that returns premium-derived capital is analysed under Article 32/B of the Corporate Tax Law, added in 2022, which attributes the reduced amount to the equity items that were capitalised according to statutory ordering and timing rules and can produce taxable income depending on the source and on whether five years have passed since capitalisation. And the premium itself, once in the reserve, is not deductible when used to cover losses; it simply offsets them in equity.
Drafting points for the round documents
State the issue price per share and the total premium in the general-assembly resolution, and have the articles or the resolution satisfy Article 347. Match the payment schedule in the subscription agreement to Article 344: the premium in full before registration, and either the whole nominal amount or at least 25 per cent. Provide in the shareholders’ agreement how the premium will be used, since Article 519(3) leaves the choice among the permitted uses to the board and shareholders; investors typically require that it not be capitalised or reduced without their consent. Record the premium correctly in the general-assembly minutes and the trade-registry filing, because the registry sees only capital and the premium exists, for third parties, in the minutes and the accounts. And keep the bank letter and the adviser’s report in the corporate file: they are the evidence that the exemption applies to the year and amount claimed.
A note on valuation and nominal value
Because the entire premium must be paid before registration and nominal value is the floor for any share price, companies with very low nominal values (TRY 0.01 per share is common; Article 476 sets one kuruş as the minimum) have the most room. Setting nominal value low at incorporation or at the pre-round conversion costs nothing and avoids later splits. It also keeps the strike price of option plans low under the conditional-capital rules we discuss in the conditional capital increase article, where the minimum payment is nominal value.
Is premium shown in the trade registry?
No. The registry records nominal capital and the number and nominal value of shares. The premium appears in the general-assembly resolution filed with the registry and in the company’s financial statements.
Can premium be used to pay for the company’s own shares under Article 379?
Only to the extent Article 379(3) is satisfied: after deducting the purchase price, net assets must still cover capital plus non-distributable reserves. Premium in a legal reserve below half of capital is non-distributable, so it does not create room for buy-backs; premium above that threshold may.
Does a SAFE or convertible note convert into premium?
Yes, in the capital increase that implements the conversion: the note principal is set off against the subscription price, of which nominal value goes to capital and the rest to premium. The set-off must be documented for the registry and the sworn adviser’s report, and the Article 344 payment rule is satisfied by the set-off itself.
Related: capital increase · reserves and the cost of not paying dividends · SAFE under Turkish law.
Sources. Turkish Commercial Code No. 6102 (Articles 344, 347, 376, 379, 461, 462, 473–475, 476, 519); Corporate Tax Law No. 5520 (Articles 5(1)(ç) and 32/B); Income Tax Law No. 193; Attorneyship Law No. 1136 (Article 35). Statute links open the official Turkish texts on mevzuat.gov.tr.
This article is provided for general information only and does not constitute legal advice. Please seek legal support for an assessment of any specific matter.
