Short answer: In our calculation with 2026 tax brackets, a sole proprietorship usually pays less tax if annual profit is below about 1.2 million TL. Above that, if you leave a large part of the profit in the business, a limited company’s 25% corporate tax is an advantage. If you withdraw all profit, the dividend withholding raises the limited company’s total burden to 36.25%. Liability, partnership and growth plans also affect the decision.
Almost everyone who decides to start a business faces the same question: sole proprietorship or limited company? Most answers online are either generic (“a limited company is more prestigious”) or based on outdated figures. The right answer depends on your expected profit, how you will use it and your appetite for risk.
In this article we compare the two types with real figures under the 2026 tax schedule, set out the non-tax differences in a table and give you a checklist to make the decision easier.
Key differences at a glance
| Sole proprietorship | Limited company | |
|---|---|---|
| Legal personality | None; the business and owner are the same person | Yes; the company is separate from its shareholders |
| Tax on profit | Income tax, progressive 15%–40% | Corporate tax, flat 25% |
| Profit distribution | No separate tax | 15% dividend withholding |
| Liability for debts | Unlimited, including personal assets | Generally limited to company assets |
| Minimum capital | None | 50,000 TL |
| Type of books | Usually a business ledger | Balance-sheet basis |
| 2026 minimum monthly accounting fee (Ankara) | From 3,593 TL | From 7,985 TL |
| Minimum formation service fee | 2,240 TL | 9,090 TL |
| Adding partners and transfers | Difficult; needs a new structure | Possible via share transfer |
| Bağ-Kur | Business owner | Shareholders |
Tax comparison with 2026 figures
A sole proprietorship’s profit counts as the owner’s income and is taxed under the income tax schedule. In 2026 the schedule for business income is: 15% up to 190,000 TL, 20% up to 400,000 TL, 27% up to 1,000,000 TL, 35% up to 5,300,000 TL and 40% above that. A limited company’s profit is subject to 25% corporate tax. When profit is distributed to shareholders, a further 15% withholding is deducted from the amount distributed.
| Annual profit | Sole proprietorship income tax | Limited: profit kept in company | Limited: all profit distributed |
|---|---|---|---|
| 500,000 TL | 97,500 TL (19.5%) | 125,000 TL (25%) | 181,250 TL (36.25%) |
| 1,000,000 TL | 232,500 TL (23.3%) | 250,000 TL (25%) | 362,500 TL (36.25%) |
| 2,000,000 TL | 582,500 TL (29.1%) | 500,000 TL (25%) | 725,000 TL (36.25%) |
| 5,000,000 TL | 1,632,500 TL (32.7%) | 1,250,000 TL (25%) | 1,812,500 TL (36.25%) |
- Sole proprietorship
- Limited company
For the limited company, profit is assumed to stay in the company. If profit is distributed, the 15% withholding raises the total burden to 36.25%. Calculated under the 2026 income tax schedule; Bağ-Kur premiums, exemptions and other income are not taken into account.
Two conclusions follow. First, if profit stays in the company, the tax burden of the two types breaks even at about 1.175 million TL of profit; above that the limited company has the advantage. Second, if you withdraw all profit for personal spending, the limited company’s total burden is 36.25% and the sole proprietorship remains better up to very high profit levels. Since an annual return may also be needed once dividends exceed a certain amount, it is important to run this calculation with your own figures. You can try different amounts with our income tax calculator.
Two example scenarios
Scenario 1 — A freelance graphic designer: Ayşe works from home in Çankaya and expects 700,000 TL of annual profit. She will use almost all of it for living costs. As a sole proprietor her income tax is about 151,500 TL. With a limited company, corporate tax would be 175,000 TL, and with 78,750 TL of withholding when she takes the profit out, the total burden reaches 253,750 TL. A sole proprietorship is clearly better for Ayşe; and if she is under 29, the young entrepreneur exemption means much less tax in the first three years.
Scenario 2 — A software start-up with two partners: Mert and Can are setting up a software company in Ankara. They expect 3 million TL of profit from the second year and will reinvest most of it in new developers and the product. A two-partner sole proprietorship structure is possible, but each partner pays progressive tax on their share of profit and changes in the partnership become difficult. In a limited company, profit is taxed at 25%, retained profit goes into growth and bringing in investors later is possible through share transfers. A limited company is the better choice for this team.
Differences beyond tax
Liability
In a sole proprietorship, the owner’s personal assets are also liable for the business’s debts. In a limited company, the company is generally liable with its own assets. But there is an important exception: if public debts such as tax and SGK cannot be collected from the company, shareholders can be held liable in proportion to their shares, and managers as legal representatives. So a limited company is not a complete shield against public debts.
Partnership and growth
If you plan to bring in investors, add partners or sell the business later, a limited company is much more flexible; the ownership structure can be changed through share transfers. In a sole proprietorship, adding a partner means setting up a new company structure.
Reputation and tenders
Some corporate clients and tenders prefer or require suppliers to be capital companies. If your target clients are like this, a limited company may be the better commercial choice even if the tax calculation favours a sole proprietorship.
Accounting and administrative workload
A limited company keeps balance-sheet books, holds general meetings and keeps additional books such as the share register and resolution book. Accounting therefore costs about twice as much as for a sole proprietorship. You can find 2026 fees in detail in accountant fees in Ankara.
Which suits you? A short checklist
A sole proprietorship is usually better if:
- You expect annual profit to stay below 1 million TL in the first years,
- You work alone and do not plan to take on partners,
- You will withdraw most of the profit for personal needs,
- You are under 29 and can use the young entrepreneur exemption.
A limited company is usually better if:
- You expect annual profit above 1.2 million TL and plan to reinvest a large part of it,
- You are setting up with partners or plan to bring in investors,
- Your activity carries high commercial risk,
- Your clients prefer to work with capital companies.
We showed the advantage the young entrepreneur exemption gives a sole proprietorship with a worked example in our courier tax exemption article. For the formation steps, see our guide to company formation in Ankara.
Frequently asked questions
Which pays less tax, a sole proprietorship or a limited company?
With 2026 figures, a sole proprietorship pays less tax if annual profit is below about 1.2 million TL. At higher profits, the limited company’s 25% corporate tax is better if profit is kept in the company.
Can I convert my sole proprietorship into a limited company later?
Yes. A sole proprietorship can be transferred with its assets and liabilities to a newly formed limited company. Under certain conditions the transfer can be tax-free; plan the timing with your accountant.
Does a limited company shareholder pay Bağ-Kur?
Yes. Limited company shareholders are insured under Bağ-Kur. If a shareholder is also SGK-insured in another job, which insurance applies is assessed separately.
Can the manager of a limited company draw a salary?
Yes. Salary paid to the manager is an expense for the company and taxed as employment income for the manager. Paying a salary instead of withdrawing profit can reduce the total tax burden in some cases.
Can I invoice corporate clients as a sole proprietorship?
Yes. A sole proprietorship issues invoices and is a VAT taxpayer. Some large firms and tenders may require a capital company; find out in advance whether your target clients expect this.
Is it hard to close a limited company?
It takes longer than a sole proprietorship. Because of the liquidation process, calls to creditors and waiting periods, it usually takes several months.
Summary
Choosing between a sole proprietorship and a limited company is not just a comparison of tax rates. The right answer becomes clear when expected profit, how profit will be used, partnership plans and risk are considered together. With 2026 figures, the threshold is about 1.2 million TL if profit stays in the company.
At our office in Kızılay we calculate both scenarios side by side with your own figures and give them to you in writing. Once you decide, we handle the formation end to end with our company formation service. Get in touch to arrange a meeting.
All rates and brackets in this comparison are for 2026. Schedules are updated every year, so we recommend recalculating with current figures when you make your decision.
