Tax and Legal Implications of Engaging Freelancers for Businesses in Türkiye

1) What are the tax risks for businesses when hiring freelancers instead of full-time employees?

Two income categories stand out for freelancers under the Turkish Income Tax Law: Commercial Income and Self-Employment Income.

According to Article 65, self-employment income refers to professional activities based primarily on personal effort, scientific or professional knowledge, or expertise, carried out independently and not in the nature of commercial activities.

Article 37 defines commercial income as “income arising from all types of commercial and industrial activities,” which requires elements such as capital, continuity, organization, and an intention to generate profit.

If an individual continuously earns income by creating a commercial structure supported by capital, it is deemed commercial income. If these elements do not exist and the individual continually provides services independently to various persons or businesses, the income is considered self-employment income.

Freelancers are responsible for declaring and paying tax on the income they earn.

2) How do tax authorities determine whether a freelancer arrangement should be reclassified as employment?

• Degree of Control: Who decides how the work is performed—does the company determine hours, methods, or workplace?
• Economic Dependence: Does most income come from one company? Does the freelancer have their own equipment, office, or client base?
• Equipment Ownership: Who provides the computer, software, tools, phone, or office? If the company bears most costs, the relationship resembles employment.
• Continuity: Is the contract long-term or indefinite? Is there regular full-time or part-time work?
• Substance Over Form: Actual working conditions matter more than what the contract states.

3) What are the employer’s withholding or reporting obligations when working with freelancers?

• If the freelancer issues a self-employment receipt:
  The employer must withhold 20% tax and declare it via a Withholding Tax Return.
• If the freelancer operates a company and issues invoices:
  No withholding applies; the company pays its own VAT and income/corporate tax.
• If the freelancer has no tax registration:
  The employer may need to treat the payment as salary, creating income-tax withholding and potential social security risks. This is generally considered risky for ongoing work.

4) Are withholding taxes applicable when engaging cross-border freelancers?

Payments to foreign freelancers are not subject to Turkish withholding tax.
Since the service is performed abroad and the freelancer is not resident in Türkiye and has no permanent establishment in Türkiye, the income is not considered earned in Türkiye and is therefore not subject to withholding.

5) How do double taxation treaties impact taxation of payments to foreign freelancers?

Double taxation treaties prevent the same income from being taxed in both Türkiye and the freelancer’s home country.

They determine where the income is taxed, whether withholding applies, and may limit tax rates.

In most treaties, income from Independent Personal Services is taxed in the freelancer’s country of residence. Türkiye may tax the income only if specific conditions are met, such as:

• the freelancer stays in Türkiye for more than 183 days, or
• the freelancer has a fixed base or permanent establishment in Türkiye.

6) What compliance documentation should businesses maintain when working with freelancers?

• A written Freelance/Service Agreement
• Tax Registration Certificate
  
  • Türkiye-based freelancer → Tax Plate
  • Foreign freelancer → Tax Residency Certificate
• Self-employment receipt or invoice
• Data protection and confidentiality documents (KVKK, NDA)

7) What compliance requirements must companies meet when engaging freelancers?

• Document Compliance:
  
  • e-Self-Employment Receipt (e-SMM) for Turkish freelancers;
  • e-Invoice/e-Archive for company-structured freelancers;
  • Invoice for foreign freelancers.
• Tax Compliance: Withholding, VAT, DTA compliance;
• Legal Compliance: Employment law, contractual duties, data protection (KVKK);
• Intellectual Property & Audit Compliance.

8) What are the legal and contractual best practices for structuring freelancer engagements to minimize tax risks?

• Clear definition of legal and tax status:
  Indicators of independence include flexible working hours, using own equipment, and working with their own methods.
• Verification of tax registration:
  Confirm whether the freelancer is registered as self-employed or as a company in Türkiye; for foreign freelancers, obtain a Tax Residency Certificate.
• Contractual best practices:
  Use a written service contract, include IP and copyright clauses, confidentiality & data protection terms, and tailor provisions for foreign freelancers.

Authors: Aigerim Sabit Bikmaz, Esra Dicle Bagli, Burcu Oktem