RESTRICTIONS ON CERTAIN FOREIGN CURRENCY OR FX INDEXED CONTRACTS New Exceptions to the Ban on Foreign Currency Contracts

Updated: 19 Nov. 2018

Effective from 13 September 2018, Presidential Decision No.85[1] amended Decree No.32 on Protection of Value of Turkish Currency by prohibiting use of foreign currencies in certain types of contracts executed by Turkish residents.

Accordingly, by the virtue of newly added article 4(g) of Decree No.32, contract price and any other payment obligations arising from the contracts related to purchase and sale of movable and immovable property, rental of all types of movable and immovable property including vehicle and financial leasing, employment, service and work contracts executed between residents[2] in Turkey shall not be agreed in foreign currency or indexed to foreign currency.  Additionally, provincial article 8 of Decree No 32 called parties of contracts falling within the scope of the article 4(g) of Decree No. 32 to redetermine price of contracts and the other payment obligations in Turkish Currency within thirty days from the effective date of article 4 (g).

On October 6, 2018, Communiqué no 2018-32/51 was published in the official gazette and further clarified the scope of article 4(g) by amending communiqué no 2008-32/34 regarding decree no. 32 on the protection of the value of the Turkish currency.[3] According to communiqué, repealed article 8 of the communiqué no 2008-32/34 regarding decree no. 32 on the protection of the value of Turkish currency has been amended in a way to define the scope and exceptions of the ban on the foreign currency or FX indexed contracts.

Recently, on November 16, 2018, a new communique no 2018-32/52[4] further amended repealed article 8 of the communiqué no 2008-32/34 and extended scope of exceptions provided former communique.

Contract price and any other payment obligations cannot be agreed in foreign currency or indexed to foreign currency in the following types of contracts;

Paragraph 1 and 2: Contracts between residents in Turkey related to the sale and rental of real estates in Turkey (including estates in free zones); (removed on November 16, 2018)

Paragraph 6: Employment contracts between Turkish residents, excluding those performed abroad and executed by seamen; (added on November 16, 2018)

Paragraph 7: Service contracts between Turkish residents including consulting, transport and brokerage contacts;

  • excluding those service contracts performed by non-citizens;
  • excluding those service contracts related to export, transit trade, sale and delivery in the forms of export and services and activities resulting foreign currency earnings;
  • excluding those service contracts performed abroad by Turkish residents;
  • excluding those service contracts related to electronic communications starting in Turkey, ending abroad or vice versa.

Paragraphs 9 and 10: Contracts between residents in Turkey related to the sale and rental of vehicles (including heavy machines)[5] (removed on November 16, 2018);

Contract price and any other payment obligations can be determined in foreign currency or indexed to foreign currency in the following types of contracts;

Paragraph 3: Real Estates sales and rental contracts executed by Non-Turkish citizen persons resident in Turkey or those persons mentioned under paragraph 19 of this article (branches, representative offices, offices and liaison offices established by non-residents of Turkey, companies having directly or indirectly 50% or more non-resident share ownership and companies in free trade zones in relation to their activities in the free trade zone); (added on November 16, 2018)

Paragraph 4: Real estate rental contracts executed with the aim of operating accommodation facilities approved by the Ministry of Culture and Tourism; (added on November 16, 2018)

Paragraph 5: Real estates rental contracts in relations to Duty Free Shops; (added on November 16, 2018)

Paragraph 8: Work contracts on the condition that comprising of the costs priced in foreign currency; (added on November 16, 2018)

Paragraph 11:  Sale contracts between residents in Turkey regarding software produced abroad within the scope of information technologies and license and service contracts related to hardware and software produced abroad; (added on November 16, 2018)

Paragraph 12:  Financial Leasing contracts related to ships defined under Law no. 4490 and Decree-Law no 491[6];

Paragraph 13:  Financial Leasing contracts signed within the scope of articles 17 and 17/A of Decree no. 32;

Paragraph 14: Employment contracts that non-citizens are a party;

Paragraph 15: Without prejudice to paragraph 16, Contracts that state institutions and organizations and companies of Turkish Armed Forces Foundation are a party (excluding contracts related to sale and rental of real estates);

Paragraph 16: Contracts executed within the scope of Foreign Currency or FX Indexed tenders, contracts and international agreements that state institutions and organizations are parties, that are signed between third parties and contractors, commissioned companies and third parties which these companies conclude agreements (excluding contracts related to sale and rental of real estates and employment contracts); (removed on November 16, 2018)

Paragraph 17: Contracts executed in relation to transactions within the scope of Law no 4749 on Public Finance and Management of Debts and those contracts executed by Banks in relation to transactions under the above-mentioned legislation;

Paragraph 18: Without prejudice to provisions of Decree no. 32 on the protection of the value of Turkish currency and within the scope of the capital market law and relevant regulations, Capital Market Instruments including foreign capital market instruments, depository receipts, and foreign investment funds;

Paragraph 19:  Employment and service contracts executed by branches, representative offices, offices and liaison offices established by non-residents of Turkey, companies having directly or indirectly 50% or more non-resident share ownership or the companies that they have joint control and/or control over and companies in free trade zones in relation to their activities in the free trade zone; (removed on November 16, 2018)

Paragraph 20:  Contracts executed by resident commercial airline companies providing transportation services for passengers, mail and cargo handling services; Companies providing technical maintenance services for the aerial transportation vehicles, their motors and parts; authorized companies or organizations having public and private legal personality or companies formed by those organizations or their partners having 50% or more share ownership of companies providing ground services within the scope of civil aviation legislation;

By the virtue of paragraph 21, rates in valuable papers associated with the referred contracts cannot be also determined in foreign currency or indexed to foreign currency.  As per paragraph 22, contracts indexed to the precious metals and/or commodities traded in International Markets and /or contracts indirectly indexed to the foreign currency shall be treated as FX indexed contracts. As an exemption, however fuel prices in the service contracts in relations to transportation activities can be indexed to foreign currency. (added on November 16, 2018)

According to paragraph 23, Branches, representative offices, offices and liaison offices established by Turkish residents in foreign countries shall be treated as resident in Turkey by the virtues of article 4(g) of Decree No: 32.  Investment funds owned or managed by Turkish residents in foreign markets and ownership of 50% or more shares of Foreign companies and companies directly or indirectly held by Turkish residents in foreign countries shall also be treated as resident in Turkey. However, this paragraph shall not be applicable in case the performance of the agreement takes place abroad. (added on November 16, 2018)

As per paragraph 28 of Communiqué, for the conversion of the Foreign Currency or FX Indexed Values in the respective contracts, if parties of contracts may not mutually agree, Banknote selling rate of Turkish Central Bank as of January 2, 2018 shall be taken as a base for the conversion into Turkish Lira and by considering the monthly rate of change in the Consumer Price Index announced by the Turkish Statistics Institution price of contracts and the other payment obligations shall be determined.

Finally, in the last paragraph it is clarified that, article shall not be applicable to the deposits given and securities circulated within the scope of real estate lease contracts and to the collected or delayed debts in relations to contracts of which contract price or any other payment obligations cannot be agreed in foreign currency or indexed to the foreign currency.

[1]Published in the Official Gazette 0n 13 September 2018, No. 30534, http://www.resmigazete.gov.tr/eskiler/2018/09/20180913-7.pdf (Turkish)

[2] Art 2(b) Decision for the Protection of Turkish Currency no.32 (Decision No.32) dated 7 August 1989 Residents : Real persons and legal entities who have a legal residence in Turkey, including those who are employed, self-employed or owners of independent businesses abroad.

[3]Published in the Official Gazette 0n 6 October 2018, No. 30557 http://www.resmigazete.gov.tr/eskiler/2018/10/20181006-4.htm (Turkish)

[4] Published in the Official Gazette 0n 16 November 2018, No. 30597 http://www.resmigazete.gov.tr/eskiler/2018/11/20181116-8.htm (Turkish)

[5] Sale and Rental contracts related to Movables can be determined in foreign currency or indexed to foreign currency. Only exemption to this rule is sale and rental contracts of vehicles (including heavy machines – Heavy machines excluded with the Communiqué no 2018-32/52 on November 16, 2018.) As per paragraph 25, Vehicle Rental Contracts signed before the effective date of Provisional Article 8 of the Decree No:32 are exempted from this article.

[6] Law No. 4490 on the Turkish International Ship Registry, published in the Official Gazette on 21 December 1999, No. 23913, Decree law on the Organization and Duties of the Undersecretariat for Maritime Affairs, published in the Official Gazette on 19 August 1993, No. 21673

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