Ercüment Erdem Att. Verda Toy

Amendments to the Communiqué on Decree No. 32 on the Protection of the Value of Turkish Currency

November 2018

Introduction

The Communiqué on Decree No. 32 on the Protection of the Value of the Turkish Currency (Communiqué No. 2008-32/34) (“Communiqué”) that regulates the details of the restriction on payments made in foreign currency, or in a manner indexed to a foreign currency, pursuant to Decree No. 32 on the Protection of the Value of the Turkish Currency (“Decree No. 32”), has been amended again through Communiqué No. 2018-32/52 (“Amending Communiqué”), which was entered into force through its publication in the Official Gazette dated 16 November 2018 and numbered 30597. This Article explains the new regulations set forth under the Amending Communiqué.

Scope of Application of the Foreign Currency Ban

Pursuant to Article 4(g) of Decree No. 32, which had been added on 13 September 2018, Turkish residents cannot determine a contract price, nor other payment obligations (such as interest, damages for delay or penal clauses) arising from the contracts to be in foreign currency, or in a manner indexed to a foreign currency, in contracts for the sale and purchase of movable and immovable properties, all kinds of movable and immovable property lease contracts, including vehicle and financial leases, leasing contracts, employment contracts, contracts of service, and independent contractor contracts. The said provision set forth that the Ministry of Treasury and Finance has the authority to determine exceptions to above-noted foreign currency payment ban.

The exceptions had been regulated firstly under Communiqué numbered 2018-32/51 (“Communiqué”), published in the Official Gazette dated 6 October 2018 and numbered 30557 which we have previously elaborated on in one of our articles entitled “Foreign Currency Payment Ban”[1], and the scope of these exceptions has been expanded upon through the Amending Communiqué.

Contracts of Turkish Residents amongst Themselves

As stated under Article 4(g) of Decree No. 32, the foreign currency payment ban is foreseen for contracts made between Turkish residents.  Under Decree No. 32, Turkish residents have been defined as those persons and legal entities whose place of residence is in Turkey, including Turkish employees, or self-employed Turkish citizens, who are working abroad. 

Additionally, whilst it has been regulated that the Turkish residents’ branches, offices, representative offices and liaison offices located abroad, overseas funds operated or managed by Turkish residents, overseas companies in which Turkish residents have 50% or more ownership, or overseas companies that are directly or indirectly under the ownership of Turkish residents, shall be deemed to be “Turkish Residents” within the scope of the Communiqué, it is stated in the Amending Communiqué that the foreign currency payment ban shall not be applied if the contract is fulfilled abroad. Thus this provision prevents the veiled violation of the foreign payment ban through payments to be made by intermediary entities to be established abroad, with the view to only avoid the scope of Decree No. 32; whereas, the penalty risk for the contracts to be fulfilled abroad that have been entered into, with no intention to violate this ban, has been eliminated.

Immovable Sale and Lease Contracts

The Amending Communiqué expanded the scope of exceptions regarding immovable sale and lease contracts, including residential premises and roofed workplaces, as in the following:

  • The immovable sale and lease contracts to which Turkish residents, and who are not Turkish citizens are parties; and the immovable sale and lease contracts to which branches, offices, representative offices and liaison offices of foreign companies, located in Turkey, companies located in Turkey in which foreigners have a 50% or more direct or indirect shareholding or joint control, and/or control or in respect of their free zone activities of these companies, and companies located within free zones, and parties noted as “buyer or lessee,” have been removed from the scope of the ban.
  • The expression of “immovable properties located in free zones” has been removed from the provision regarding the ban on the payment obligations arising from the immovable sale and lease contracts of Turkish residents entered into amongst themselves, in line with free zones legislation.
  • The payment obligations related to the immovable lease contracts regarding rental of accommodation facilities certified by the Ministry of Culture and Tourism for the purpose of operation have been removed from the scope of the ban.
  • The payment obligations related to the immovable lease contracts regarding rental of duty-free shops have been removed from the scope of the ban.
  • Moreover, deposits given within the immovable property lease contracts and negotiable instruments that are in circulation within the fulfillment of the contracts are also included in the provision that stipulates that the obligation to re-determine the prices regulated under the provisional Article 8 of Decree No. 32 (“Provisional Article”) shall not apply to already collected receivables, or to receivables that are due, but which have not yet been collected, and it is clarified that these shall not be subject to the re-determination.

Employment Contracts

In addition to the contracts (between Turkish residents) to be fulfilled abroad, the payment obligations related to the employment contracts to which seamen are parties have been removed from the scope of the ban. The exception regarding the employment contracts to which Turkish residents who are not Turkish residents are parties, has not been amended by the Amending Communiqué.

Service Contracts

Service contracts of Turkish residents entered into amongst themselves, starting in Turkey and ending abroad, starting abroad and ending in Turkey, or starting and ending abroad, have been removed from the scope of the restriction. According to the previous version of the Communiqué, only those service contracts concerning electronic communications, which starting in Turkey and ending abroad or starting abroad and ending in Turkey were excluded from the foreign currency payment ban.

On the other hand the exceptions regulated under the Communiqué related with service contracts (such as service contracts made within the scope of export, transit trade, sales and deliveries that qualify as exports and foreign currency generating services and activities, service contracts made within the scope of Turkish resident’ activities conducted abroad and contracts to Turkish residents who are not Turkish citizens are parties) has not been amended under the Amending Communiqué.

Exception Regarding Employment and Service Contracts

On the other hand, the Amending Communiqué states that the employment and service contracts to which branches, offices, representative offices and liaison offices of foreign companies that are located in Turkey, companies located in Turkey in which foreigners have a 50% or more direct or indirect shareholding, and in respect of their free zone activities, and companies located within free zones, shall not be subjected to the restriction, only if these parties hold the title of “employer and service receiver.” Additionally, pursuant to this amendment, companies that are under the control and/or joint control of foreign companies are included within the scope of exemption pursuant to this amendment.

Independent Contractor Contracts

The payment obligations related to “independent contractor contracts that include costs in foreign currency” of Turkish residents entered into amongst themselves have been removed from the scope of the restriction. Prior to this Communiqué, only independent contractor contracts made for the construction, repair and maintenance of ships were outside of the scope.

Movable Sale and Lease Contracts

While the provision that states that the contract price in movable sale and lease contracts of Turkish residents entered into amongst themselves, excluding vehicle sale and lease contracts, shall be determined in foreign currency, or foreign currency, indexed, has been protected, the  construction vehicles has been removed from the scope of the said provision by the Amending Communiqué.

However, it states that vehicle lease contracts and commercial vehicle sales contracts concerning passenger transportation that have executed prior to 13 September 2018, are exempt from the Provisional Article which states that the payment obligations determined in foreign currencies under existing contracts shall be re-determined by the parties to be in Turkish currency.

Financial Leasing Contracts

The exceptions that were set forth under the Communiqué regarding financial leasing contracts for ships, and the financial leasing contracts made within scope of Articles 17 and 17/A of the Decree No. 32 have not been amended. In addition to these provisions the Amending Communiqué also states that financial lease contracts on movables and immovables that have been executed prior to 13 September 2018 are exempt from the Provisional Article concerning re-determination of the amounts.

Software Contracts

It has been clarified that the licensing and servicing contracts for hardware and software for Turkish residents entered into amongst themselves are outside of the scope of the relevant restriction, only if the relevant hardware or software is produced abroad.

Negotiable Instruments

While it has been stated that the amounts in the negotiable instruments issued within the scope of the contracts subjected to the payment restrictions pursuant to the Communiqué shall not be determined in a foreign currency or indexed to a foreign currency, the Amending Communiqué states that there is no need to re-issue the negotiable instruments issued and entered into circulation prior to 13 September 2018.

Contracts Indexed to Fuel Prices

As an exemption to the regulation stipulating that contracts indexed to precious metals and/or commodities, the values of which are determined in foreign currencies in international markets, and/or contracts indexed indirectly to foreign currencies, are deemed as contracts indexed to foreign currencies within the scope of Decree No. 32, service contracts regarding transportation activities may now be determined in a manner indexed to fuel prices through the Amending Communiqué.

Other Amendments

While it has been regulated that projects that have been executed by contractors within the scope of performance of tenders, agreements and international conventions, in which public institutions and organizations are parties to, and which are in a foreign currency or indexed to a foreign currency, “contractors” were not within the scope of the restriction except for immovable sales, immovable lease and employment contracts; however, it has been amended, through the Amending Communiqué, that the payment obligations will not be applied regarding contracts “to be executed by responsible companies and by the parties, with which these companies signed contracts, with third parties, or within the scope of aforesaid projects,” together with the contracts to be executed by the contractor within the scope of these projects. Additionally, the Amending Communiqué also removed immovable property lease contracts concluded by the persons who are considered to be a part of these projects from the scope of the restriction.

With regard to the transactions executed within the scope of Law on Public Financing and Debt Management No. 4749, the Communiqué states that the restriction shall not be applied only to the contracts to which banks are parties, and it is now possible through the Amending Communiqué to determine the payment obligations in a foreign currency, or in a manner indexed to a foreign currency, in all contracts concluded in relation to the transactions executed within the scope of this Law.

Re-Determination Obligation

In addition the clarifications regarding the exceptions of the re-determination obligation shown under the Provisional Article, the provision of the Communiqué, which stipulates that the parties subject to exemption may demand execution of the new contracts in Turkish currency, or the re-determination of the prices in contracts, which set forth the obligation to pay in current foreign currency, or indexed to a foreign currency, pursuant to the Provisional Article, is abrogated by the Amending Communiqué.

Conclusion

Pursuant to the amendment to Decree No. 32 dated 13 September 2018, it is prohibited to determine contract prices and other payment obligations arising from contracts that are in foreign currencies, or in a manner indexed to foreign currencies for the sale and purchase of movable and immovable properties, all kinds of movable and immovable property lease contracts, including vehicle and financial leases, leasing contracts, employment contracts, contracts of service, and independent contractor contracts to be made between Turkish residents. However some exceptions had been introduced to this foreign currency payment ban under Communiqué numbered 2018-32/51, published in the Official Gazette dated 6 October 2018. The Amending Communiqué numbered 2018-32/52 aimed to clarify the scope of these exceptions and extended the framework of the said exceptions of the foreign currency payment ban.

[1] Ecem Çetinyılmaz, Foreign Currency Payment Ban, Erdem&Erdem Newsletter, September 2018 (http://www.erdem-erdem.av.tr/publications/newsletter/general-evaluations-on-foreign-currency-payment-ban/ Access date: 12.12.2018).