Date: 19.09.2024
Number: E-48816587-120-
Subject: Start and Completion Dates for Construction and Repair Work Spanning Multiple Years
Upon examining the special request form referenced, it is understood that you have undertaken the construction of a reinforced concrete prefabricated building within the scope of the “… Organized Industrial Zone … Textile Factory Project” as a contractor. The contract related to this work was signed on 23/10/2023, and a site delivery report was prepared following the contract agreement. You have requested opinions on what the start date of the mentioned work will be, whether it will be evaluated within the scope of multi-year projects, and whether any deductions will be made from the progress payments.
According to the first paragraph of Article 42 of the Income Tax Law No. 193, in construction (excavation work is also considered construction work) and repair work that spans multiple calendar years, the profit or loss will be definitively determined in the year the work is completed, and the total amount will be reported in that year’s income declaration. Additionally, Article 44 of the same Law stipulates that in construction and repair works subject to provisional and final acceptance procedures, the date when the report indicating that the provisional acceptance has been made is approved by the authority will be considered the completion date. In other cases, the date when the work is actually completed or actually abandoned will be accepted as the completion date.
For a work to be evaluated under Article 42 of the Income Tax Law, the following conditions must be met together:
- The activity must be related to construction and repair work,
- The construction and repair work must span multiple calendar years,
- The construction and repair work must be performed under a contract.
Moreover, for jobs falling under the mentioned article, the start date of the work will be accepted as follows: if the contract stipulates a site delivery for the work to be performed, the date of delivery will be considered; if the contract does not specify a delivery date, the start date mentioned in the contract will be accepted; and if none of these are specified in the contract, the date of signing the contract will be accepted.
On the other hand, according to the first paragraph of Article 15 of the Corporate Tax Law, institutions engaged in construction and repair works that are widespread across multiple calendar years, according to the principles specified in the Income Tax Law, will have 5% withholding tax deducted from the progress payments made related to these works (applicable to payments made from 01.03.2021 onwards, as per the Presidential Decree No. 3491 published in the Official Gazette dated 04.02.2021, No. 31385).
Furthermore, from your special request form and its annexes, it is understood that a contract was signed with … San. ve Tic. A.Ş. on 23/10/2023. The subject of the work is specified in General Conditions Article 2.1, stating that the work will be carried out by the Contractor as required by the employer’s project and the contract, which necessitates the expertise of the Contractor due to technological reasons. Article 4.1 states that the duration of the work will begin with the effective date (after project approval and advance payment for the manufacturing of prefabricated elements), and Article 8.1 states that a site delivery report will be prepared after the contract is signed. In Special Conditions Article 2.1, it is stated that the subject of the work includes the project, production, and site assembly of reinforced concrete prefabricated structures within the scope of “… Organized Industrial Zone … Textile Factory Project.” Article 4.1 specifies that the duration of the contract is 5 months, and it is understood from the “Site Delivery Report” signed with the mentioned company that the delivery was made on 01/02/2024.
In this context, since a site delivery is foreseen in the contract, the date on which the site delivery was actually made will be taken as the basis for evaluating whether the work is multi-year. The determination of whether this work is multi-year can only be made by definitively establishing the date of site delivery.
Based on these provisions and explanations, since the site delivery report will be prepared in accordance with the contract signed on 23/10/2023, the work will start on 01/02/2024, when the workplace was actually delivered, and is anticipated to be completed within 5 months according to the contract. Therefore, this construction work will not be evaluated within the scope of multi-year construction and repair work as per Article 42 of the Income Tax Law, and no corporate tax deductions will be made from the progress payments made.
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Source: Revenue Administration
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