Turkey: Current Situation Within The Scope Of The Communique Regarding The Decree No.32

The Communique (2018-32/51) Making Amendments on the Communique (No 2008/-32/34) related to the Decree Law No.32 regarding the Protection of The Value of Turkish Currency ("the Communique") was published in the Official Gazette on 06.10.2018 and our determinations are presented below.

The types of agreements which cannot be executed in foreign currency or indexed to foreign currency and the exceptions are indicated in the Communique.

When the relevant Decree on the amendment of Decree Law No.32 was adopted, indexing the agreements to commodities of which their value is indexed to foreign currency in international markets seemed possible since there was no regulation on this issue. However, it is regulated in the Communique that agreements based on such commodities are deemed as indexed to foreign currency and should be considered within the scope of such prohibition.

As "domiciled in Turkey" means physically present in Turkey, it is regulated that even they are located abroad, liaison offices, branch offices, agencies, offices, funds of the Turkish companies' and also the companies established abroad of which the Turkish companies owns 50% of its capital are subject to such prohibition of making transactions in foreign currency. For this reason, agreements to be executed in between such companies, liaison offices, branch offices and with Turkish companies, fall into the scope of the Communique and so are subject to such prohibition.

Without prejudice to the provisions of Decree No. 32 on the Protection of the Value of Turkish Currency, within the scope of the Capital Market Law No. 6362 and the regulations made pursuant to such Law, it is possible to create, export, purchase and sale capital market instruments (including the foreign capital market instruments, depositary receipts and shares of foreign investment funds) in foreign currency and to agree on any obligation related to those transactions in foreign currency as well.

The agreement which was entered into before the effective date of the provisional Article 8 of the Decree Law No. 32 are exempt from the prohibition if such agreement are the type of agreements stated in the Communique as exempt from the prohibition. This being the case, it is not necessary to fix these agreements in Turkish currency.

Sales and lease agreements related to the movables except for vehicles and heavy machinery can be executed in foreign currency and be indexed to foreign currency. However, the agreements related to vehicles and heavy machinery which have been concluded before 13.09.2018, are also exempted and do not need to be fixed in Turkish currency.

A solution has been provided for selection of the exchange rate for the price of the agreement between parties. In this context, parties may freely determine the agreement price in Turkish Liras. If the parties are not able to reach a mutual agreement when converting the contract price; the indicative exchange rates dated 2/1/2018 of the Central Bank shall be taken into consideration in order for fixing the agreement prices in Turkish Liras. The converted amount must then be adjusted in accordance with consumer price index ("CPI") declared by Turkish Statistics Institute until the date which the conversion is made.

A new rule has been introduced which was not included in the draft version of the Communique regarding real estate leasing agreements executed before 13.09.2018 in which the rental prices were agreed to be paid in foreign currency or indexed to foreign currency, shall be fixed in Turkish Liras for the period of two years. However, if the parties were not able to reach a mutual agreement on a fixed price in Turkish currency, the rental price will be calculated by adding up monthly exchange rates of Consumer Price Index (CPI) by the Turkish Statistical Institute to the indicative exchange rates dated 2/1/2018 of the Central Bank to be effective for the year beginning from the end of the rental period which the rental price was re-determined in Turkish Liras.

If the rental price is in Turkish Liras for the next rental year and the parties do not reach to a mutual agreement in determining the price, the rental price will be decided by increasing the rental price of the previous rental year by the monthly exchange rates of Consumer Price Index (CPI) of the Turkish Statistical Institute and such rental price in Turkish Liras will be valid until the end of the two year period specified in this sub-clause.

Another important information included in the Communique is on whether there will be any change in the collection and demand of the already collected or remaining overdue receivables in terms of the agreements that are required to be converted into Turkish Liras. It is understood that the overdue receivables will be traded in accordance with the provisions of the contract valid on the due date because of the last paragraph of sub-clause 24 of the first Article of the Communique, explicitly specifies that "The provisions of this paragraph shall not apply to receivables that have been already collected or remain overdue pursuant to the agreements whose price and other liabilities shall not be determined in foreign currency or indexed to foreign currency pursuant to this Article".

It is stated in the last Article of the Communique that the agreements which can be executed in foreign currency or indexed to foreign currency, may also be made in Turkish currency. Under the circumstances, intent of both parties will gain importance.

Please find the table indicating which agreement types can be entered into in foreign currency or indexed to foreign currency.

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.