The Cheapest Way to Take Money Out of Your Company: Dividends or Director's Fee?
The company made a profit, there’s cash in the till, and the partner wants to take that money home. The first way that comes to mind is usually a dividend distribution — and it’s often the most expensive one. There’s a smarter way to move the same money into the partner’s pocket that also lowers the company’s tax: the director’s fee (huzur hakkı). Below I’ve compared the two in plain language, with 2026 figures.
First, don’t withdraw cash without documentation
The mistake I see most is the partner occasionally taking cash out of the till and issuing no document in return. This habit has three costs:
- The “receivables from partners” line on the balance sheet swells; in a tax audit it’s one of the first items examined.
- The company is deemed to have lent its partner money interest-free; notional interest (adat) must be calculated and invoiced on it, with VAT paid on top. If not, disguised profit distribution through transfer pricing comes into play — both the tax and the penalty land on the company.
- When you apply for a loan, the bank deducts the money that appears to have flowed to the partner from your working capital; your balance sheet looks weaker than it is.
If money is going to leave the company, it should leave through a formal, documented channel. There are two main channels.
The real cost of a dividend: two layers of tax
With a dividend, the same money is taxed twice:
- The company pays 25% corporate tax on its earnings.
- When the remainder is distributed to the partner, a 15% dividend withholding tax is deducted. (This rate was 10% for a long time; it was raised to 15% by Presidential Decree No. 9286, published in the Official Gazette on 22 December 2024.)
Let’s see it in numbers. Say your company made a profit of TRY 1,000,000:
| Stage | Amount |
|---|---|
| Company profit | TRY 1,000,000 |
| Corporate tax (25%) | − TRY 250,000 |
| Distributable profit | TRY 750,000 |
| Dividend withholding (15%) | − TRY 112,500 |
| What reaches the partner | TRY 637,500 |
The total tax burden is 36.25%. More than 36 of every 100 liras is lost along the way.
One consolation: half of the dividend received by an individual partner is exempt from income tax; if the remaining half doesn’t exceed the 2026 filing threshold of TRY 400,000 (together with any other declarable income), no annual return is filed and the withholding becomes the final tax. But that doesn’t change the 36.25% above — it only prevents additional tax on top.
Why is a director’s fee cheaper?
A director’s fee is the amount paid to a partner who serves in the company’s management (the manager in a limited company, a board member in a joint-stock company) in return for that role, and tax law treats it as a wage. This distinction changes everything:
- It’s recorded as an expense on the company side. The director’s fee paid reduces the corporate-tax base — unlike a dividend, it lowers the company’s 25% tax. With a dividend the money is taxed first and distributed after; with a director’s fee the payment comes off the base.
- There’s a minimum-wage exemption on the individual side. Because it’s a wage, the portion corresponding to the gross monthly minimum wage is exempt from income and stamp tax. In 2026 the gross minimum wage is TRY 33,030 per month (Minimum Wage Determination Commission decision published in the Official Gazette on 26 December 2025). The portion above this is taxed at the normal schedule. The condition: the exemption is used through a single employer — if the partner receives a wage from another employer that month, the exemption is already used there.
- No extra social-security premium is deducted from a Bağ-Kur-insured partner. Since a company partner already pays premiums under 4/b (Bağ-Kur), the director’s fee isn’t additionally subject to social-security contributions. There’s no 15% employee deduction or employer share as on a payroll salary.
Where are you on the 2026 schedule?
The part of the director’s fee above the minimum wage falls into the income-tax schedule on the cumulative base accrued during the year. The 2026 schedule (General Communiqué on Income Tax No. 332):
| Cumulative base (2026) | Rate |
|---|---|
| Up to TRY 190,000 | 15% |
| TRY 190,000 – 400,000 | 20% |
| TRY 400,000 – 1,500,000 (wages) | 27% |
| TRY 1,500,000 – 5,300,000 (wages) | 35% |
| Above TRY 5,300,000 | 40% |
The table says this: a director’s fee of a reasonable size stays in the 15–20% band all year. Combined with the 25% expense advantage on the company side, across a wide range a director’s fee leaves a clear difference in the partner’s pocket compared with the 36.25% dividend route.
But it isn’t unlimited — watch three points
A director’s fee isn’t a magic exemption but a sloping ramp:
- The cumulative schedule. The base accumulates over the year. A partner who starts in the 15% bracket in January climbs into the 27% and 35% brackets as the payment grows. At very high amounts the advantage erodes; the break-even point against a dividend needs to be calculated.
- Arm’s-length conformity. The payment must be in return for a genuine role. Paying a high director’s fee to a partner who doesn’t actually work and holds no management role is treated as disguised profit distribution; the expense is rejected and the tax comes back with a penalty.
- Formalise the decision. The director’s fee must rest on a general assembly (partners’) resolution in a limited company, or on an articles-of-association clause or general assembly resolution in a joint-stock company; the amount and period must be in writing. A payment with no basis in the resolution book leaves you defenceless in an audit.
The right approach: plan at the start of the year
The costliest mistake I see in the field is paying the director’s fee randomly throughout the year and not tracking the cumulative base. The partner runs into an unexpected tax at year-end from a payment they thought was “tax-free.” The right method:
- Set the partner’s target net amount at the start of the year,
- Structure the monthly director’s fee around the minimum-wage exemption and the first brackets of the schedule,
- Leave the remaining need to a dividend,
- Check the base once mid-year and adjust if needed.
This planning doesn’t work retroactively — it’s laid out at the start of the year, not in December.
For most SMEs, the smartest option is a hybrid structure that keeps the director’s fee at a reasonable, arm’s-length level and leaves the rest to a dividend. Where the balance sits depends on the company’s profit, the partner’s other income, and the timing of their cash needs.
If you’d like to design your partner-company cash flow at the lowest tax and without taking on risk, I’ll draw up a personalised table for you. Take a look at the Advisory service, and you can reach me here.
Note: The rates and amounts in this article are based on legislation in force as of July 2026 (corporate tax 25% — Corporate Tax Law art. 32; dividend withholding 15% — Presidential Decree No. 9286; 2026 schedule — Income Tax General Communiqué No. 332; 2026 minimum wage — Official Gazette of 26 Dec 2025). Thresholds and rates can change; for planning specific to your business, please get in touch with me.