How to Pay Taxes as a Freelancer in Turkey?
What are the tax responsibilities of a self-employed person?
November 2023 update: The rate of earnings exemption for architecture, engineering, software, design, and other services provided overseas will increase to 80%, up from the previous 50%.
Turkey is set to become a hub for digital nomads
How do freelancers pay taxes in Turkey?
Congratulations on your well-deserved success. But when you become your own boss you need to know some important issues regarding to tax facts.
In this article, I will try to explain your tax obligations as simply as possible.
Therefore stop worrying and do not start overthinking what to do about tax issues. Because there is nothing complicated about freelancer tax responsibilities.
So go ahead and get comfy, and check out my article ☕️
Do I have to set up a company in Turkey?
According to the Turkish Tax code; If you sell goods or services and earn money more than once time in a year you have to open a company to avoid tax risk and penalties. Because these gains are considered as a commercial income.
How do I know which type of business is best for me?
There are three types of companies can a person establish in Turkey. These are;
- Individual Company
- Limited Liability Company
- C-Corp Company
What are important factors to consider in choosing the right type of business ?
- Cost of start up
- Incorporation Process and Time
- Tax Rates
- Running Costs
- Legal Responsibilities
- Exit Opportunities
- Industry Perception for company types
Cost of Start up: Excluding the fee of service provider, individual company has more advantages when we consider establishment costs. Limited liability and C-corp establishment process and costs are nearly same.
Setting up individual company is fast and easy and totally online in Turkey
Tax rates: No matter how large or small your business you will establish, it’s much more important to first get the advice of a tax professional instead of a lawyer. Because the tax ratio is the most significant whilst choosing the right type of company
Limited liability companies and C-Corp have the same tax rate. % 25 is the corporate income tax for these companies. But for individual companies, there are some thresholds. Such as up to 70.000 TRY tax rate is only % 15 but for 1.900.000 TRY tax rate climbs to % 40.
Running Costs: Day-to-day operations regardless of the type of your company you have to bear some costs such as wages, stamp taxes, license payments, rents, types of equipment, etc.
Even the type of the company does not affect the monthly costs because of the different procedures and liabilities limited liability and c-corporations running costs are higher than individual companies.
Legal Responsibilities: As a business owner you must comply with all relevant tax and other laws such as labor law, the Turkish trade code. But when we compare the responsibility from the perspective of the company owner. The least risky company type is a limited liability company.
Which Taxes and Legal costs do I have to bear ?
- Income Tax
- Value Added Tax
- Withholding Tax
- Social Security Premium
Income Tax: personal income tax and corporate income tax is the main two tax types of the Turkish tax system
If you incorporate your company as an LLC or C-corp, the tax rate is % 25 but if you open an individual company there are some thresholds. Before starting your business you should determine your tax planning strategy with your CPA Company
Tax Tip-1:If you render programming or design services outside Turkey. You have change to pay %20 of it your income tax (Huge tax advantage)
Value-Added Tax: The Turkish taxation system levies value-added tax on the supply and importation of goods and services.
Liability for VAT arises;
- When a person or entity performs commercial, industrial, agricultural, or independent professional activities within Turkey,
- When goods or services are imported to Turkey
Tax Tip-2: You do not have to pay Value added tax if you render service outside Turkey or sell goods.
Tax Tip-3:And as a freelancer if your age is below 29 there is also important tax advantage too. For three years there is a tax exemption to the gains up to 150.000 TRY (Young entrepreneurship tax advantage)
Withholding Tax: As you know withholding tax is the amount of an employee’s pay withheld by the employer and sent directly to the government as partial payment of income tax. Before hiring an employee you should learn the yearly cost of an employee from your CPA company.
Social Security premium: As a freelancer each month you have to pay a social security premium. The least premium amount for 2023 is 2.952,36 TRY
Tip-4: if your age is below 29 and open individual company you do not have to pay social security premium 12 months.(Young entrepreneurship social security advantage)
And about taxes, they will be paid monthly or every year?
- Some tax statements declared monthly such as value-added tax
- Some tax statements declared quarterly such as advance income tax
- Some tax statements declared yearly such as income tax
When you start to work with a CPA company they will handle this process with you step by step.
How it will be calculated?
You can find a sample tax calculation below. With your CPA company, you can calculate your all-in expenses (tax and other costs) before starting your business.
And where should I pay it ?
You can pay your taxes with your credit card over interactive tax office or via internet banking of government banks such as Ziraat, Halkbank, or Vakıf.
But if you have a credit card you do not have to open an account at that bank. Your CPA company will help you in that process. Nothing complicated.
Mostly freelancers prefer to start their business with individual companies. Because there is no red tape when we compare to other type of companies. But when things have settled they convert their companies or open new types of companies.
To sum up; I know starting a business is no easy endeavor, but the time, effort, and challenges can be worth it if you succeed. But please do not forget to get advice from a specialist about the ideal corporate form to take.
OzmConsultancy Tax & Advisory Services
info@ozmconsultancy.com
Content is provided for educational and informational purposes only and is not intended and should not be construed as legal advice
