Turkey: Amendments On Decree No. 32 On Protection Of The Value Of Turkish Lira And Bans On Using Foreign Currencies In Contracts In Turkey

When initially adopted at 1989, the Decree No.32 on the Protection of the Value of Turkish Lira ("Decree No.32") was regarded as part of a liberalization of markets movement allowing use of foreign currencies within the local market that mainly started with a number of principles and rules referred as Decrees of January 24 adopted at 1980 which initially opened the Turkish market for permitted use and exchange of foreign currencies in Turkey by individuals and companies.

Presidential Decree No. 85 published on the Official Gazette on September 13, 2018 ("Amendment Decree") amending Decree No.32 (an addition of subparagraph -g to Article 4 and addition of a Provisionary Article 8) had a very different target. Due to extreme pressure on the value of Turkish Lira experienced with the start of the third quarter of 2018, the Government decided to lower the demand to foreign currencies within the local markets to ease such devaluation pressure and therefore decided to limit the number of dealings that could be agreed upon by use of foreign currencies within Turkey.

During the initial public debate regarding this Amendment Decree, it was noted that the main target was the lease contracts of shops at shopping malls all around Turkey which were based on foreign currency values (most commonly USD or EUR per square-meter) that created an unexpected pressure on retailers to cope with and therefore was having an impact on stagnation of markets and inflation directly. However, the Amendment Decree went far beyond such main concern.

With the Amendment Decree; the subparagraph -g of Article 4 of the Decree No.32 is amended as follows:

"g) The agreement/contract price and any other payment obligation arising from sale and purchase agreements/contracts for movable and immovable assets; lease/rent agreements for any movable and immovable assets, including vehicles and financial leasing; employment; service; and construction agreements, executed by and between persons residing in Turkey, cannot be denominated in foreign currency or be indexed to foreign currency, except in circumstances determined by the Ministry of Treasury and Finance. ("the Ministry")"

The Amendment Decree also added a new Provisionary Article to the Decree No.32 as follows:

"Provisionary Article 8 – The denominations in foreign currencies made in the agreements/contracts in force executed prior to the enforcement of the subparagraph -g of the Article 4 of this Decree, shall be redefined in Turkish Lira within thirty (30) days except for situations determined by the Ministry of Treasury and Finance."

Accordingly, the Amendment Decree introduced very broad limitations on use of foreign currency and imposed an 'exceptional' retroactive enforcement. Since the limitations were so broadly defined and since the Amendment Decree was not drafted in a fashion with easy-to-understand references to existing contract types under Turkish Laws, the adoption of the Amendment Decree caused many uncertainties.

In order to overcome such uncertainties, the Ministry issued an amendment of the existing Communique No.2008-32/34 on the Decree No.32 (added a new version of the previously invalidated Article 8 of the Communique titled 'Contracts with Foreign Currencies or Indexed to Foreign Currencies') with Communique No.2018-32/51 at October 6, 2018 ("First Amendment Communique"). With such Amendment Communique the Ministry determined the exemptions of the bans of foreign currency use.

The Ministry then issued an explanatory note at its website under "Frequently Asked Questions" section at October 12, 2018 ("Ministry Explanatory Note") and offered examples of application of the Amendment Decree along with sample calculations for the conversion of the values of the existing contracts already in force (the Ministry then changed its initial sample calculations within the same week due to some errors made).

Following this Amendment Communique and the explanatory notes published by the Ministry and since the deadline for the conversion of the existing contracts was approaching fast (November 13, 2018), many players in the market made the conversions required or assumed exemptions to remain unaffected with respect to their contract denominations.

However, on November 16, 2018, the Ministry issued another amendment to the initial Communique No.2008-32/34 (a revised version of the Article 8 of the Communique titled 'Contracts with Foreign Currencies or Indexed to Foreign Currencies' adopted at October 6, 2018) with Communique No.2018-32/52 ("Second Amendment Communique") which was conceived as a surprise since it came days after the deadline of the Amendment Decree therefore creating confusion with implementation of further restrictions on exemptions previously offered (specifically targeting foreign investors operating in Turkey) and regarding the deadline (whether it is extended for conversions that are required due to more limited exemptions or not). 

Although there are still some uncertainties and discussions regarding the application, please find below the updated analysis of the restrictions imposed and the exemptions offered for contracts in Turkey using foreign currency directly as value denomination or foreign currency index for calculations as of November 16, 2018.



Since the application on the restrictions refer to residency in Turkey, 'being a resident in Turkey' shall be analyzed. Turkish residency is defined in Article 4 of Income Tax Law No. 193 ("ITL") dated December 31, 1960. As per such Article, people with legal residency in Turkey and people who reside continually within Turkish borders for over six (6) months in one (1) calendar year are deemed as residents in Turkey. Again, as per Article 5 of ITL, business people, scientists, specialists, civil servants, press reporters and other suchlike foreign people who visit Turkey for a specific and temporary duty and foreign people who visit Turkey for collection or treatment or recreation or travel purposes shall not be deemed as Turkish residents even if they reside more than six (6) months.

Since the Amendment Decree notes the term 'between persons residing in Turkey', agreements concluded between Turkish resident individuals and legal entities and non-Turkish-resident individuals and legal entities are not subject to any restrictions while determining the denominations of their contracts in foreign currencies among each other. 

In addition, the Amendment Decree does not implement any restriction on bank deposit contracts and therefore there is no restriction for Turkish or non-Turkish-residents to open or maintain foreign currency accounts in Turkish Banks.


Based on the Amendment Decree, the agreements/contracts that shall be in Turkish Lira when executed between Turkish residents are listed below:

  • Purchase and sale agreements/contracts
  • Rental agreements/contracts
  • Leasing agreements/contracts
  • Labor/Employment ('Service' Agreements of Employees) agreements/contracts
  • Agreements/contracts for services
  • Agreement/contracts for performance/fulfillment of tasks (including construction agreements/contracts)
  • Agreements/contracts concerning tourism
  • Labor/Employment agreements/contracts of football players
  • Insurance agreements/contracts

1) Sales and Purchase Contracts/Agreements of Immovable Properties (Real Estate)

The sale and purchase of immovable properties (real estate) are subject to the restrictions and therefore need to be executed in Turkish Lira among Turkish residents. However, subject to Turkish Code of Obligations No. 6098 dated January 11, 2011 ("TCO") contracts for the transfer of the rights of preemption, redemption and repurchase of real estate properties also fall under sales contract regime and therefore it is disputed whether they are also subject to such restrictions (and therefore conversion of contracts executed prior to the Amendment Decree). For the moment, they are deemed to be exempt from restriction of the use of foreign currencies since the Amendment Decree only refers to sales and purchase contracts. There are only a few exemptions for this restriction which are explained in detail at the section below.

2) Sale and Purchase Contracts/Agreements of Movable Properties (Goods/Products)

The Amendment Decree is very broad on the issue and restricts any and all types of movable property sales and purchases. However, as explained in detail at the section below; the exemptions issued by the Ministry limit the restriction (as opposed to offering an exemption only) and notes that all salles and purchase contracts/agreements executed among Turkish residents could be denominated with foreign currency directly or be subject to foreign currency index except for the contracts/agreements for the sales and purchases of vehicles (all motorized vehicles are regarded as movable properties under Turkish laws) [paragraph 9 of Article 8 of the Communique No.2008-32/34 amended by the Second Amendment Communique].

In addition, it shall be noted that although securities are also regarded as movable properties under Turkish law, since no amendment was introduced to change the Article 15 of the Decree No.32, they are regarded as exempt from these restrictions imposed and accordingly Turkish company bonds could still be issued and exported in foreign currencies.

3) Lease/Rental Contracts/Agreements

Under TCO, the lease/rental agreements are defined as undertakings to transfer the use or benefits of use of anything to another in return of a consideration. The Amendment Decree is imposed on both movable properties/assets and immovable properties/real estate and therefore any type of lease/rental contracts/agreements among Turkish residents are subject to the restrictions imposed for use of foreign currency denomination and therefore shall be executed in Turkish Lira or be converted into Turkish Lira if executed prior to the enforcement of the Amendment Decree.

Since lease/rental of vehicles (including automobiles) are considered lease/rental agreements, they are subject to these restrictions as well.

The Amendment Decree also refers to 'any other payment obligation' and therefore deposits or any types of securities (including checks, promissory notes or bank letter of guarantees) provided as collateral for the performance of the obligations noted in the lease/rental contracts also need to be made/issued in Turkish Liras. However, as for the conversion of the lease/rental contracts/agreements executed prior to the enforcement of the Amendment Decree, the Second Amendment Communique introduces an exemption and notes that these deposits and securities provided earlier and/or in circulation need not to be converted back into Turkish Lira [paragraph 28 of Article 8 of the Communique No.2008-32/34 amended by the Second Amendment Communique].

4) Leasing & Financial Leasing Contracts/Agreements

Under Turkish laws (specifically Financial Leasing, Factoring and Finance Companies Law No. 6361 dated November 21, 2012) leasing is a mid or long-term financing method which provides efficient and profitable usage of resources by renting option instead of spending working capital to make investments. There are mainly two types of leasing contracts in Turkey:

  1. Financial Leasing: The invested item is purchased by the leasing company and provided to the use of the lessee in return of rental payments. The lessee may only record the delay interest as an expense but not the entire rental amounts and shall allocate amortization over invested using rights. At the end of the agreement/contract term, the ownership of the item is transferred to the lessee.
  2. Operating Lease: Ownership of the invested item always remain at the leasing company and the lessee leases the invested item for relatively shorter terms. The item is returned back to the leasing company at maturity date and the lessee may record the entire rental amounts as expense.

Although the Amendment Decree also refers to such 'leasing' agreements and therefore, they also need to be executed in Turkish Lira, the Second Amendment Communique allows for a wide range of exemptions. Accordingly, financial leasing contracts regarding ships and financial leasing contracts noted in Article 17 and 17A of the Decree No.32 (financial leasing contracts in relation with loans obtained from abroad and financial leasing contracts in relation with loans for goods/products issued locally to Turkish residents under imports and exports regime) are fully exempt from the restrictions and they can be denominated with foreign currency directly or use a foreign currency index. [paragraph 12-13 of Article 8 of the Communique No.2008-32/34 amended by the Second Amendment Communique].

In addition, the financial leasing contracts/agreements for movable and immovable properties executed before the enforcement date of the Amendment Decree, are also fully exempt from the Turkish Lira conversion requirement and therefore remain as is in case they were denominated in foreign currencies. [paragraph 26 of Article 8 of the Communique No.2008-32/34 amended by the Second Amendment Communique].

5) Labor/Employment (including 'Service' Agreements of Employees) Contracts/Agreements

Employment-employee contracts are defined as labor/employment contracts/agreements ('iş sözleşmesi' in Turkish) under Labor Law No.4857 dated May 22, 2003 ("LL") but as 'service' contracts under TCO ('hizmet sözleşmesi' in Turkish). Other legal systems contain different types of 'service' contracts and have a broader differentiation between any goods and services in such sense (such as maintenance or consulting contracts against sales contracts or task/building contracting agreements). However, Turkish laws only refer to 'service' contracts under an employer-employee relationship; therefore, when the Amendment Decree referred to 'employment' 'work' and 'service' contracts separately, it triggered a discussion.

Some of such discussions are somewhat resolved by the Explanatory Note and the Second Amendment Communique issued by the Ministry which are explained in detail at the section below and in principle, the Amendment Decree notes that all employment agreements and contracts and the service contracts (understood in a broader sense of application under a legal understanding imported from Anglo-American legal system)  among Turkish residents need to be executed in Turkish Lira or be converted into Turkish Lira if executed prior to the enforcement of the Amendment Decree.

6) 'Service' and 'License' Contracts/Agreements (apart from Employee 'Service' Contracts)

As above explained and will be examined in detail at the next section, there are no 'service' contract ('hizmet sözleşmesi' in Turkish) definitions under Turkish law except for the ones defining employee and employer relationship. However, the intention of the Amendment Decree for imposing restrictions on foreign currency use in contracts is understood to be broader from the general rules of Turkish laws and refers to some types of contracts (although defined/classified differently in other laws) as 'service contracts' within the examples provided and exemptions offered at the Explanatory Note and the Second Amendment Communique issued by the Ministry including consultancy contracts and agreements, brokerage agreements, maintenance agreements.

In principle, the Amendment Decree notes that 'service contracts' (understood in a broader sense of application under a legal understanding imported from Anglo-American legal system) among Turkish residents need to be executed in Turkish Lira or be converted into Turkish Lira if executed prior to the enforcement of the Amendment Decree.

Being a sui generis type of agreement, and since the principle of freedom of contract is accepted in Turkish legislation, license agreements contain features of various different agreements and no specific regulation defines or limits the types of licensing. To sum up briefly, licensing agreement is a legal contract between two parties, known as the licensor and the licensee. In a typical licensing agreement, the licensor grants the licensee the right to produce and sell goods, apply a brand name or trademark, or use patented technology owned by the licensor. In exchange, the licensee usually submits to a series of conditions regarding the use of the licensor's property and agrees to make payments known as royalties.

7) Contracts/Agreements for the Performance/Fulfillment of Tasks (including Construction/Contractor Contracts/Agreements)

Article 470 of TCO, defines such contracts ('eser sözlesmesi' in Turkish) where the (the independent/freelance) contractor undertakes to create a work or handle a task and the party ordering the work/task undertakes to pay a consideration. This type of work/task agreements contain a promise of an outcome/solution/building/creation (and therefore differentiate from the legal understanding of an employment 'service' contract or a representation/proxy/attorney contract where the outcome is not directly promised for). The construction contracts, repair and maintenance contracts or plastic surgery operation contracts are examples of this type of contracts/agreements under Turkish law.

In principle, the Amendment Decree notes that work/task contracts among Turkish residents need to be executed in Turkish Lira or be converted into Turkish Lira if executed prior to the enforcement of the Amendment Decree.

8) Agreements/Contracts Concerning Tourism

The Explanatory Note of the Ministry has cleared the content of the service agreements. As per the Explanatory Note; the agreements counted in the Article 6 of Exportation Communique 2017/4 are in the scope of service agreements. On the other hand, as per Article 6/1-(h) of Exportation Communique 2017/4; domestic and abroad service sales in return of foreign currency of tourism entities (e.g. hotels) and travel agencies are in the scope of foreign currency saving transactions. Also, as per the Turkish Hoteliers Union ("THU") explanation; tourism entities and travel agencies shall execute service agreements with the residents in Turkey in foreign currency or indexed to foreign currency.

In this context, we assume that tourism entities and travel agencies are not in scope of foreign currency ban related to their service agreements with residents in Turkey.

9) Labor/Employment Agreements/Contracts of the Football Players

Rates of the football players are considered in scope of labor/employment agreements. As per Article 8 subparagraph 3 of First Amendment Communique;

  • It is possible to pay the rates of football players who are non-Turkish citizens in terms of foreign currency or indexed to foreign currency
  • It is not possible to pay the rates of football players who are Turkish citizens in terms of foreign currency or indexed to foreign currency

10) Insurance Agreements/Contracts

Insurance agreements are not in the scope of Decree No. 32 unless such agreements are provided as other payment obligations of agreements which are banned from the usage of Turkish currency.

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