As the end of the year approaches, tax payments come into focus. The taxation rules for professional income have been revised. Under the new regulation, professional income exceeding 600,000 Turkish lira in 2020 must be declared and taxed at up to 40 percent.
Changes to Taxation of Professional Income
The tax treatment of professional income, including royalties, has been updated. Previously, professional income was subject to a flat final tax rate of 17 percent regardless of the amount. Under the change, however, anyone whose professional income exceeds 600,000 lira in 2020 must file a tax return and may be subject to taxation up to 40 percent. Until now, the income tax schedule did not apply to professional income and only a 17 percent final tax was collected. As a result, groups such as newspaper columnists and television commentators paid 17 percent on their royalties and considered that the final tax liability.
Amendments were made to the provision in the Income Tax Law that governs exemptions for professional income. For royalties and other professional income earned in 2020, if the total amount exceeds the threshold corresponding to the fourth bracket of the income tax schedule, a tax return must be filed covering the entire amount. Practically, those whose 2020 professional income exceeded 600,000 lira are required to submit a return. The tax is recalculated based on rates that can reach up to 40 percent. From the recalculated liability, the previously paid 17 percent final tax is credited and only the remaining amount must be paid.
Who Is Covered by the Regulation
The draft income tax communiqué published by the Ministry of Treasury and Finance details the scope of the change. The exemption for professional income can be used by authors, translators, sculptors, calligraphers, painters, computer programmers, inventors and their legal heirs. The exemption applies to works such as poems, short stories, novels, scientific research, software, cartoons, photographs, films, and scripts, as well as patents and certificates of invention. The exemption applies to revenue generated from publishing or broadcasting these works in newspapers, magazines, computers, internet platforms, television and radio, or from the sale or rental of books, CDs, diskettes, paintings, sculptures, sheet music, and certificates of invention.
If income from these professional activities does not exceed 200,000 lira in 2020, it is subject to the 17 percent tax and no tax return is required. In that case, these earnings are not included in a tax return even if the taxpayer files one for other income. It does not matter whether the professional income is recurring or one-time; if a single payment exceeds 600,000 lira, a return must still be filed.
Higher Tax When Income Exceeds 600,000 Lira
If professional income in 2020 exceeds 600,000 lira, it no longer falls under the exemption. Whether the threshold has been crossed is determined at year-end. If the threshold is exceeded, the taxpayer must file a return in March of the following year for the full amount of income received. When filing an annual return, all expenses incurred to earn the professional income must be deducted from the income. Proper documentation of expenses is required to claim these deductions. In addition to expenses, personal insurance premiums, education and healthcare expenditures, sponsorship costs, donations and similar contributions may also be deducted when a return is filed. After deducting allowable items, the remaining income is used to calculate the final tax liability. The 17 percent previously paid will be credited against the recalculated tax, and only the balance must be paid.
Taxpayers affected by these changes should review their 2020 professional earnings and supporting documentation to determine whether a tax return is required and to calculate any additional tax liability after credits and deductions.