Freelancer Taxation After the Omnibus Law

With the acceleration of digitalization in recent years, software and technology-focused businesses have gained significant momentum.

Software developers who provide remote services abroad and earn income from these services have been at the forefront of this trend, thanks to significant tax advantages. However, recent legal regulations in Turkey, particularly the "Omnibus Law," have raised questions about the extent to which these advantages will change. In this article, we'll examine in detail which type of company stands out in the light of the innovations brought by the Omnibus Law for companies providing remote software services abroad.

Tax Advantages for Those Earning Income from Remote Work Abroad

For software developers providing services abroad, certain tax advantages have long been available in Turkey. These advantages, including VAT exemptions and significant reductions in income/corporate tax, make remote work particularly attractive for individual entrepreneurs and small businesses.

VAT Exemption: VAT-Free Invoices for Services Provided Abroad

If you provide services to an individual or company abroad and these services are utilized abroad, you are not required to pay VAT.

The main conditions for this advantage are:

• The invoice must be issued to an individual or company abroad.

• The service must be utilized abroad.

• There is no restriction on the field of work.

Income/Corporate Tax Advantage: 80% Tax Exemption

There is also a significant advantage in terms of income or corporate tax. 80% of the income earned from services provided abroad is not subject to tax. However, certain criteria must be met to benefit from this advantage:

Conditions for tax exemption:

• Type of Service: The service provided abroad must be in one of the following fields: software, architecture, engineering, design, medical reporting, bookkeeping, call center services, product testing, or certification.

• Usage of Service: The service must be utilized abroad.

• Correct NACE Code: The company must be established under the correct NACE code.

• Collection Deadline: Invoices must be collected by March of the following year (for limited and joint-stock companies, by the end of April).

• Invoice Description: The term "consultancy" should not be included on the invoice.

The Omnibus Law: New Regulations and the Importance of Company Types

The Omnibus Law introduced new regulations for companies that work remotely and provide services abroad. These regulations particularly increase the tax burden for limited and joint-stock companies.

10% Minimum Corporate Tax Regulation

One of the most notable innovations introduced by the Omnibus Law is the 10% minimum corporate tax regulation. This regulation only applies to limited and joint-stock companies and will be implemented for the first time in May 2025.

The impacts of this regulation:

• Increased Tax Burden for Limited and Joint-Stock Companies: Limited or joint-stock companies providing remote services abroad will have to pay higher taxes starting in 2025.

• Not Applicable to Sole Proprietorships: If you have a sole proprietorship, this regulation does not affect you. This makes establishing a sole proprietorship more attractive in terms of tax advantages.

Choosing the Right Company Type: Why Sole Proprietorships Stand Out

After the Omnibus Law, establishing a sole proprietorship has become a more attractive option, especially for entrepreneurs providing services like software abroad. Here’s why:

Lower Tax Burden

• Sole proprietorships are exempt from the 10% minimum corporate tax introduced by the Omnibus Law, allowing for lower tax payments.

Lower Costs

• Establishing and operating a sole proprietorship is less costly compared to limited or joint-stock companies. This makes sole proprietorships particularly appealing for those in sectors like software that do not require significant capital.

Future Plans

• If you plan to sell your company in the future or aim for growth, establishing a limited or joint-stock company might be more logical. These types of companies offer more flexibility in attracting investors and expanding.

After the Omnibus Law: Alternative Working Models for Software Developers

With the Omnibus Law, new working models have emerged for software developers and other qualified employees. Employers have started to explore different models to retain their skilled workers and benefit from tax advantages.

Contractor Model: A New Alternative

Many companies have begun transitioning their current staff to a contractor model. This model offers various benefits for both employers and employees:

Advantages of the contractor model:

• Flexibility for Employees: Employees can create a more flexible working arrangement by working as contractors.

• Tax Benefits: The contractor model allows employees to establish a sole proprietorship and pay lower taxes.

Digital Nomad Programs and Remote Work

• Digital nomad programs provide significant opportunities for software developers in a remote work arrangement. These programs offer the chance to work in certain countries with lower taxes, making them an attractive option for software developers providing services abroad.

Conclusion: The Most Suitable Option for Companies Providing Services Abroad After the Omnibus Law

After the Omnibus Law, the most suitable company type for software developers and other professionals providing remote services abroad is, in most cases, a sole proprietorship.

The main reasons for this include a lower tax burden and reduced operating costs. However, considering factors like growth goals and future sales plans, establishing a limited or joint-stock company also has its advantages.

For employers, transitioning to a contractor model with current staff is emerging as a key strategy to retain qualified employees and gain a competitive edge. For those earning income through remote work abroad, these new regulations and working models offer the key to optimizing tax and operating costs in the future.

If you would like more information on this topic or want to take advantage of the benefits available to you, feel free to contact us or subscribe to our mailing list.

We would be happy to keep you updated on the latest tax regulations and opportunities.

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