Request for a private ruling states that you became a partner in an existing limited liability company as a civil engineer in 2014 to carry out your project works, and now you intend to leave the partnership and establish a sole proprietorship under your name. You are under 29 years of age and will be establishing a sole proprietorship for the first time. However, you seek clarification on whether you can benefit from the income exemption for young entrepreneurs under Article 20, repeated, of the Income Tax Law, despite your prior partnership in a limited liability company. Below is the opinion of the Presidency on the matter:
Under Article 20, repeated, of the Income Tax Law No. 193, individuals who establish their income tax liability for the first time due to commercial, agricultural, or professional activities, and who are under the age of 29 at the start of their tax liability, can benefit from an income tax exemption on earnings up to 75,000 Turkish Liras for three tax periods, provided they meet certain conditions:
- Notification of business commencement within the legal timeframe.
- Active involvement in the business or its direct management.
- Meeting the specified conditions collectively if the activity is conducted through a partnership or sole proprietorship.
- Not acquiring the activity from a spouse or relative up to the third degree (inclusive), except in cases of inheritance.
- Not joining an existing business or professional activity as a partner later.
Even if no earnings are derived from the activities within the exemption scope or if earnings fall below the exemption limit, an annual tax declaration is still required.
The exemption does not cover taxes to be withheld under Article 94 of the Law.
Furthermore, details on benefiting from this exemption are elaborated in Income Tax General Communiqué No. 292.
According to the law, dividends obtained from shares in a limited liability company are classified as income from movable capital, which requires the establishment of income tax liability for movable capital income if declared.
However, the establishment of income tax liability for movable capital income does not affect eligibility for the young entrepreneur income exemption, as the exemption applies only to those establishing income tax liability for the first time due to commercial, agricultural, or professional activities.
In conclusion, if you meet all the conditions specified in Article 20, repeated, of the Income Tax Law and Communiqué No. 292, you may benefit from the exemption for earnings derived from your freelance professional activities.
Revenue Administration – Special Note
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