How to Set Up a Sole Proprietorship? What Documents Are Required?

Being your own boss and embarking on the commercial adventure of your dreams... Before setting out on this exciting journey, it is important to lay solid foundations. This is exactly where our "Setting Up a Sole Proprietorship" guide comes in!

In this article, in plain language free of complicated terms:

• You will discover the advantages and disadvantages of a sole proprietorship.
• You will find the complete list of required documents.
• You will follow the setup stages step by step.
• You will learn the important points you need to pay attention to.

If you are ready, let's start turning your business dreams into reality!

In short, what is a sole proprietorship?

Put simply, a sole proprietorship is the simplest type of company, set up by a single person, in which all responsibility belongs to that person. It has an easy setup, low cost and a flexible structure.

In this introduction, we have briefly summarized the basic features of a sole proprietorship and the opportunities it can offer you. In the following sections, we will cover this topic in more detail and examine the process of setting up a company step by step.

What Is a Sole Proprietorship?

A sole proprietorship is a type of business owned and operated by a single person, who is liable with all of their assets. That is, the owner of the company is both the manager and the sole owner of the business. One of the most important features of a sole proprietorship is that the legal identity of the business is directly tied to the personal identity of its owner. This brings certain characteristics in terms of taxation and legal responsibilities.

The advantages of setting up a sole proprietorship include a simple setup process, low setup cost, full control and management of the business, tax advantages and the business's earnings passing directly to the owner. However, the owner of a sole proprietorship bears unlimited liability for the business's debts with their personal assets. This means that financial difficulties the business may encounter can put the owner's personal assets at risk.

A sole proprietorship is generally preferred by small businesses, freelancers, those offering consulting services and those operating in the retail sector. This type of business is ideal for activities that, by their nature, do not require large capital investments and are based on the owner's professional skills or personal labor.

What Are the Types of Sole Proprietorship?

According to the Turkish Commercial Code, there are three types of sole proprietorship:

Types of Sole Proprietorship:

Ordinary Partnership (Adi Şirket):

• It is set up by 2 or more real or legal persons.
• Partners are liable without limit for the company's debts.
• There is no obligation to register with the trade registry.
• It is easy to set up and run.

General Partnership (Kolektif Şirket):

• It is set up by 2 or more real persons.
• Partners are liable without limit for the company's debts.
• Registration with the trade registry is mandatory.
• It has a more formal structure than an ordinary partnership.

Limited Partnership (Komandit Şirket):

• It is set up by at least one general partner (komandite, the principal partner) and one limited partner (komanditer, the ordinary partner).
• General partners (komandite) are liable without limit for the company's debts.
• Limited partners (komanditer) contribute capital to the company and receive a share of profits, but do not take part in the management of the company.
• Registration with the trade registry is mandatory.

When choosing which type of sole proprietorship suits you, it is important to consider the following points:

• Your level of liability
• Who will manage the company
• Your field of activity
  

What Is the Difference Between a Sole Proprietorship and a Limited Company?

The sole proprietorship and the limited company are the two most commonly used company types in Turkey. Both have their own advantages and disadvantages.

Liability:

• Sole proprietorship: Partners are liable without limit for the company's debts. That is, they can also use their personal assets to pay the company's debts.
• Limited company: Partners are liable to a limited extent for the company's debts. That is, they put at risk only the capital they contributed to the company in order to pay the company's debts.

Setup:

• Sole proprietorship: Setup is easy and fast. It can be set up with few documents and at low cost.
• Limited company: Setup is more complicated and requires more documents and cost.

Capital:

• Sole proprietorship: There is no capital requirement.
• Limited company: There is a requirement of a minimum of 10,000 TL capital.

Taxation:

• Sole proprietorship: Partners are subject to income tax.
• Limited company: The company is subject to corporate tax.

Management:

• Sole proprietorship: Management is simpler and can be carried out by a single partner.
• Limited company: Management is more complicated and must be carried out by a board of management.

Prestige:

• Sole proprietorship: It has a less formal structure.
• Limited company: It has a more prestigious structure.

Processes:

• Sole proprietorship: Setup and closure procedures are faster.
• Limited company: Setup and closure procedures take longer.

When choosing which type of sole proprietorship suits you, it is important to consider the following points:

• Your level of liability
• Your field of activity
• Your financial situation
• Your future plans
  

Who Can Set Up a Sole Proprietorship?

The basic requirements for setting up a sole proprietorship:

• Being over 18 years of age
• Being a Turkish citizen or holding a work permit
• Having no criminal record
• Not having merchant status (civil servants)
• Having no circumstance that prevents operating in a particular field of activity

In addition to these:

• If the company will be set up at a home address, the landlord's permission
• If the company will be set up in a rented workplace, the lease agreement

are among the required documents.

To set up a sole proprietorship:

• An application must be made to the tax office with the required documents.
• Registration with the trade registry must be made with the taxpayer registration certificate obtained from the tax office.

Setting up a sole proprietorship can be an ideal option for those who want to start their own business and move their commercial activities onto a legal footing.

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How to Set Up a Sole Proprietorship?

Setting up a sole proprietorship is one of the easiest and fastest ways to set up a company in Turkey.

Below you can find the stages of setting up a sole proprietorship and the required documents:

1. Gathering the Required Documents

• Photocopy of ID card
• Proof of residence
• Tax office registration declaration
• Signature declaration
• Lease agreement or a photocopy of the title deed (for the workplace)

2. Applying to the Tax Office

• You need to apply to the competent tax office with the documents above.
• During the application, you will be asked to declare information such as the company title, field of activity and capital.

3. Obtaining the Taxpayer Registration Certificate

• After the review carried out by the tax office, your taxpayer registration certificate is prepared.

4. Trade Registry Registration

• Together with your taxpayer certificate, you need to register with the trade registry.

5. Bookkeeping

• You need to obtain the books required for your business and have them certified.

6. Bağ-Kur Registration

• As the business owner, you need to register with Bağ-Kur (the social security scheme for the self-employed) and pay the required contributions.

7. Obtaining the Tax Plate

• You can get your tax plate by applying to the tax office.
  

E-Devlet is a platform that lets us carry out many government procedures online, including setting up a sole proprietorship. Setting up a sole proprietorship through e-Devlet lets you form your business quickly and easily without going to the tax office.

How to Set Up a Sole Proprietorship Through E-Devlet?

To set up a sole proprietorship through e-Devlet:

1. Log in to e-Devlet.

• To log in to e-Devlet, visit https://www.turkiye.gov.tr/.
• Log in with your Turkish ID number and your e-Devlet password.

2. Go to the Interactive Tax Office.

• Type "Interactive Tax Office" in the search box and click the relevant service.
• Log in again with your e-Devlet password.

3. Go to Transactions > Registry Notifications > Notification of Commencement of Business.

• On the page that opens, fill in the required information (company name, field of activity, address, etc.) completely and accurately.

4. Approve and submit the declaration.

• Check all the information before submitting the declaration.
• Once you approve it, your declaration will be processed.

5. Wait for the inspection approval from the tax office.

• An officer from the tax office will visit the address given in the declaration to inspect the premises and documents.
• Once the inspection is complete, the inspection approval will be issued.

6. Get your tax plate.

• After receiving the inspection approval, you can go to the tax office to get your tax plate.

Also:

• When filling in the declaration, take care not to make any mistakes.
• For the inspection from the tax office, be present at your home or workplace.

Setting up a sole proprietorship through e-Devlet will save you time and money.

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What Documents Are Required to Set Up a Sole Proprietorship?

The documents required to set up a sole proprietorship are:

1. Photocopy of ID Card

• Make sure your Turkish ID number and address are correct.

2. Proof of Residence

• The address on your ID card must match the address on your proof of residence.
• You can get your proof of residence through e-Devlet.

3. Tax Office Registration Declaration

• You can get this declaration from the tax office or online.
• Fill in the declaration completely and accurately.

4. Signature Declaration

• You can get this declaration from a notary in exchange for your signature.

5. Photocopy of Lease or Title Deed (for the workplace)

• If your workplace is rented, you must provide a photocopy of the lease; if you own it, a photocopy of the title deed.

6. Bağ-Kur Registration Declaration

• As the business owner, you need to register with Bağ-Kur.

7. Passport-Size Photo

• You need 2 passport-size photos.

Optional Documents:

• Activity certificate (may be required for some fields of activity).
• Approval certificate (may be required for some fields of activity).
  

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What Taxes Do Sole Proprietorships Pay?

Sole proprietorships pay different taxes depending on their sector of activity and income. The most common ones are:

1. Income Tax:

• Sole proprietorships pay income tax on the profit they earn. Income tax rates vary according to the amount of earnings.
• Income tax returns are filed with the tax office every year in March.
  

Rates:

• The portion of earnings up to 24,000 TL: 15%
• The portion from 24,000 TL up to 53,000 TL: 20%
• The portion from 53,000 TL up to 130,000 TL: 27%
• The portion from 130,000 TL up to 650,000 TL: 35%
• The portion above 650,000 TL: 40%

2. Value Added Tax (VAT):

• VAT is a tax collected from the buyer on sales of goods and services and declared to the tax office by the seller.
• VAT rates vary depending on the type of goods and services.
• VAT returns are filed with the tax office on a monthly or quarterly basis.

Rates:

• General VAT rate: 18%
• Reduced VAT rate: 8%
• Zero VAT rate: 1%

Withholding Taxes:

• Income tax withheld from employee salaries: 15-35%
• Insurance premiums: employer share 20%,
• Other withholding taxes: stamp duty, fees, etc.

3. Withholding Tax Return (Muhtasar Beyanname):

• The withholding tax return is a declaration in which employers report the withholding taxes they must pay every month (income tax withheld from employee salaries, insurance premiums, etc.).
• The withholding tax return is filed with the tax office by the 25th of each month.

4. Bağ-Kur Premiums:

• As a sole proprietor, you need to register with Bağ-Kur and pay premiums every month.
• Bağ-Kur premiums are required for retirement and health insurance.

5. Stamp Duty:

• Sole proprietorships pay stamp duty for certain official transactions. Stamp duty rates vary depending on the type of transaction.
  

In addition to these:

In some cases you may also have to pay taxes such as the following.

• Municipal taxes and fees
• Licence and permit fees
• Environmental cleaning tax
  

Also:

• Tax legislation changes frequently. It is therefore important to consult the tax office or your financial advisor for up-to-date information.

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What Should You Know Before Setting Up a Sole Proprietorship?

When you decide to start your own business, a sole proprietorship can be the starting point for many entrepreneurs. However, there are important points to consider before beginning this journey. Here is what you should know before setting up a sole proprietorship:

• Setup Costs: It is important to calculate the initial costs you will face when setting up a sole proprietorship. These can include tax office registration, notary fees, accountant fees and obtaining the necessary licences.
• Business Address: You will need to determine an address for your sole proprietorship. Your workplace can be your home address, a rented office or a virtual office. When choosing your address, consider your business's requirements and customer access.
• Setup Process: Setting up a sole proprietorship is a relatively simple process. It requires few documents and steps, which speeds things up. Even so, you need to follow the official procedures carefully.
• Risk Assessment: If you are new to the sector and are taking certain risks in your business model, setting up a sole proprietorship can be a suitable start. A sole proprietorship lets you manage risks more easily with limited capital.
• Income Expectations: The income of sole proprietorships can generally be lower than that of large companies. This may be especially true in the early stages of your business. Plan your income expectations realistically.
• E-commerce Knowledge: If your sole proprietorship is in e-commerce, it is important to stay informed about technological developments and marketing strategies in this field. Understanding the dynamics of e-commerce will help you increase your online sales.
• E-commerce Law and Integrations: If you work in e-commerce, you must know the relevant legal requirements and customer rights. In addition, integration with marketplaces, payment systems and logistics services is critical to your business's success.
• Continuous Learning and Updates: Because technology and market trends are constantly changing, it is important to follow developments in your field and keep educating yourself. This lets you gain a competitive advantage and grow your business sustainably.

Setting up a sole proprietorship is an exciting way to embark on a business venture. However, being prepared for the process is the key to building a successful business. By taking the points above into account, you can build your own business on solid foundations.

The process of setting up a sole proprietorship offers great opportunities for entrepreneurs in Turkey. However, before embarking on this journey, you need to consider many important issues, from setup costs and choosing a business address to e-commerce knowledge and tax and legal obligations. As you take the steps needed to set up a successful sole proprietorship, this guide has offered you valuable information.

Remember, preparing your business plan wisely, conducting market research and continuously investing in education and development are some of the keys to your sole proprietorship's long-term success. For sole proprietorships operating in e-commerce, following current e-commerce trends and using technological integrations effectively are of great importance. The steps you take on the way to becoming your own boss will lead you to business success and personal fulfillment.

Frequently Asked Questions (FAQ)

Is There a Minimum Capital Requirement for Setting Up a Sole Proprietorship?

There is no specific minimum capital requirement for setting up a sole proprietorship. However, it is recommended to determine the starting capital according to your business's needs.

What Tax Obligations Do Sole Proprietorship Owners Have?

Sole proprietorship owners have tax obligations such as income tax, KDV (value added tax), withholding tax returns (muhtasar) and Bağ-Kur (self-employed social security) premiums, depending on the income they earn.

Which Lines of Business Can Be Chosen When Setting Up a Sole Proprietorship?

Without any restriction, a sole proprietorship can be set up in various lines of business such as consulting, retail, e-commerce, handicrafts and professional services.

How Should Accounting Be Handled for Sole Proprietorship Owners?

Sole proprietorship owners should work with an accountant to carry out tasks such as income and expense tracking, invoicing and tax returns.

What Licences Do Sole Proprietorships Doing E-Commerce Need?

Sole proprietorships doing e-commerce must obtain the necessary permits and licences under the Law on the Regulation of Electronic Commerce, and must also have a secure payment infrastructure.

What Are the Biggest Challenges Encountered in Setting Up a Sole Proprietorship?

The challenges encountered in setting up a sole proprietorship include preparing a business plan and conducting market research, understanding legal requirements, finding capital and building a customer portfolio.

What Are the Business Development and Marketing Recommendations for Sole Proprietorships?

For business development and marketing, digital marketing strategies, use of social media, word-of-mouth marketing and local partnerships are recommended.

What Legal Responsibilities Might Be Encountered After Setting Up a Sole Proprietorship?

Sole proprietorship owners may be liable with their personal assets for debts arising from business activities. This is a fundamental legal responsibility of sole proprietorships.

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