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2018/6 Communiqué on Limitations Regarding Contracts in Foreign Currency or Indexed to Foreign Currency Published on the Official Gazette
28.11.2018

Abstract

The Communiqué (No. 2018-32/52) regarding Amendment of the Communiqué on the Decree No. 32 on the Protection of the Value of Turkish Currency (Communiqué No. 2008-32/34) was published on the Official Gazette dated 16.11.2018 and numbered 30597. Accordingly, regulations on making contracts in foreign currency or indexed to foreign currency have been amended.

Explanations

Through the Presidential Decree no. 85 published on the Official Gazette dated September 13, 2018, it was ensured that residents in Turkey, except for the situations determined by the Ministry, cannot determine contract value and other payment obligations in foreign currency or cannot index them to foreign currency for certain type of contracts. 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.

Through the Communiqué (No. 2018-32/51) on the Amendment of the Communiqué (No. 2008-32/34) on the Decree No. 32 on the Protection of the Value of Turkish Currency published on the Official Gazette dated October 6, 2018; regulations have been made on exceptions regarding contracts concluded in foreign currency or indexed to foreign currency and on the implementation of these provisions.

Through the Communiqué (No. 2018-32/52) on the Amendment of the Communiqué (No. 2008-32/34) on the Decree No. 32 on the Protection of the Value of Turkish Currency published on the Official Gazette dated November 16, 2018 and numbered 30597; procedures and principles on making contracts in foreign currency or as indexed to foreign currency are redefined. Relevant regulations are outlined below.

I. Regulations and Exceptions as per Contract Types

1. Real Estate Sales and Rental Contracts  

  • It is not possible for residents in Turkey to determine contract value and other payment obligations in foreign currency or to index them to foreign currency, arising out of real estate sales and rental contracts to be made among them, including residence and indoor workplaces contracts subject matters of which are remained in domestic. 

  • It is possible for non-residents' branches, representative agencies, offices, liaison offices, companies in which they hold shares of 50% or more either directly or indirectly in Turkey, to determine contract value and other payment obligations of real estate sales and rental contracts to which they are involved as either buyer or tenant party in foreign currency or to index them to foreign currency.

  • It is possible to determine contract value and other payment obligations in foreign currency or to index them to foreign currency, arising out of real estate rental contracts concerning rental of accommodation facilities licensed by Ministry of Culture and Tourism to operate. 

  • It is possible to determine contract value and other payment obligations in foreign currency or to index them to foreign currency, arising out of real estate rental contracts concerning rental of duty-free sales stores.

2. Employment Contracts

  • Residents in Turkey cannot, in respect of the contracts to be made between them, determine contract value and other payment obligations in foreign currency or as indexed to foreign currency for employment contracts except those which are to be executed overseas and involving seamen as contracting parties.

  • It is possible to determine contract value and other payment obligations in foreign currency or as indexed to foreign currency for employment contracts where persons who are not Turkish citizen but residing in Turkey are contracting parties.

  • Non-residents' branches, representative agencies, offices, liaison offices, companies in which they hold shares of 50% or more either directly or indirectly in Turkey, being under their and/or mutual control as well as companies that are based in free zone in terms of their activities within free zone, which are located in Turkey can, determine contract value and other payment obligations in foreign currency or as indexed to foreign currency for employment contracts to which they are involving as employer.

3. Service Agreements including Consultancy, Brokerage and Transportation

  • Residents in Turkey cannot, in respect of the contracts to be made between them, determine contract value and other payment obligations in foreign currency or as indexed to foreign currency for service contracts including consultancy, brokerage and transportation services, except those listed below.

a) Service agreements, parties of which are not Turkish citizens,

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

c) Service agreements made for activities to be performed overseas by Turkish residents,

d) Service agreements between residents in Turkey, which are commenced in Turkey and finalized abroad or vice versa or both commenced and finalized abroad.   

  • Non-residents' branches, representative agencies, offices, liaison offices, companies in which they hold shares of 50% or more either directly or indirectly in Turkey, being under their and/or mutual control as well as companies that are based in free zone in terms of their activities within free zone, which are located in Turkey can determine, contract value and other payment obligations in foreign currency or as indexed to foreign currency for service agreements to which they are involving as buyer.

4. Software Sales and Hardware and Software related License and Service Agreements

  • It is possible, in respect of the contracts to be made between them, for residents in Turkey to determine contract value and other payment obligations in foreign currency or as indexed to foreign currency for sales contracts of software produced overseas within the scope of information technologies as well as license and service agreements regarding hardware and software produced overseas. 

5. Work Contracts

  • Residents in Turkey can, in respect of the contracts to be made between them, determine contract value and other payment obligations in foreign currency or as indexed them to foreign currency for work contracts which involve costs in foreign currency.

6. Sales and Rental Contracts for Movables

  • Residents in Turkey can, in respect of the contracts to be made between them, determine contract value and other payment obligations in foreign currency or as indexed to foreign currency for sales and rental contracts of movables, except sales and rental contracts of vehicles.

  • For vehicle rental contracts and commercial vehicle sales contracts for passenger transportation purposes which were concluded before 13.09.2018 when provisional article 8 of the Decree No. 32 became effective, it is not compulsory to re-determine contract price by parties in Turkish currency.  

7. Financial Leasing Contracts

  • It is possible to determine contract values and other payment obligations in foreign currency or as indexed to foreign currency for financial leasing contracts to be concluded in accordance with articles 17 and 17/A of the Decree No. 32.

  • For financial leasing contracts regarding ships described in the Law on Amendment of the Presidential Decree No. 491 and Law on Turkish International Ship Registry (No. 4490), it is possible to determine contract value and other payment obligations in foreign currency or as indexed to foreign currency.

8. Contracts entered into by Public Authorities and Institutions as Contracting Party

  • 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 and employment contracts) drawn up by contractors with third parties can be concluded in foreign currency or can be indexed to foreign currency.  

  • It is possible to determine contract value and other payment obligations in foreign currency or as indexed to foreign currency for the contracts other than real estate sales and rental contracts, where Public Authorities and Institutions or companies under Turkish Armed Forces Foundation are contracting parties.

9. Contracts made under the Law on the Regulation of Public Financing and Debt Management

  • It is possible to determine contract value and other payment obligations in foreign currency or as indexed to foreign currency for the contracts made regarding operations performed under the Law (No. 4749) on the Regulation of Public Financing and Debt Management.

  • It is possible to determine contract value and other payment obligations in foreign currency or as indexed to foreign currency for the contracts involving banks with respect to these operations.

10. Capital Market Instruments

  • It is possible to produce, issue, purchase and sale capital market instruments (including foreign capital market instruments and depot certificates as well as foreign investment fund shares) and determine obligations thereof in foreign currency in accordance with the Capital Market Law (No. 6362) and regulations made under this law.

11. Contracts indexed to precious metal or commodity

  • Contracts indexed to precious metal and/or commodity, price of which is determined in foreign currency in international markets or indexed indirectly to foreign currency, are assumed as "contracts indexed to foreign currency".

  • In service agreements regarding transportation activities, it is possible to index them to petroleum price.

12. Contracts on Passenger, Cargo and Postal Transportation Activities

  • It is possible for commercial air transportation companies based in Turkey, active in passenger, cargo and/or postal transportation business, companies providing technical services regarding aircrafts, their engines and mechanisms and parts, organizations with public or private legal entity status and licensed or authorized to do business in providing land services at airports under civil aviation regulations as well as enterprises and companies and partnerships (holding directly or indirectly at least 50 percent of capital share) established by the aforesaid organizations to make contracts with residents in Turkey in foreign currency or including prices indexed to foreign currency, with the exception of real estate sales and rental contracts and employment contracts.

II. Summary

General rules and exceptional provisions regarding contracts in foreign currency or indexed to currency are summarized based on contract types in the following table.  

Contract ContentGeneral Rule on making contract Exceptions
Rental and sales of domestic real estate (including houses and indoor workplaces) Cannot be made in foreign currency or indexed to foreign currency

i) Contracts where following persons are buyer or tenant parties;

- Persons not Turkish citizen but residing in Turkey,

- non-residents' branches, representative agencies, offices, liaison offices, companies in which they hold shares of 50% or more,

- Companies in free zone

 

ii) Rental of accommodation facilities licensed by Ministry of Culture and Tourism to operate

 

iii) Rental of duty-free stores

Employment Contracts Cannot be made in foreign currency or indexed to foreign currency

i) Employment contracts to be executed abroad

 

ii) Employment contracts involving seamen

 

iii) Employment contracts involving those who are not Turkish citizen but residing in Turkey

 

iv) Employment contracts involving non-residents' branches, representative agencies, offices, liaison offices, companies in which they hold shares of 50% or more either in Turkey as well as companies in free zone in terms of their activities within free zone 

Service agreements including consultancy, brokerage and transportation Cannot be made in foreign currency or indexed to foreign currency

i) Service agreements involving persons who are not Turkish citizen

 

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

 

iii) Service agreements made for activities performed overseas

 

iv) Service Agreements commenced in Turkey and finalized abroad or vice versa

 

v) Service Agreements involving non-residents' branches, representative agencies, offices, liaison offices, companies in which they hold shares of 50% or more either in Turkey as well as companies in free zone in terms of their activities within free zone 

Work Contracts Cannot be made in foreign currency or indexed to foreign currencyi) Work contracts including costs in foreign currency
Movables sales and rental contracts Can be made in foreign currency or indexed to foreign currencyi) Vehicle sales and rental contracts (excluding vehicle rental contracts and commercial vehicle sales contracts for passenger transportation signed before 13.09.2018) 
Sales contracts for software produced abroad; and license and service agreements for hardware and software produced abroad Can be made in foreign currency or indexed to foreign currency 
Financial leasing contracts (under the Decree No. 32, articles 17 and 17/A, and the Law No. 4490) Can be made in foreign currency or indexed to foreign currency 
Contracts involving public authorities and institutions as well as companies under Turkish Armed Forces FoundationCan be made in foreign currency or indexed to foreign currencyi) Excluding real estate sales and rental contracts
Contracts made by contractors or companies in charge and their counter contracting parties with third parties, provided that these contracts are intended for execution of tenders, agreements and international treaties involving public authorities and institutions Can be made in foreign currency or indexed to foreign currencyi) Excluding real estate sales and rental contracts
Contracts made for transactions performed under the Law (No.4749) on Regulation of Public Financing and Debt Management Can be made in foreign currency or indexed to foreign currencyi) Excluding real estate sales and rental contracts
Contracts to be made by commercial air transportation companies based in Turkey, active in passenger, cargo and/or postal transportation business, companies providing technical services regarding aircrafts, their engines and mechanisms and parts, organizations with public or private legal entity status and licensed or authorized to do business in providing land services at airports under civil aviation regulations as well as enterprises and companies and partnerships (holding directly or indirectly at least 50 percent of capital share) established by the aforesaid organizations with residents in Turkey  Can be made in foreign currency or indexed to foreign currencyi) Excluding real estate sales and rental contracts

 
III. Other Regulations

1. 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 obligations arising out of these contracts cannot be determined in foreign currency or indexed to foreign currency, cannot be set in foreign currency or indexed to foreign currency.
     
  • Nonetheless, negotiable instruments within such context, issued and released before 13.09.2018 when provisional article 8 of the Decree No. 32 came into effect are excepted from the provisions of said article.

2. The concept of being resident in Turkey

  • Turkish residents' branches, representative agencies, offices, liaison offices, companies in which they directly or indirectly hold shares of 50% or more are considered to be residents in Turkey. However if such contract is fulfilled abroad, this rule shall not apply.

3. 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.
     
  • 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.

  • Provisions of this sub-clause shall not apply to already collected or delayed receivables in contracts, contract value and other payment obligations of which cannot be determined in foreign currency or indexed to foreign currency, as well as deposits already paid under real estate rental contracts and negotiable instruments released for fulfilment of contracts.

2018/6 Communiqué on Limitations Regarding Contracts in Foreign Currency or Indexed to Foreign Currency Published on the Official Gazette

​Regards,