Frequently Asked Questions About Sole Proprietorship

For those who will start a new business, sole proprietorships have advantages in terms of lower costs, time and labor both in the establishment phase and in cases where the income generated is not high compared to legal entities. This situation leads entrepreneurs to set up as a sole proprietorship when starting their business, and to switch to a joint stock or limited liability company in case their income increases. Although the establishment of a sole proprietorship is quite simple and fast compared to other types of companies, it becomes quite daunting for many people who do not have experience in company establishment and creates question marks in minds. In today’s article, we have brought together the most frequently asked questions and answers about the establishment of a sole proprietorship for you.

What are the documents required for the establishment of a sole proprietorship?

Identity card, residence and signature declaration from a notary public are sufficient in the first step. Then, your financial advisor with whom you have made an agreement can go to the tax office and open your opening.

Do I have to have a workplace to establish a sole proprietorship?

If the sale/manufacture of the service or product you will offer to your customers does not require a workplace, you will not have to incur such a large expense. However, every company must have an operating address. To overcome this obligation, you can either show your home as your business address or you can rent a virtual office at very affordable prices compared to normal offices.

I will show my home-office as my business address, what can I record as an expense?

First of all, since your workplace will be your home, you can show all the expenses you incur due to your work such as electricity, water, natural gas, internet bill if you use it for your business, cleaning expenses, food expenses.

Which taxes will I pay if I establish a sole proprietorship?

  • Stamp Duty
  • VAT (Value Added Tax)
  • Withholding tax if your workplace is rented
  • Monthly Bağkur Premium payment since you will be a company owner
  • If you have an employee, your employee’s insurance payment
  • Annual Income Tax (This tax is paid in 4 installments during the year under the name of Provisional Tax)

Can I open a business while working as an insured person?

Being insured in a workplace does not prevent you from establishing a company. On the contrary, it will be more advantageous for you. Since your 4/A insurance premium is already paid regularly, you will not have to pay 4/B, i.e. Bağ-kur premium.

I was working in an insured workplace, I left to establish a sole proprietorship. In this case, when I start paying 4/B insurance premiums, will my previously paid premiums burn?

If you left your old workplace before establishing a sole proprietorship, that is, if you were not working as an insured when the company was established, you are required to pay 4/B (Bağ-kur) premiums. However, these 4/B insurance premiums will not throw away your previously paid 4/A premiums.

For example; Let’s assume that 1500 days of 4/A premiums were paid before the establishment of the company. This 1500-day premium is also included in the pension calculation, but you will retire from 4/B, that is Bağ-kur, not 4/A.

I am retired, can I establish a sole proprietorship?

Being retired does not prevent you from establishing a company. On the contrary, since you are already retired, you will avoid 4/B premium costs like those who are already insured in another workplace.

Do I have to open a bank account in the name of the company to establish a sole proprietorship?
Since you are a sole proprietorship, you do not need to open a bank account in the name of your company. You can use your own account for your company. If you were a limited liability company or a joint stock company, then you would need to have a bank account in the name of your company.

Can a partnership be established in sole proprietorships?

Partnerships in sole proprietorships are called “ordinary partnerships”. The tax calculation is made separately for each partner according to the share rates.

Can I add a title to my sole proprietorship?

Sole proprietorships are established by financial advisors in the form of direct name and surname. However, if the company owner wishes, he/she can go to the tax office and add a title with a petition.

Can I convert my sole proprietorship into a Limited or Joint Stock Company?

As we mentioned at the beginning of our article, sole proprietorships have lower costs in terms of taxation compared to other companies at relatively low incomes. Sole proprietorships are taxed according to the income they generate, i.e. lower incomes are taxed at a lower tax rate and higher incomes are taxed at a higher tax rate. In contrast, the tax rate for limited and joint stock companies is fixed regardless of income. This makes sole proprietorships advantageous for those with low incomes, while limited liability and joint stock companies are more advantageous for higher incomes. For this reason, many company owners who set up as sole proprietorships convert their companies to limited or joint stock companies after their income increases.


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