Ministry of Finance and Treasury ("Ministry") published a communiqué[1] ("Communiqué") amending Article 8 of Communiqué No: 2008/32-34, which regulates matters left to the Ministry's discretion by Decree No: 32 on Protection of the Value of Turkish Currency[2] ("Decree"). Communiqué is induced by Presidential Decree No: 85 of 12 September 2018 ("Presidential Decree"), which amended the Decree inserting Article 4(g) ("Article"). The Article prohibited foreign currency denomination or foreign currency indexing of contract prices or other payment obligations for certain categories of contracts ("Prohibited Class") executed between parties resident in Turkey[3], with exception criteria ("Exceptions") to be specified by the Ministry. A further provisional article ("Provisional Article") in relation to existing agreements which fall within the scope of the Prohibited Class ("Existing Agreements") obligated the redetermination of their prices in Turkish Currency within 30 days following entry into force of the Article on 13 September 2018 ("Redetermination") with exceptions to be determined by the Ministry.

With regard to application of the Article, the Communiqué extended the definition of foreign currency to include precious metals or commodities ("Foreign Currency") and the definition of those considered resident in Turkey ("Resident") to include branches, representative offices, offices, liaison offices of residents or companies in which residents hold above 50% of shares or directly or indirectly own or funds operated or managed by residents. Further, any commercial paper issued in accordance with agreements in Prohibited Class, may not bear prices determined in or indexed to Foreign Currency.

In the Communiqué, the Ministry specified Exceptions from which Existing Agreements also benefit. Agreements which fall within the Prohibited Class as specified in the Decree and related Exceptions are as follows:

  1. sale and purchase agreements related to movable and immovable properties except all kinds of movable property other than vehicles and industrial machinery
  2. lease and leasing agreements related to movable and immovable properties (including vehicle rental and financial leasing) except:

    1. all kinds of movable property other than vehicles and industrial machinery (Existing Agreements related to rental of vehicles or industrial machinery are excepted from Redetermination)
    2. financial leasing of ships[4]
    3. financial leasing agreements within scope of Articles 17 and 17(a) of the Decree
  3. employment agreements except:

    1. employment outside Turkey
    2. employment of persons not bearing bond of citizenship to Turkey
  4. service agreements (including consultancy, brokerage and transportation agreements) except:

    1. services where parties bear no bonds of citizenship to Turkey
    2. services related to export, transit trade, deemed exports or executed within the scope of currency-yielding services and activities[5]
    3. services to be performed by Residents, outside Turkey
    4. electronic communications services originating in Turkey and terminated abroad (or vice versa)
  5. work agreements except construction, repair and maintenance of ships5

Further exceptions are:

  1. Agreements executed with public institutions or organizations or the Turkish Armed Forces Foundation, except those related to sale or lease of non-movable property
  2. Except those for sale or lease of non-movable properties or employment, agreements executed by contractors with third parties for the fulfillment of foreign-currency denominated or foreign-currency indexed tenders, agreements and international treaties executed with public institutions or organizations.
  3. Transactions entered into by the Ministry within the scope of Law No: 4749 on Regulating Public Finance and Debt Management, to which banks are party
  4. In the field of information technologies, sales agreements for software developed abroad or licensing or servicing agreements for hardware or software
  5. Issuance, sale and purchase of capital markets instruments within the scope of Law No: 6362 on Capital Markets and related legislation; determination of obligations related to such transactions.
  6. Employment or service agreements executed by branches, representative offices, offices, liaison offices of non-residents or companies in which non-residents directly or indirectly hold more than 50% share or by companies located in free trade zone pertaining to their activities in free trade zones
  7. Except those related to sale or lease of non-movable property or employment, agreements executed by commercial airline companies operating passenger, freight or mail transport services, by companies providing maintenance services to aircraft, aircraft engines or parts and equipment, by public or private legal entities who have obtained licenses or been authorized to provide ground services in airports pursuant to applicable legislation for Civil Aviation and by businesses or companies established by said entities or in which said entities directly or indirectly hold above 50% of shares.

If parties fail to agree on prices for Existing Agreements subject to Redetermination, applicable exchange rate will be the current sales rate quoted by Central Bank of Turkey on 2 January 2018, adjusted according to the change in the consumer price index (TÜFE) determined monthly by the Turkish Statistical Institute ("Redetermination by Default"). If the agreement is in relation to lease of private residences or roofed workplaces, Redetermination by Default applies for two years following the entry into force of the Article. If the parties fail to reach an agreement by the start of either new lease period during those two years, rent will be adjusted according to TÜFE, based on rent for the previous lease period. Redetermination by Default does not apply to payments already made or are past due in relation to Existing Agreements.

Failure to comply with the provisions of the Decree, Presidential Decree or Communiqué is a violation of Law No: 1567 on Protection of the Value of Turkish Currency and may result in the nullity of the agreements and imposition of an administrative fine.

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[1] numbered 2018/32-51 and published in the Official Gazette dated 6 October 2018

[2] published in the Official Gazette dated 11 August 1989

[3] "Real persons and legal entities who have a legal residence in Turkey, including those who are employed, self-employed or owners of independent business abroad." (Decree No: 32, Article 2)

[4] eligible ships are defined in Law No: 4490 on Turkish International Vessel Registry and Amendment of Decree Law No: 491 dated 16 December 1999

[5] defined in Additional Provision (2) of Law No: 488 and Additional Provision (1) of Law No: 492

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.