Will VAT Withholding Be Applied in State Construction Tenders?
In construction works carried out for specific government institutions, VAT withholding is applied. For other VAT taxpayers, there is a threshold of 5 million TL, including VAT.
VAT General Application Communiqué
2.1.3.2.1. Construction Works and Related Engineering-Architecture and Feasibility-Project Services
2.1.3.2.1.1. Buyers Subject to Withholding and Withholding Rate
The following are subject to 4/10 VAT withholding:
- Construction works performed for those listed in section (I/C-2.1.3.1/b),
- Construction works, including engineering-architecture and feasibility-project services, with a total cost (including VAT) of 5 million TL or more, performed for those listed in section (I/C-2.1.3.1/a).
If the project cost exceeds 5 million TL due to project expansion, contract updates, or similar reasons, withholding will be applied from the date the excess occurs.
2.1.3.2.1.2. Scope
The following services fall within this scope:
- All types of construction works related to buildings, roads, railways, highways, airports, docks, harbors, shipyards, bridges, tunnels, metros, viaducts, sports facilities, infrastructure, pipelines, communication and power transmission lines, dams, power plants, refineries, irrigation systems, land improvement, flood control, and excavation.
- Services related to these structures, such as installations, manufacturing, procurement, transportation, heating-cooling systems, sound, video, lighting systems, maintenance, decoration, restoration, landscaping, demolition, strengthening, assembly, and disassembly.
- Engineering, architecture, feasibility, planning, project, mapping, cadastral, zoning, and similar services performed alongside construction works.
If part of the construction work is subcontracted, each contractor will apply withholding on the services provided to them. Subcontracting without a written contract does not exempt the services from withholding.
If the main contractor and subcontractors are not within the defined scope of section (I/C-2.1.3.1/b), the services are exempt from withholding. However, if the first contractor is within the scope and subcontracts the work, withholding will be applied.
In cases where VAT-exempt work is transferred to subcontractors, and the subcontractor’s work is subject to VAT, withholding will apply based on the calculated VAT.
In summary, all construction works, including related services such as engineering and project management, are subject to VAT withholding when performed for certain state institutions or when exceeding 5 million TL. If the project cost increases above this threshold after updates or expansions, withholding will be applied from that point forward.
Source: Istanbul Chamber of Certified Public Accountants
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