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Tax Exemption for Young Entrepreneurs Under 29 Years of Age, Who Have Established Start-Up

April, 2021, ERDEMİR&ÖZMEN ATTORNEY PARTNERSHIP

Tax Exemption for Young Entrepreneurs Under 29 Years of Age, Who Have Established Start-Up

The Law on Making Amendments to the Income Tax Law and Certain Laws”, i.e., the Law numbered 6663 introduces a tax exemption for young entrepreneurs under 29 years of age. The exemption aims to support young entrepreneurs in this challenging path they have taken.  

Pursuant to the statutory provision, fully responsible natural persons, in the names of whom income tax liability is established for the first time due to their commercial, agricultural or professional activity and who have not completed twenty-nine years of age as of the liability commencement date, shall be exempt from income tax, for the portion of up to 75,000 Turkish Liras of these earnings they generated throughout three taxation periods as of the calendar year they started operating, which exemption shall apply provided that the following conditions take place.  

The conditions for young entrepreneurs to benefit from the TRY 75,000 earning exemption are as follows:

·     Primarily, it is necessary that income tax liability has been established for the first time in the name of the entrepreneur due to his commercial, agricultural or professional activity and that the entrepreneur has not completed twenty-nine years of age as of the liability commencement date.

·     Since the earning exemption for young entrepreneurs was rearranged and entered into force on 10.02.2016, the taxpayers who started operating before that date do not have the opportunity to benefit from this exemption.

·     The young entrepreneur must be registered as a fully responsible taxpayer. As a matter of fact, natural persons who are not resident in Turkey are called “limited taxpayers”, and only the earnings and revenues generated in Turkey by these natural persons are within the scope of tax. On the other hand, persons resident or domiciled in Turkey are referred to as “fully responsible taxpayers”. These persons are subject to tax on the earnings and revenues they generated in Turkey and abroad.

·     The entrepreneur or his lawyer or the profession members authorized under the Law numbered 3568 must submit a start-up notification to the related tax office within 10 days from the date of the start-up. The applications submitted after the expiration of this period will not be accepted and these entrepreneurs will not be considered within the scope of the tax exemption.

·     While the entrepreneur becomes a taxpayer, the tax liability must take place on the part of the entrepreneur himself as a taxpayer, not on the part of a legal entity such as a joint stock company or a limited liability company. Within this context, the entrepreneur has the opportunity to benefit from this exemption by establishing an ordinary partnership or unlimited company.

·     In case the venture takes place within the context of an ordinary partnership or unlimited company, all partners are expected to meet the required conditions from the date of the start-up.  

·     Pursuant to the statutory provision, in case a business or a professional activity is taken over, the person from whom the business or the professional activity is taken over must not be the spouse or a relative by blood or in-law up to the third degree (including this degree), in order to benefit from the exemption. In case the taxpayers subsequently become partners in an existing business or professional activity, it will not be possible for those taxpayers to benefit from the exemption.

Within this context, fully responsible natural persons, in the names of whom income tax liability is established for the first time due to their commercial, agricultural or professional activity and who have not completed twenty-nine years of age as of the liability commencement date, will be exempt from income tax, for the portion of up to 75,000 Turkish Liras of these earnings they generated throughout three taxation periods as of the calendar year they started operating. However, these taxpayers are obliged to pay the tax, for their earnings exceeding 75,000 Turkish Liras.  

This matter is regulated by the article 20bis of the Income Tax Law numbered 193, and the article is as follows:  

Fully responsible natural persons, in the names of whom income tax liability is established for the first time due to their commercial, agricultural or professional activity and who have not completed twenty-nine years of age as of the liability commencement date, shall be exempt from income tax, for the portion of up to 75,000 Turkish Liras of these earnings they generated throughout three taxation periods as of the calendar year they started operating, which exemption shall apply provided that:

1. the start-up has been notified within the statutory term,

2. the taxpayer is actively engaged in his own business, or the business is directed and managed by the taxpayer (In case the taxpayer employs an apprentice, a foreman or an auxiliary worker or in case the taxpayer is not engaged actively in his business due to compulsory absence such as travel, sickness, military service, detention and conviction, these cases do not impair this condition.),

3. in case the activity is carried out within the body of an ordinary partnership or unlimited company, the conditions of this article are met by all the partners as of the date of the start-up,

4. a business or a professional activity that has been discontinued or continues to operate has not been taken over by the spouse or a relative by blood or in-law up to the third degree (including this degree), with the exception taking over by the spouse or the children due to death,  

5. the taxpayer has not subsequently become a partner in an existing business or professional activity.

An annual tax return shall be submitted even in cases where no earning has been generated from the activities included in the scope of the exemption or where an earning less than 75,000 Turkish Liras has been generated from the activities included in the scope of the exemption.

This exemption does not extend to the taxes payable through withholding pursuant to the article 94 of this Law.

The Ministry of Finance is authorized to determine the principles and procedures regarding the implementation of this article.”

Reference:

https://www.mevzuat.gov.tr/MevzuatMetin/1.4.193.pdf

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