Withholding tax on progress payments for multi-year construction works increased

In brief

With the Presidential Decision No. 3491, published in the Official Gazette on 4 February 2021, the withholding tax rate applicable to progress payments for multi-year construction works is increased to 5% as of 1 March 2021.

In detail

Under the Income Tax Law (article 94) and Corporate Income Tax Law (article 15 and article 30), progress payments to contractors, both domestic and foreign, within the scope of construction work spanning more than one calendar year is subject to withholding tax.

The Presidential Decision No.3491 published in the Official Gazette on 4 February 2021 increases the withholding tax rate to 5% from current 3%.

The decision entered into force on the date of publication and it will be effective to the payments made as of the beginning of the month following its application. Accordingly, the old rate (3%) will continue to apply to the payments made in February 2021. Starting from 1 March 2021 the progress payments will be subject to tax at the new rate (5%).