Presidential Decree dated September 12, 2018 ("Decree")1 brought restrictions to agreements denominated in foreign currencies or indexed to foreign currencies concluded between those parties who are real persons or legal entities residing in Turkey. According to the Decree, for contracts which meet the below mentioned three conditions, the contract price and any other payment obligation arising from the contract cannot be denominated in foreign currencies or indexed to foreign currencies.
- The contracting parties are real persons or legal entities residing in Turkey, and
- The subject matter of the contract is the sale and purchase of movable and immovable assets in Turkey; lease of any movable and immovable assets including vehicles and financial leasing, or if it is an employment or service agreement or a contract for works, and
- The contract does not fall into any exceptions which will be determined by the Ministry.
Exceptions Determined by the Ministry
The Communique no. 2018-32/51 amending the Communique in relation to the Decision no. 32 on the Protection of the Value of Turkish Currency2 which sets out the exceptions that will allow determination of payment obligations in foreign currency or indexed to foreign currency has been published in the Official Gazette dated October 6, 2018. However with the Communique no. 2018-32/52 published in the Official Gazette dated November 163 ("Communique" or "Amendment"), the scope of the exceptions have been amended.
We provide in the below table a summary of the current exceptions and material amendments.
Other Issues under the Communique
Companies with Foreign Shareholding
With regard to branches, representative offices, offices, liaison offices in Turkey belonging to foreigners or companies in which foreigners hold directly or indirectly more than 50% of the shares or where foreigners have control or mutual control of the company, the exceptions cover the agreements for the sale and rent of immovables where the said Companies and establishments act as the buyers or lessees; and employment and service agreements where the companies act as employers or the parties receiving the contractual services. In this respect, the agreements except the above mentioned ones will fall under the prohibition to contract in foreign currency or indexed to foreign currency even, for instance, for a company with 100% foreign shareholding.
Companies deemed as Residents in Turkey
Branches, representative offices, liaison offices, funds outside Turkey but which are operated or managed by persons residing in Turkey, companies outside Turkey in which such persons hold more than 50% of the shares as well as those companies that are directly or indirectly owned by such persons are also deemed as residents in Turkey. The payment obligations arising from the contracts concluded by the said companies will not be able to determine payment obligations in foreign currencies or indexed to foreign currencies unless the above mentioned exceptions are applicable. The wording of the previous version of the Communique led to confusion as to whether the ban was applicable to all agreements regardless of the place (i.e outside or inside of Turkey) of the performance. With the current changes, it has been clarified that if the agreement is to be operated outside of Turkey, the parties are considered to be foreigners and shall be deemed in the scope of the exemption.
Exempted Persons' Requests to Convert the Contract Values into Turkish Lira
Although it had been regulated in the former version of the Communique, that in the event the exempted persons request to conclude new agreements in Turkish Lira or to convert the values under the pre-existing agreements of foreign currency/indexed to foreign currency into Turkish Lira, the values under the said agreements will need to be denominated in Turkish Lira, this obligation has been abolished with the amendment and therefore the other party of the respective agreements do not need to accept such request anymore.
Determination of Exchange Rates in case of Disagreement
In the event that the parties cannot mutually agree on the exchange rates during the amendment of the contract values, the new values shall be determined based on the contract value calculated in accordance with banknote selling indicative exchange rate of the Central Bank of the Republic of Turkey as of January 2, 2018 (USD 1 = TRY 3,78; EUR 1 = TRY 4,55)4 , which will be increased based on the monthly consumer price index determined by the Turkish Statistical Institution from January 2, 2018 to the date on which the value is amended. The contract values determined in foreign currency or indexed to foreign currency under the rent agreements regarding residences and workplaces concluded prior to September 12, 2018 shall be amended and denominated in Turkish Lira for a period of 2 years in accordance with the above mentioned procedure. Rent increases will be affected based on the monthly consumer price index.
The above explained procedure for these agreements will not be applicable for those receivables where the payment has already been received, or was outstanding.
Securities Issued as per the Agreements
With respect to securities to be issued under agreements that must be denominated in Turkish liras, the Communique expressly stipulates that the values of such securities cannot be determined in foreign currency or indexed to foreign currency, either.
With the amendment, it has been clarified that the securities which had been issued and circulated prior to the effective date of the Communique, fall into the exceptions.
Agreements Indexed to Precious Metals or Commodities
The agreements under which payment obligations are indexed to precious metals or commodities whose prices are, in turn, determined based on foreign currencies in international markets are deemed to be indexed to foreign currency as well and therefore subject to the prohibition to contract under foreign currencies. Under this provision, the Communique also expressly prohibits indexing agreements to foreign currencies in an indirect manner. Having said this, with the Communique , the contracts relating to transportation operations can now be indexed to fuel prices.
1. Presidential Decree No. 85 dated 12.09.2018 published on 13.09.2018 in the Official Gazette numbered 30534.
2. Communique on the Amendment to the Communique (Communique No: 2008-32 / 34) on the Decree No. 32 on the Protection of the Value of Turkish Currency, published in the Official Gazette dated 06.10.2018 and numbered 30557 (Communique No: 2018-32 / 51).
3. Communique on the Amendment to the Communique (Communique No: 2008-32 / 34) on the Decree No. 32 on the Protection of the Value of Turkish Currency, published in the Official Gazette dated 16.11.2018 and numbered 30597 (Communique No: 2018-32 / 52).
4. Banknote selling indicative exchange rate of the Central Bank of the Republic of Turkey, determined on 02.01.2018 at 15.30, accessed on 08.10.2018 through http://www.tcmb.gov.tr/kurlar/kurlar_tr.html
Originally published 21 November 2018
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.