The scene is familiar in any flip-up: the Delaware or Dutch parent adopts an equity incentive plan, the board approves option grants for the engineering team in Istanbul, and the Turkish subsidiary’s payroll provider asks whether the option is a Turkish wage, when it is taxed and who withholds. This article answers that for a Turkish subsidiary whose employees receive options or restricted stock units (RSUs) in a foreign parent: the wage characterisation under Article 61 of the Income Tax Law No. 193 (GVK), withholding under Articles 94 to 96, the exemption in Article 17 as amended in 2026, the recharge under the Corporate Tax Law No. 5520 (KVK), the labour-law points under the Labour Law No. 4857 and the Code of Obligations No. 6098 (TBK), and the Turkish alternative in Articles 463 to 472 of the Turkish Commercial Code No. 6102 (TTK). It complements the ESOP design checklist and the glossary entry on the employee stock option plan.
Why the grant is wage income: GVK Article 61
Under Article 3(1) of the GVK, persons settled in Türkiye are taxed on their worldwide income, so a foreign issuer does not take the benefit out of the Turkish tax base. Article 61(1) defines wage (ücret) as “money and goods in kind given to persons working for an employer, attached to a particular workplace, in return for services, together with benefits that are provided and can be represented in money”. Article 61(2) adds that the label does not matter, and Article 61(3)(2) includes “other benefits provided through money and goods in kind in return for services performed previously or to be performed in the future”, which fits an award that vests over future service. Article 17 confirms the point when it speaks of share certificates “given free or at a discount to employees and accepted as being in the nature of wage”. The discount locked in when the employee acquires shares below value is therefore wage, not investment income. Article 62 defines the employer as the person who hires and directs the employee, the Turkish company, but deems whoever makes the payments listed in Article 61 an employer for the duties in the Law, which can catch the parent that delivers the shares. Under Article 63 the benefit is added to the month’s salary and taxed at the progressive rates in Article 103.
When tax arises and who withholds: Articles 94 to 96
Article 94(1) obliges commercial companies to withhold income tax when they make the listed payments “in cash or on account” (nakden veya hesaben); item 1 covers wages and payments deemed wage under Article 61, “excluding those benefiting from an exemption”. Article 96(1) defines payment on account as “any record or transaction that shows the payer as a debtor towards the recipient”. Article 17 measures the benefit at the fair value of the shares “on the date they are given”, which for an option means delivery of shares, not grant; the statute has no separate timing rule for exercise or RSU settlement, and the Ministry of Treasury and Finance’s procedural rules under Article 17 govern the precise taxing point. Articles 97 and 98 require the withholding to be shown on the payroll (ücret bordrosu) and reported in the monthly withholding return (muhtasar beyanname).
Who withholds depends on the routing. Article 95(1) provides that withholding does not apply to employees who “receive their wages directly from an employer in a foreign country”; they declare the income in an annual return. A parent that grants and settles the award itself, with no recharge, sits close to that provision. Where the Turkish subsidiary bears the cost under a recharge and books the liability, it makes a payment on account within Article 96(1) and the ordinary payroll route applies. Under Article 96(2), where the payer bears the tax, the tax is computed on the amount paid plus the tax borne, so a “net” award costs more than its headline value.
The story continues at sale. Under Repeated Article 80(1), gains from disposing of securities are capital gains “except those acquired without consideration and share certificates belonging to full-taxpayer corporations held for more than two years”. That exemption is confined to Turkish-resident corporations; a gain on the shares of a flipped-up parent is taxable however long they are held, with the value already taxed as wage documented as acquisition cost under Repeated Article 81(1).
The techno-enterprise exemption: Article 17 as amended in 2026
Article 17 was re-enacted by Law No. 7524 of 28 July 2024 and amended by Article 3 of Law No. 7582 of 21 May 2026. In the current text, share certificates given free or at a discount to employees by employers “qualifying as a techno-enterprise company (teknogirişim şirketi) according to the criteria determined by the Ministry of Industry and Technology” are exempt from income tax to the extent that their fair value on the date given does not exceed “twice the amount of one year’s gross wage in that year”. The 2026 amendment doubled the cap, previously one year’s gross wage, and shortened the holding ladder in Article 17(2), under which exempted tax is recovered from the employer, with late-payment interest but without a tax-loss penalty, if the employee disposes of the shares early. Article 17(3) starts the limitation period at the beginning of the year following the disposal.
| Disposal by the employee | Exempted tax recovered from the employer (Art. 17(2)) |
|---|---|
| Within two full years of acquisition | 100 per cent, with late-payment interest, no tax-loss penalty |
| Within three to four years | 75 per cent |
| Within five to six years | 25 per cent |
Two features decide whether a foreign-parent plan can use it. The exemption is framed around the employer that gives the shares and the claw-back is collected “from the employer”: a qualifying Turkish subsidiary that delivers the parent’s shares to its own staff under a recharge can argue that it is that employer; a parent granting directly to people it does not employ fits the words less comfortably. And the cap is personal and annual, so a large vesting event can produce an exempt portion and a taxable excess in the same month.
Recharge and deductibility: KVK Articles 6, 11 and 13
Article 6(2) of the KVK applies the GVK’s commercial-income rules to corporate income, and Article 40(1) of the GVK allows the deduction of “general expenses incurred to earn and maintain commercial income”. Remuneration of the subsidiary’s own staff is such an expense, but without a recharge the subsidiary has incurred nothing. A written recharge agreement under which the parent invoices the subsidiary for the value of awards delivered to its employees creates the expense in the Turkish books and supports the payroll route; Article 8 of the KVK adds nothing on share-based remuneration.
The recharge is a related-party transaction. Article 13(1) of the KVK treats prices contrary to the arm’s-length principle between related persons as a disguised profit distribution and adds that transactions requiring “bonus, wage and similar payments” are in all cases treated as purchases or sales of services; Article 13(2) includes shareholders and controlling persons among related persons, and Article 11(1)(c) makes disguised distributions non-deductible. A recharge limited to the fair value of shares delivered to the subsidiary’s own employees, with the records that Article 13(3) requires, is the defensible model; a mark-up, or a charge for awards to other group companies’ staff, invites a challenge.
Labour-law points: promise, equal treatment and the leaver
Turkish labour law has no chapter on equity plans, so the general tools apply. Article 32(1) of the Labour Law defines wage as the amount “provided by the employer or by third parties” in return for work, so the parent’s involvement does not by itself take the benefit outside remuneration. The source of the entitlement matters more: an award agreement signed with the parent and expressed as discretionary is a contract with a third party, while a clause in the Turkish employment contract promising equity is a term of employment. Article 22(1) provides that a material change in working conditions arising from the contract, from personnel regulations or from workplace practice (işyeri uygulaması) requires written notice, and changes not accepted in writing within six working days do not bind the employee. A plan granted every year to everyone can grow into a working condition that cannot be withdrawn unilaterally; plan documents should state that each grant is discretionary.
Article 5(1) prohibits discrimination on grounds of language, race, colour, sex, disability, political opinion, philosophical belief, religion and sect and similar grounds, and Article 5(2) prohibits different treatment of part-time and fixed-term employees without essential reasons. Excluding those categories as such is a risk; distinguishing by role, seniority and performance is not. Article 5(6) gives the employee compensation of up to four months’ wage plus the rights withheld.
Termination is where the money is. Article 17 (last paragraph) of the Labour Law, for notice pay, and Article 14 of the former Labour Law No. 1475, for severance, add to the cash wage the “contractual and statutory benefits provided to the employee that are money or measurable in money”. Whether a vested equity award enters that base is not answered by the statute in terms and should be addressed in the plan and the contract. Unvested options are contractual: Turkish law does not grant accelerated vesting, so the leaver provisions govern, subject to Article 420(1) of the TBK, under which a penalty clause in a service contract imposed only against the employee is void. Forfeiture of unvested options is not a penalty; a forced buy-back of vested, paid-for shares below value because the employee resigned is closer to one.
The Turkish alternative: conditional capital under TTK Article 463
For a Turkish joint-stock company, the TTK offers a purpose-built instrument. Under Article 463(1) the general assembly may resolve on a conditional capital increase (şarta bağlı sermaye artırımı) by granting “employees” and holders of bonds or similar debt instruments, in the articles of association, the right to acquire new shares through conversion or purchase rights; under Article 463(2) the capital increases automatically “at the moment and to the extent” the right is exercised and paid. Article 464 caps the conditional capital at half of the share capital and requires payment of at least nominal value. Article 465(1) prescribes the content of the clause, from the nominal amount and the entitled groups to the removal of pre-emption rights, and under Article 465(3) rights granted before the clause is registered are void. Article 467(2) protects option holders against later dilution unless the exercise price is reduced or an adjustment made, and Article 471 requires the board to register the amended articles within three months after the financial year ends. The conditional capital increase article sets out the mechanics; the tax analysis above applies to Turkish shares too, except that the two-year exemption in Repeated Article 80 can then apply to the employee’s later sale.
Our parent grants RSUs directly and nothing is recharged. Can we leave it off the Turkish payroll?
The benefit is wage under Article 61 whatever the route. If the Turkish company neither pays nor books anything, Article 95(1) points to the employee declaring the income annually, and the parent remains exposed to the deemed-employer duties in Article 62. A recharge with payroll processing under Article 94 is the cleaner structure for both.
Does the Article 17 exemption apply to options in a US parent?
Only if the employer giving the shares is a techno-enterprise company under the Ministry of Industry and Technology criteria; the benefit is measured at fair value when the shares are given and capped at twice the employee’s annual gross wage. A qualifying Turkish subsidiary delivering the parent’s shares under a recharge has an arguable case and must then track disposals for six years because of the claw-back in Article 17(2).
An engineer resigns with half her options unvested. Must we vest them?
No. Vesting and forfeiture are governed by the plan and the award agreement, within the limits of Article 420(1) of the TBK on one-sided penalty clauses, Article 5 of the Labour Law on equal treatment, and the severance and notice-pay rules on money-measurable contractual benefits.
Related: vesting · option pool · founder vesting · US flip-up checklist.
Sources. Income Tax Law No. 193 (Articles 3, 17 as amended by Law No. 7582, 61-63, 86, 94-98, 103, Repeated Articles 80-81); Corporate Tax Law No. 5520 (Articles 6, 8, 11, 13); Turkish Commercial Code No. 6102 (Articles 463-472); Labour Law No. 4857 (Articles 5, 17, 18, 21, 22, 32); Labour Law No. 1475 (Article 14); Turkish Code of Obligations No. 6098 (Articles 393, 420). 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.
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