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2018/5 Communique on Exceptions Regarding Contracts in Foreign Currency or Indexed to Foreign Currency Published on the Official Gazette
10.10.2018

Abstract

The Communique on the Decree No. 32 on the Protection of the Value of Turkish Currency (numbered 2018-32/51) was published on the Official Gazette dated October 6, 2018 and numbered 30557. Accordingly, regulations have been made regarding the implementation of the Presidential Decree numbered 85, which includes limitations on foreign currency or foreign currency indexed contracts.

Explanations​

Through the Presidential Decree no. 85 published on the Official Gazette dated September 13, 2018, paragraph (g) has been added to Article 4 "Foreign Currency" of the Decree no.32 on the Protection of the Turkish Currency Value. Accordingly, residents in Turkey, except for the situations determined by the Ministry, cannot determine the contract value and other payment obligations arising from the contract in foreign currency or cannot index them in foreign currency in contracts amongst themselves. Such contracts are; purchase and sales of movable and real estate, all kinds of movable and real estate rental contracts including charter and financial leasing, leasing contracts, employment contracts, service contracts and contracts of construction.

In the provisional article 8 added to the Decree numbered 32, it has been explained that; foreign currency indexed prices determined prior to the implementation of the Decree and in the previously executed running contracts shall be redefined by the parties as Turkish currency within 30 days following the date of entry into force.

Through the Communique numbered 2018-32/51 on the Amendment of the Decree No. 32 on the Protection of the Value of Turkish Currency published on the Official Gazette dated October 6, 2018 and numbered 30557, regulations have been made on exceptions regarding contracts concluded in foreign currency or indexed to foreign currency and implementation of these provisions.

1. Contracts that cannot be concluded in foreign currency or indexed to foreign currency

For below-listed contracts between Turkish residents, the contract value and other payment obligations cannot be determined in foreign currency or cannot be indexed foreign currency.

  • Leasing and sales contracts for real estates, including housing and office premises located in Turkey (including free zones),

  • Employment contracts,

  • Service contracts including consultancy, brokerage and transportation,

  • Independent contractor agreements,

  • Vehicle sales contracts (including heavy duty machinery),

  • Vehicle lease contracts signed after September 13, 2018 (including heavy duty machinery).

2. Contracts that can be concluded in foreign currency or indexed to foreign currency

Cases in which, residents in Turkey will be allowed to determine the contract value and other payment obligations arising from the contract in foreign currency or index them to foreign currency amongst themselves are as listed as below.

  • Employment contracts, which will be fulfilled abroad,

  • Service contracts with individuals who are not Turkish citizens,

  • Employment contracts where the employee is not a Turkish citizen but resident in Turkey,

  • Service contracts concluded within the scope of exports, transit trade, sales and deliveries deemed as exports and foreign exchange earning services and operations,

  • Service contracts concluded within the scope of overseas operations of residents in Turkey,

  • Service contracts amongst residents in Turkey regarding electronic communication, which will be commenced in Turkey but finalized abroad or commenced abroad but finalized in Turkey,

  • Contracts regarding building, repair and maintenance of ships defined by the Turkish International Ship Registry Law numbered 4490 and Law Amending the Decree Law numbered 491,

  • Sales contracts for movables (excluding heavy duty machinery and vehicles),

  • Lease contracts for movables (excluding heavy duty machinery and vehicles),

  • Sales contracts for software developed abroad within the scope of information technologies and service and license agreements for hardware and software,

  • Financial leasing contracts for ships defined by the Turkish International Ship Registry Law numbered 4490 and Law Amending the Decree Law numbered 49,

  • Financial leasing contracts to be concluded within the scope of articles 17 and 17/A of the Decree No. 32 on the Protection of the Value of Turkish Currency,

  • Contracts of public institutions and organizations and companies of Turkish Armed Forces Foundation (excluding real estate sales and leasing contracts)

  • Within the scope of the execution of tenders, contracts and international agreements to which public institutions and organizations are parties; contracts (excluding real estate sale, leasing and employment contracts) drawn up by contractors with third parties.

  • Transactions realized by the Ministry of Treasury and Finance within the scope of the Law on Regulation of Public Finance and Debt Management dated March 28, 2002 and numbered 4749 and to which banks are parties.

  • Employment and service contracts involving non-residents' branches, representative agencies, offices, liaison offices, companies in which they hold shares of 50% or more either directly or indirectly in Turkey, as well as employment and service contracts of companies in free zones regarding their operations in free zones.

  • Contracts, excluding real estate sale, leasing and employment contracts, to be concluded amongst residents in Turkey and commercial airlines, which transport passengers, cargoes or mails; companies offering technical maintenance services for air crafts, their engines and components, public or private legal entities which have obtained work permit or have been authorized to offer ground services at airports in accordance with the legislation of civil aviation; companies established by these entities and partnerships in which the aforementioned entities hold shares of at least 50%.
     

3. Contracts in foreign currency or contracts indexed to foreign currency in terms of agreement types

In accordance with the information given above, please find below tables summarizing the general principles for each type of contract and their exceptions.

Table 1 - Contracts that cannot be concluded in foreign currency or indexed to foreign currency
Contract ContentExceptions
Leasing and sales contracts for real estates, including housing and office premises located in Turkey (including free zones) 
Employment contractsi) Employment contracts, which will be fulfilled abroad
ii) Employment contracts where the employee is not a Turkish citizen but resident in Turkey
iii) Employment contracts involving non-residents' branches, representative agencies, offices, liaison offices, companies in which they hold shares of 50% or more either directly or indirectly in Turkey, as well as employment contracts of companies in free zones regarding their operations in free zones
Service contracts including consultancy, brokerage and transportation i) Service contracts concluded within the scope of exports, transit trade, sales and deliveries deemed as exports and foreign exchange earning services and operations
ii) Service contracts concluded within the scope of overseas operations of residents in Turkey
iii) Service contracts amongst residents in Turkey regarding electronic communication, which will be commenced in Turkey but finalized abroad or commenced abroad but finalized in Turkey
iv) Service contracts involving non-residents' branches, representative agencies, offices, liaison offices, companies in which they hold shares of 50% or more either directly or indirectly in Turkey, as well as service contracts of companies in free zones regarding their operations in free zones
v)  Service contracts with individuals who are not Turkish citizens
Independent contractor agreementsi) Contracts regarding building, repair and maintenance of ships defined by the Turkish International Ship Registry Law numbered 4490 and Law Amending the Decree Law numbered 491

 

Table 2 - Contracts that can be concluded in foreign currency or indexed to foreign currency
Contract ContentExceptions
Sales contracts for movables i) Sales contracts for heavy duty machinery and vehicles
Lease contracts for movablesi) Lease contracts for heavy duty machinery and vehicles
Sales contracts for software developed abroad within the scope of information technologies and service and license agreements for hardware and software, 
Financial leasing contracts for ships defined by the Turkish International Ship Registry Law numbered 4490 and Law Amending the Decree Law numbered 49, 
Financial leasing contracts to be concluded within the scope of articles 17 and 17/A of the Decree No. 32 on the Protection of the Value of Turkish Currency, 
Contracts of public institutions and organizations and companies of Turkish Armed Forces Foundation i) Contracts for real estate sales and leasing
Within the scope of the execution of tenders, contracts and international agreements to which public institutions and organizations are parties; contracts drawn up by contractors with third parties. i) real estate sale & leasing contracts, employment contracts
Transactions realized by the Ministry of Treasury and Finance within the scope of the Law on Regulation of Public Finance and Debt Management dated March 28, 2002 and numbered 4749 and to which banks are parties.  
Contracts to be concluded amongst residents in Turkey and commercial airlines, which transport passengers, cargoes or mails; companies offering technical maintenance services for air crafts, their engines and components, public or private legal entities which have obtained work permit or have been authorized to offer ground services at airports in accordance with the legislation of civil aviation; companies established by these entities and partnerships in which the aforementioned entities hold shares of at least 50%.i) real estate sale & leasing contracts, employment contracts

 

4. Capital Market Instruments

Without prejudice to provisions of the Decree numbered 32, within the scope of the Capital Markets Law numbered 6362 and regulations made in accordance with the Law, it is possible for capital market instruments (including foreign capital market instruments, depositary receipts and foreign investment fund shares) to be created, issued, purchased or sold in foreign currency and liabilities arising from transactions can be determined in foreign currency.

5. Negotiable instruments regarding contracts which are neither concluded in foreign currency nor indexed to foreign currency

Values in negotiable instruments drawn up regarding contracts, for which contract value and other payment liabilities arising from these contracts cannot be determined in foreign currency or indexed to foreign currency, cannot be set in foreign currency or indexed to foreign currency.

6. Contracts indexed to precious metals and commodities

Contracts indexed to precious metals and/or commodities, for which prices are determined in foreign currency across global markets and contracts indirectly indexed to foreign currency are deemed as foreign currency indexed contracts.

7. The concept of being resident in Turkey

Turkish residents' branches, representative agencies, offices, liaison offices, companies in which they hold shares of 50% or more and companies they own either directly or indirectly are considered to be residents in Turkey.

8.  Revising existing contracts

Contract value and other payment obligations arising from these contracts are obliged to be revised by parties as Turkish Lira for contracts which cannot be determined in foreign currency or indexed to foreign currency. This amendment must be made within 30 days from September 13, 2018, when article 4 (g) of the Decree No. 32 came into force.

If parties are unable to reach a consensus in revising contract value in Turkish currency; fees in contracts concluded in foreign currency or indexed to foreign currency shall be determined by converting the amounts into Turkish currency using Turkish Central Bank's cash selling rate as of January 2, 2018 and applying inflationary adjustment based on monthly consumer price index rate changes determined by Turkish Statistical Institute from January 2, 2018 until the date when fees are revised.

​2018/5 Communique on Exceptions Regarding Contracts in Foreign Currency or Indexed to Foreign Currency Published on the Official Gazette​