How Foreign Software Developers in Turkey Can Benefit from the 80% Tax Exemption (2026 Guide)
Executive Summary
Foreign software developers living in Turkey—especially those working remotely for international companies—can legally reduce their tax burden significantly through the 80% income tax exemption for service exports.
However, this benefit is frequently misunderstood, misapplied, or entirely missed due to improper structuring.
This guide explains:
The optimal business structure (sole proprietorship vs. limited company) The exact eligibility criteria for the 80% exemption The documentation and compliance requirements Common mistakes that may lead to tax penalties or loss of exemption A realistic overview of accounting and compliance costs in Turkey
Who Can Benefit from the 80% Software Export Tax Exemption?
The exemption applies to individuals or companies in Turkey that:
Provide software development, IT, or digital services Invoice clients located abroad Generate income classified as service export (hizmet ihracatı) Typical Eligible Profiles Freelance software developers working with EU/US companies Remote engineers employed via contractor agreements SaaS developers billing foreign customers Mobile app developers earning revenue abroad Critical Insight
This is not a “freelancer exemption.” It is a service export incentive, and eligibility depends on how the income is structured and documented, not your job title.
Sole Proprietorship vs. Limited Company: Which Structure is Better?
This is the first—and most strategic—decision.
Option 1: Sole Proprietorship (Şahıs Şirketi)
Advantages:
Fast setup (1–2 days) Low administrative costs Simpler accounting
Disadvantages:
Progressive income tax rates (up to ~40%) Limited scalability Higher audit sensitivity if improperly structured
Best for:
Freelancers earning moderate income (typically under ~USD 150K annually) Option 2: Limited Company (Ltd. Şti.)
Advantages:
Flat corporate tax rate (~25%) More credibility with international clients Easier scaling and reinvestment
Disadvantages:
Higher setup and maintenance costs Dividend taxation upon profit distribution
Best for:
Developers with high and growing income Founders planning to build long-term structures Strategic Takeaway
There is no “one-size-fits-all” answer. The correct structure depends on:
Annual income level Client geography Growth expectations Cash flow vs. reinvestment strategy
Improper structuring can eliminate the tax advantage entirely.
- How the 80% Tax Exemption Works (Technical Breakdown)
Under Turkish Income Tax Law, qualifying service export income benefits from:
80% deduction on taxable income
Example Annual income: $100,000 Taxable base after exemption: $20,000 Effective tax burden: significantly reduced Key Conditions (Non-Negotiable)
To qualify:
Client must be located abroad Service must be consumed abroad Invoice must be issued to a non-resident entity Payment must be received from abroad (foreign currency preferred) Proper documentation must be maintained 4. Required Documentation & Compliance
This is where most taxpayers fail.
Mandatory Elements Service agreements with foreign clients Invoices issued in compliance with Turkish regulations Bank records showing international payments Proof that the service is used outside Turkey Frequent Mistakes Receiving payments through local intermediaries Working for foreign companies with Turkey-based operations Missing or weak contracts Incorrect invoicing structure
These can trigger:
Full loss of exemption Retroactive taxation Tax penalties and interest 5. Special Considerations for Foreign Residents (e.g., “99 ID Holders”)
Foreign nationals residing in Turkey can fully benefit from this regime.
However, additional considerations apply:
Tax residency status must be properly assessed Immigration status should align with commercial activity Banking setup must support international inflows Critical Risk Area
Many foreign developers unintentionally create permanent establishment risks or fail to meet documentation standards due to language barriers.
Accounting & Compliance Costs in Turkey (2026)
A realistic cost structure:
Sole Proprietorship Monthly accounting: ~USD 150 – 300 Annual compliance & filings: included or marginal Limited Company Monthly accounting: ~USD 300 – 800 Additional costs: payroll (if applicable), corporate compliance Important Note
Low-cost accounting services often:
Misapply the exemption Fail to structure documentation correctly Expose clients to audit risk
For cross-border income, technical expertise matters significantly more than price.
- Strategic Structuring Opportunities (Advanced Insight)
Well-structured setups can additionally optimize:
Social security positioning VAT exposure (especially for digital services) Withholding tax risks Cross-border cash flow planning
For high-income developers, combining:
Proper entity structuring Export incentives International tax planning
can result in substantial long-term savings.
Frequently Asked Questions (FAQ) Do I need a company to benefit from the exemption?
No. A sole proprietorship is sufficient—but must be structured correctly.
Can I work with platforms like Deel or Upwork?
Yes, but structuring and invoicing must be carefully designed.
Do I pay VAT?
Generally no, if the service qualifies as export—but documentation is critical.
What happens if I don’t comply properly?
You may lose the exemption and face retroactive taxation and penalties.
Conclusion: Structure First, Then Scale
Turkey offers one of the most attractive tax regimes for software exporters—but only for those who structure correctly from day one.
Most developers focus on income growth, while overlooking tax architecture. This is a strategic mistake.
Reach Us
If you are:
A software developer working with international clients Planning to relocate or already based in Turkey Earning (or expecting to earn) foreign income
We can help you:
Design the optimal structure Secure eligibility for the 80% exemption Ensure full compliance and audit readiness
📩 Contact: info@ozmconsultancy.com
🌐 English-speaking, cross-border tax advisory
