Restoration works carried out within the scope of Law No. 2863 that span more than one calendar year are considered multi-year construction and repair works. Accordingly, a 5% corporate income tax withholding must be applied to the progress payments made within the scope of these works. Tax Status of Progress Payments in Restoration Works Under Law No. 2863 Introduction Restoration projects aimed at protecting cultural assets are among the activities that require special evaluation in practice, both in terms of the Law No. 2863 on the Protection of Cultural and Natural Assets and the Income and Corporate Tax legislation. A significant point of hesitation for taxpayers is whether tax withholding should be applied to the progress payments made to contractors. In the advance tax ruling issued by the Ankara Provincial Treasury, it has been clearly addressed whether a restoration project qualifies as a multi-year construction and repair work and whether corporate tax withholding is required on the resulting payments. Fact Pattern of the Case Study In the specific case addressed in the ruling: In accordance with the decisions of the Regional Board for the Protection of Cultural Assets, Regarding a structure that is a “registered immovable cultural asset” requiring protection under Law No. 2863, Tendered by the Directorate of Surveying and Monuments, The project titled “… Restoration Work (Phase 2)” was undertaken by ABC Restoration Construction Inc. According to the contract signed on September 2, 2024: Work commences upon site delivery, The total duration is 450 days, The work is anticipated to span more than one calendar year. In this context, an official opinion was requested regarding the obligation to withhold tax on progress payments throughout the duration of the project. The Legal Framework of Multi-Year Construction and Repair Works According to Article 42 of the Income Tax Law No. 193, for a project to be considered a multi-year construction and repair work, the following conditions must be met simultaneously: The activity must be a construction or repair work, It must span more than one calendar year, It must be carried out based on a commitment/contract (taahhüt). The restoration work in question was evaluated within this scope due to its nature as a repair/restoration activity and its duration exceeding a single calendar year. Classification of Restoration as Construction Work Under the Public Procurement Law No. 4734, restoration works are explicitly defined under the scope of “works” (construction). Consequently: Restoration of historical structures, Retrofitting and repair works, Construction activities for conservation purposes, are accepted as construction and repair works in a general sense. Therefore, from a tax legislation perspective, these activities carry the characteristics of multi-year construction. Scope of Tax Exemptions in Law No. 2863 Article 21 of Law No. 2863 provides: Certain exemptions from taxes, duties, and fees regarding immovable cultural assets, Exemptions for tools and materials to be used in restoration and repair. However, as emphasized in the ruling, these exemptions do not cover: Progress payments made to the contractor performing the restoration, Income tax or corporate tax withholding. There is no separate exemption or immunity provision for these payments in either the Income Tax Law or the Corporate Tax Law. Tax Withholding on Progress Payments Pursuant to Article 15 of the Corporate Tax Law No. 5520: It is mandatory to apply corporate tax withholding to progress payments made to contractors within the scope of multi-year construction and repair works. Within the framework of the rates determined by the Presidential Decree, a 5% tax withholding rate is applied to construction and repair works. Final Evaluation of the Tax Ruling The administration concluded that: Since the restoration project spans more than one calendar year, it is a multi-year construction and repair work under Article 42 of the Income Tax Law. Therefore, a 5% corporate tax withholding must be deducted from the progress payments made for the said project. Q&A Table: Restoration and Tax Withholding Question Answer Is restoration under Law 2863 multi-year? Yes, if it spans more than one calendar year. Is restoration considered a construction work? Yes, it falls under the scope of “works/construction.” Are progress payments subject to withholding? Yes, they are subject to corporate tax withholding. What is the withholding rate? The rate is applied at 5%. Does Law 2863 provide a withholding exemption? No, there is no exemption regarding withholding tax. What duration makes a project multi-year? Simply spanning into the next calendar year is sufficient. Are there any tax law exemptions for these payments? No, there are no specific exemptions in tax legislation. Does a public tender status change the result? No, the withholding obligation remains the same. Is every payment to the contractor subject to tax? Yes, all payments in the nature of “progress payments” are. Who is this ruling binding for? It is binding for the applicant and serves as a guide for others.   Legal Notice: The information in this article is intended for information purposes only. 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