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Step-by-Step Guide to Freelance Tax Payment

Step-by-Step Guide to Freelance Tax Payment

If you are a freelancer in Turkey and have tax payment obligations, this guide is for you! This article covers everything you need to know, from types of taxes to payment methods.

#freelancer #tax

5 min read

Last Updated: May 21, 2024

Table of contents

Who are Freelance Workers?

What is the Freelance Tax System?

What Taxes Do Freelance Workers Pay?

Tax Payment Methods for Freelance Workers

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Especially with the widespread use of the internet and increased communication opportunities, brand new job fields have been created. In the 'digital' era, our jobs and our ways of working have changed. This new way of communication has created numerous new professions that can be done without needing to be in the same office, city, or even country.

Who are Freelance Workers?

The freelance working style is one of the most significant elements of changing work habits. Freelancers who work independently at any location and with any intensity they wish stand out with skills that capture the digital age.

Working as a freelancer in various sectors has become relatively easy and brings many advantages for freelancers and employers.

The advantages of working as a freelancer include:

Flexible working hours
Freedom to choose the job and company
Ability to work from anywhere
Being your boss
Earning a higher income

The advantages for employers working with freelancers are as follows;

Cost

Working with a freelancer is often less costly than hiring a full-time employee.

Flexibility

Freelancers work for a specific period during a project, saving the company from many additional costs.

Expertise

Freelancer workers are often more specialized and competent in their fields.

Workforce Diversity

It is generally easier to reach many competent freelancers for different needs on a project basis, allowing for more efficient process management.

Innovation and Creativity

Freelancers working with various companies can add value to the project with different perspectives.

What is the Freelance Tax System?

The development of the internet and, thus, communication opportunities has made working independently without being affiliated with any company a method many people resort to. Since the 2000s, the number of freelance workers has increased rapidly.

Although earning income as a freelancer is legal in Turkey, tax obligations are complex. In the Turkish tax system, income earned from freelance jobs is regulated under independent professional activities. The Income Tax Law defines independent professional activities as 'non-commercial, not dependent on an employer, and performed under personal responsibility.' The income earned is termed independent professional income.

However, the law also distinguishes between 'continual' and 'one-time' income types. Income earned independently but continuously is referred to as independent professional income. For instance, a translator providing services for one or several publishers continuously throughout the year is considered to be earning independent professional income.

Another type of income defined for freelancers in the law is incidental (arızi) income. It differs from independent professional income in that the work relationship is established on a one-time basis. The incidental income exemption amount for the calendar year 2024 is 200,000 TL.

What Taxes Do Freelance Workers Pay?

Every citizen who earns income is responsible for paying taxes. Freelancers are also obligated to pay taxes proportionate to their income. Laws and regulations determine tax obligations related to freelance jobs.

Depending on their income, freelancers are required to pay various taxes, such as income tax, withholding tax, and VAT.

Income Tax

Freelancers must pay income tax on the income they earn. This tax is paid through an annual income declaration. The rate varies depending on the amount of earnings. Freelancers' income tax is classified as independent professional income.

Withholding Tax

Customers, usually companies, often deduct a certain percentage as withholding tax when paying for freelance services. This deduction covers part of the freelancers' income tax obligations. Withholding is calculated based on the total amount paid and paid directly to the relevant tax office.

Value-Added Tax (VAT)

Freelancers become liable for VAT if they exceed a specific turnover limit. In this case, they must show the calculated VAT on their invoices for the services or products provided. The general VAT rate in Turkey is 20%, although this rate may vary for some services and products.

Working as a freelancer also involves certain tax obligations. Freelancers who are aware of these obligations fulfill their legal responsibilities and secure a financially safer working environment.

Tax Payment Methods for Freelance Workers

Working as a freelancer and being your boss is much more enjoyable for many people than a full-time job. Questions like 'How much tax will I pay?' and 'How will I pay the tax?' arise when leaving corporate life. The methods freelancers can use to meet their tax obligations are not very complicated.

Payment via Professional Receipt

For freelance workers, the professional receipt (SMM) is a practical method of officially recording and taxing their income. It also makes it easier to declare the taxes calculated on these revenues. SMM includes calculations for value-added tax and withholding (income) taxes. Professional receipts can also be prepared digitally. The Revenue Administration Directorate regulates e-SMM processes.

Payment via Invoice

Many freelance workers set up sole proprietorships to make payment receipts and tax affairs easier to manage. This facilitates payment from companies and speeds up the tax declaration process. In Turkey, the general VAT rate is applied as 20%. However, the VAT rate can vary. Another critical aspect of VAT is services provided abroad. A VAT exemption can also be used depending on where the service is provided. Lastly, as of 2024, incomes not exceeding 200,000 TL and not continuous can be shown as incidental income. Tax obligations can be met in cases that meet these conditions using an expense slip.

You can consult an independent financial advisor if you are freelancing and need help with taxation.

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