Opening a business by retirees includes certain exceptions and conveniences. When retirees open a business or establish a sole proprietorship to fill their days or earn income, they follow different procedures than non-retirees.
Is It Possible to Work After Retirement?
Working after retirement is of course possible; retirees must submit the required notifications so their pensions are not reduced. Retirees need to notify their accountant or the Social Security Institution (SGK) about their employment status. Under SGK regulations, if a retiree returns to work as an employee in a workplace, their pension will not be reduced for insurance premiums or social security support contribution in certain cases. Accountants or responsible persons at the workplace must report the returning retiree as a worker subject to the social security support contribution. If the employer reports the retiree as a worker subject to all insurance branches, deductions may be taken from the retiree’s pension.
If an incorrect notification leads to a deduction from the retiree’s pension, the incorrect declaration must be corrected for the retiree to receive their pension again. The correction period for erroneous notifications is defined as 10 business days. If the correction is not made within 10 business days, the employer must submit a petition to the provincial social security directorate requesting the correction.
Do Retirees Pay Taxes if They Open a Business?
Opening a business generally means entering the Bağ-Kur (self-employment insurance) system. As is known, social security in Turkey is divided into three main branches: 4A, 4B and 4C. 4A covers private-sector employees, 4B covers self-employed individuals, and 4C covers civil servants working in public institutions. Except for exceptional cases, a retiree cannot work under 4C after retirement, so the remaining options are 4A or 4B. Since retirement is based on having paid premiums, a retiree who opens their own business is not generally required to pay 4B (Bağ-Kur) premiums in the usual way. Instead, they are subject to a social security support contribution.
These payments are collected to contribute to tax and social service support related to the retiree’s activities; a 10% deduction is applied to the pension. Thus, although retirees who open a business do not pay Bağ-Kur premiums in the standard sense, they still have contribution obligations. However, those receiving a survivor’s pension or death pension, the disabled pensioners, or those with incapacity reports due to an occupational accident are directly covered by Bağ-Kur when they open a business and must pay premiums.
What Deductions Apply When Retirees Open a Business?
There are specific deductions when a retiree opens a business. Deductions made under the Social Security Support Contribution are determined for retirees as follows:
- Retirees who are partners in a limited company incur a 10% deduction from their pension.
- Retirees who are founders or partners of a joint-stock company have a 10% deduction from their pension.
- Retirees serving as board members are subject to a 10% deduction from their pension.
- Retirees operating through a sole proprietorship face a 10% deduction from their pension.
For small-scale activities, establishing a sole proprietorship can be more advantageous for retirees. If the annual profit does not exceed a certain threshold, a sole proprietorship offers significant benefits. Nevertheless, state-determined taxes must still be paid. Accordingly, retirees who establish a sole proprietorship are normally subject to the same taxes as other sole proprietors, and if their workplace is rented, they must also pay withholding tax where applicable. The main distinction is that Bağ-Kur premiums are not paid in the standard way. Conditions can vary depending on the defined business activity.