Sole proprietor and company tax side by side for the same profit: a 1,200,000 TRY example and selection criteria.
The most common question when starting a business is: sole proprietorship or limited company? The right answer depends on expected profit, number of owners, customer type and growth plans. In this article we compare them for tax burden and liability.
Liability difference
In a sole proprietorship the business and the person are the same; you are liable for debts with all your personal assets. In a limited company shareholders are in principle liable up to the capital they committed. Unless you give a guarantee or personal collateral, company debts do not reach a shareholder's personal assets.
Tax burden
Sole proprietorship profits are subject to income tax with progressive brackets: under the 2026 tariff, 15% on the first 190,000 TRY, 20% up to 400,000 TRY, 27% up to 1,500,000 TRY, 35% up to 5,300,000 TRY and 40% above. Limited and joint stock companies pay corporate tax at a single rate (general rate 25%).
Example: a business earning 1,200,000 TRY pre-tax profit pays about 286,500 TRY income tax as a sole proprietor (effective rate 23.9%). The same profit incurs 300,000 TRY corporate tax in a company (25%); that is the total burden if profit stays in the company. But if shareholders withdraw the profit as a dividend, 10% dividend withholding (90,000 TRY) arises on the remaining 900,000 TRY and the total burden rises to 32.5%.
When does each make sense?
- If profit is low (below about 500,000 TRY) and you work alone, a sole proprietorship is generally cheaper
- If profit is high and mostly stays in the company (investment, stock, machinery), a company gives a tax advantage
- If you have a partner, investor or a corporate customer/tender target, a limited company is needed
- In exports, e-commerce and public tenders a company identity builds trust
Formation and running costs
A sole proprietorship opens in one or two days with no official charges. A limited company needs articles, notary, trade registry and chamber registration, and the accounting load (journal, balance sheet, corporate tax) is heavier. The annual fixed cost of a limited company is therefore generally two to three times that of a sole proprietorship.
Conclusion
There is no single right answer; decide with numbers. In our free 45-minute formation planning meeting we calculate the tax burden of both scenarios side by side using your expected income and expense table.