In Turkey, profit from construction and repair work performed for a client under contract and spanning more than one calendar year is taxed once, in the year the work is completed. While the work continues, progress payments are subject to withholding tax, generally at 5%; the rate is 1% for rail systems, shipbuilding and nuclear power plant construction and repair. The tax withheld can only be credited in the return for the year of completion.
What is a multi-year construction contract?
Under Article 42 of the Income Tax Law, profit or loss on construction and repair work extending over more than one calendar year is determined definitively in the year the work is completed and is treated entirely as income of that year. Overburden removal in mining is also treated as construction work. The rule applies to companies through Article 6 of the Corporate Tax Law.
Two conditions must be met together: the work must be undertaken for another party under a contract, and its start and completion must fall in different calendar years. Calendar years matter, not duration. A three-month job starting in December and ending in February qualifies; a twelve-month job running from January to December does not.
When does the work start and end for tax purposes?
In practice, the start date is the date of the site handover report; where no site handover is required, it is the date work actually begins. Under Article 44 of the Income Tax Law, the completion date is the date the provisional acceptance report is approved by the client. If the works are put into use before provisional acceptance, the date of actual use is treated as completion.
If a contract planned to finish within one year runs into the following year because of delays, the work is treated as multi-year from the outset. Where no tax was withheld from progress payments made in the earlier year, the paying client, as the withholding agent, faces a shortfall exposure, and the contractor must correct its earlier-year filings.
What withholding rate applies to progress payments?
Withholding agents listed in Article 94 of the Income Tax Law (public bodies, companies, individuals keeping balance-sheet-basis books and others) withhold tax from progress payments to the contractor. The base is the payment excluding VAT; advance payments for the work are also subject to withholding.
| Type of work | Rate | Legal basis and effective date |
|---|---|---|
| Railway, tram, funicular, monorail, metro and urban rail construction and repair | 1% | Presidential Decree No. 9707 (Official Gazette 30.03.2025), payments from 1 April 2025 |
| Shipbuilding and ship repair | 1% | Presidential Decree No. 9707, from 1 April 2025 |
| Nuclear power plant construction and repair | 1% | Presidential Decree No. 11344 dated 19.05.2026, from 1 June 2026 |
| All other multi-year construction and repair work | 5% | Presidential Decree No. 3491, from 1 March 2021 (previously 3%) |
The same rates apply to resident individuals and companies and to foreign contractors with a permanent establishment in Turkey (CTL Art. 30/1-a). The client reports the tax withheld in its monthly withholding and social security return by the 26th of the following month. The contractor is not required to show the withholding separately on its invoice; what counts is that the deduction appears in the client’s withholding return.
How is profit calculated and the withholding credited?
Costs incurred and progress billings received during the work are not taken to the income statement. Under the Turkish uniform chart of accounts, costs accumulate in account 170 (multi-year construction and repair costs) and billings in account 350 (multi-year construction and repair progress billings). When the work is completed, both accounts are closed and profit or loss is recognised in a single step. This profit is not subject to advance tax.
The tax withheld is credited against the tax computed in the annual return for the year of completion; any amount that cannot be credited may be claimed as a cash refund or offset under the procedure in Corporate Tax General Communiqué No. 1. The example below shows how, on a low-margin contract, withholding can exceed the final tax.
| Year | Progress billing (excl. VAT, TRY) | 5% withholding (TRY) | Note |
|---|---|---|---|
| 2025 | 10,000,000 | 500,000 | Work started, nothing taken to income statement |
| 2026 | 12,000,000 | 600,000 | No advance tax |
| 2027 | 8,000,000 | 400,000 | Provisional acceptance approved, work completed |
| Total | 30,000,000 | 1,500,000 | Contract profit assumed at TRY 3,000,000 |
| 2027 return | CIT 25% | 750,000 | Credited against TRY 1,500,000 withheld |
| Result | 750,000 | Excess withholding eligible for refund claim |
Tax withheld in 2025 and refunded in 2028 is recovered at its nominal amount. In a high-inflation environment, this loss is a direct cost on long, low-margin contracts and should be factored into the work programme and billing schedule. As inflation adjustment of financial statements is suspended for the 2025, 2026 and 2027 periods under Law No. 7571, balances in accounts 170 and 350 also remain at historical cost in those years.
When does withholding exceed the final tax?
Withholding is calculated on revenue; corporate tax is calculated on profit. The break-even point is therefore a simple ratio: divide the withholding rate by the corporate tax rate to find the profit margin at which the two are equal. At 5% withholding and 25% corporate tax, that point is a 20% profit margin; on any contract with a margin below 20%, withholding exceeds the final tax and the difference becomes a refund claim. For 1% contracts, the threshold falls to 4%. Since a 20% margin is exceptional in construction contracting, most 5% contracts need a refund plan from the outset.
How is excess withholding recovered?
Withholding that cannot be credited in the completion-year return is refunded under the procedure in Income Tax General Communiqué No. 252. A refund by offset against other tax debts is made regardless of amount, without an audit report or guarantee. Cash refunds are tiered by amount:
| Cash refund amount (2026) | Documentation required |
|---|---|
| Up to TRY 426,000 | Refund application form and attachments; no audit report or guarantee |
| Up to TRY 4,266,000 | Full certification report by a sworn financial advisor engaged in time |
| Part above TRY 4,266,000 | Tax audit report |
The 2026 thresholds also apply to claims filed in 2026 for earlier years. For companies without an immediate cash need, offset against current liabilities such as social security premiums and VAT is usually the fastest route.
How is withholding calculated on foreign-currency billings?
The withholding base is the Turkish lira equivalent at the foreign-exchange buying rate on the date the billing is paid or credited to account. In the tax administration’s rulings, any additional payment arising from exchange-rate increases between approval and payment of the billing forms part of the contract consideration and is also subject to withholding. If the rate falls after payment, the tax withheld at the earlier rate is not adjusted; it is credited in the completion year.
Withholding is fixed in lira
The amount withheld is converted to lira on the date of deduction and credited at that nominal lira amount on completion. The billing is protected by the currency; the withholding receivable is not.
Interest and repo income stay outside
Interest and repo income earned by investing collected billings is not part of the contract profit; it enters the advance tax and corporate tax base in the period it arises.
Who credits withholding in a joint venture or an ordinary partnership?
| Joint venture (corporate taxpayer) | Ordinary partnership | |
|---|---|---|
| Corporate tax status | A taxpayer in its own right; at least one partner must be a company and the venture must be formed by written agreement for a single undertaking | Not a corporate taxpayer; registered only for VAT and withholding |
| Taxation of profit | Within the venture on completion; after-tax profit is distributed to partners | Profit or loss passes to partners pro rata and is taxed in their own returns |
| Crediting and refund of withholding | In the venture’s own return | Partners credit it pro rata and file refund claims themselves |
| Use of losses | Cannot be passed to partners | Included in partners’ income pro rata |
The choice is not only a tax question: in a joint venture a loss stays inside the venture, while in an ordinary partnership it can be offset against the partners’ other income. On high-risk projects, that difference can be decisive.
Is build-for-share construction treated as multi-year work?
In a build-for-share arrangement, the contractor delivers units to the landowner in exchange for a share of the land rather than a construction price. The VAT Law (Art. 2) treats this as two separate supplies, an exchange. In the tax administration’s settled view, the contractor’s activity is own-account construction and sale, so it is not multi-year contract work under Income Tax Law Art. 42; profit is determined on a periodic basis in the period the units are delivered.
Subcontracts that the build-for-share contractor signs and that run past a calendar year-end are, for the subcontractor, multi-year contract work. The contractor must withhold tax from progress payments to those subcontractors. The contractor’s own profit is not multi-year, but its withholding obligations towards subcontractors follow the multi-year regime.
How do VAT and stamp duty apply?
Arises on each progress billing
Although profit is determined on completion, VAT becomes due separately for each progress billing when the invoice is issued or payment received. VAT is not deferred to completion.
4/10 on public construction
Construction work for designated purchasers such as public bodies, together with related engineering, architecture and design services, is subject to 4/10 VAT withholding under the VAT General Implementation Communiqué.
0.948% of the contract value
The construction contract is subject to stamp duty on signing. For 2026, the maximum per document is TRY 29,115,961.10.
Impact shows in the completion year
Because contract profit is not declared in interim years, it enters the 10% domestic minimum corporate tax calculation under CTL Art. 32/C only in the year of completion.
What changed in social security minimum labour reviews in 2026?
Alongside tax, the Social Security Institution’s minimum labour review is a key cost item in construction. An amendment to the Social Insurance Procedures Regulation, published in Official Gazette No. 33255 on 16 May 2026 and effective the same day, introduced rules that directly affect multi-year work.
| Topic | New rule |
|---|---|
| Cost of private construction completed over several years | The arithmetic average of the official unit costs for all years from the start year to the completion year, excluding the completion year (previously, the unit cost of the year before completion). Where several unit costs were published in a year, the last one is used. |
| Private construction completed in the year it started | The unit cost in force on the completion date. |
| Completion date for public tender work | The date in the provisional acceptance report if it records no defects or omissions; otherwise, the date they were remedied. For work not subject to acceptance, the date notified by the contracting authority. |
| Total contract amount not notified | At the employer’s request, the review may be carried out on progress payments made, but no clearance certificate is issued until the total amount is notified and the review completed on the remainder. |
| Unfinished or terminated tender work | The review is based on progress payments made; if none were made, no review is carried out. |
| Private buildings under several building permits | A single registration number may be used if the plots are adjacent or close, the request is made within six months of the start of the first work, and the workforce overlaps. |
| Private sites with no insured workers for two years | An ex officio review is carried out as of the date employment ceased, even without closure, abandonment or liquidation. |
| Unregistered work or work with no labour declared | No reduction is applied to the minimum labour rate; premiums are assessed to the completion month with late-payment penalties and interest. |
For tax, completion is the approval date of the provisional acceptance report. Social security uses the date defects were remedied if the report records any. The same contract can be treated as completed on different dates by the two authorities, and filing and clearance timelines should be planned accordingly.
How are foreign contractors and overseas projects taxed?
For a foreign company undertaking construction in Turkey, the first question is whether a permanent establishment arises. Double tax treaties usually set a threshold of 6, 9 or 12 months for a building site to constitute a permanent establishment; the period should be checked in Article 5 of the relevant treaty. If a permanent establishment exists, the foreign company files a corporate tax return in Turkey as a non-resident taxpayer and its progress payments are subject to withholding at the same rates under CTL Art. 30/1-a. If not, Turkey’s taxing right is limited by the treaty.
Profits earned by Turkish companies from construction, repair, installation and technical services abroad and transferred to their general profit and loss accounts in Turkey are exempt from corporate tax under CTL Art. 5/1-h.
What are the common mistakes?
- Treating own-account development as multi-year work. Building to sell, or a landowner’s own project, is not contract work; profit is determined each period.
- Missing earlier payments when work overruns. Once the work passes year-end, prior-year progress payments also become subject to withholding.
- Setting the wrong provisional acceptance date. The completion date determines the year profit is declared and when withholding can be credited.
- Deferring VAT to completion. VAT arises on each billing; the multi-year regime concerns only income and corporate tax.
- Withholding from payments after provisional acceptance. Billings paid after provisional acceptance is approved are income of the completion year; no multi-year withholding applies and they enter the advance tax return.
- Overlooking rate changes. The 1% rate for rail, shipbuilding and nuclear work applies to payments made after its effective date.
Frequently asked questions
If one contract covers several works, is each assessed separately?
Is tax withheld from payments to subcontractors?
What happens to withholding if the contract ends in a loss?
Must private-sector clients also withhold tax?
Why does withholding turn into a refund claim on low-margin contracts?
Is a build-for-share contractor subject to the multi-year regime?
For withholding tracking on multi-year construction projects, the completion-year return and refunds of excess withholding, contact Ozbek CPA.
