IN WHICH CONTRACTS FOREIGN CURRENCY IS FORBIDDEN?

The exceptions brought by the Ministry of Treasury and Finance (“the Ministry”) to the prohibition of determination of contract fees in some contracts and other payment obligations in or indexed to foreign currencies determined by The Presidential Decree No. 85 published on the Official Gazette on 13 September 2018 have been listed briefly by the communique of the Ministry (“the Communique”) issued on 6 October 2018, as stated in the table below:

ONES THAT CAN NOT BE AGREED IN OR INDEXED TO FOREIGN CURRENCYONES THAT CAN BE AGREED IN OR INDEXED TO FOREIGN CURRENCY
Real estate sale contracts
Real estate rental contracts
Labor contracts (excluding exceptions)Labor contracts to be perfomed abroad
Labor contracts to be executed with non- Turkish citizens
Labor contracts to which branches, agencies, offices, liaison offices in Turkey of persons residing abroad, companies in which they have shares in the rate of fifty percent or more directly or indirectly and companies in free zones within the scope of their activities in free zones are parties
Service contracts (including consultancy, brokerage, transportation; excluding exceptions)Service contracts to which non-Turkish citizens are partiesService contracts within the scope of export, transit trade, sales and deliveries deemed as export, foreign currency earning services and activitiesService contracts within the scope of activities to be carried abroadService contracts regarding electronic communication that starts in Turkey and ends abroad or starts abroad and end in Turkey
Service contracts to which branches, agencies, offices, liaison offices in Turkey of persons residing abroad, companies in which they have shares in the rate of fifty percent or more directly or indirectly and companies in free zones within the scope of their activities in free zones are parties
Contracts of workContracts of work regarding building, repair and maintenance of vessels
Vehicle sale contracts (including heavy equipment)Movables sale
Vehicle rental contracts (including heavy equipment; excluding those signed before 13.09.2018)Movables rental
Sale contracts regarding software and license and service contracts regarding hardware and software produced abroad within the scope of information technologies
Leasing contracts regarding vessels
Leasing contracts within the scope of articles 17 and 17/A of the Decree no. 32 on the Protection of the Value of Turkish Currency
Contracts to which state institutions and organizations and Turkish Armed Force Support Foundation are parties (excluding real estate sale and rental)
Contracts to be executed with third parties by the contractors provided that they are within the scope of execution of tenders, contracts and international agreements in or indexed to foreign currency to which state institutions and organizations are parties (excluding real estate sale and rental and labor)
Contracts related to transactions of the Ministry within the scope of the law no. 4749 to which Banks are parties
Contracts on obligations regarding formation of capital market instruments in foreign currency,  their purchase, sale, export of and transactions made about them within the scope of the Capital Market Law and the related regulations
Contracts to which airway enterprises and some companies related to aviation are parties (excluding real estate sale and rental and work)

Exception for Foreign-Capital Companies!

It could be said that one of the most remarkable exceptions to foreign currency restrictions is labor and service contracts to be executed by companies with a capital of 50% or more belonging to persons residing abroad. In this regard, lots of foreign-capital companies shall be within the scope of exception in terms of contracts mentioned.

Until When and How Should Contracts Subject to Foreign Currency Restriction be made Compliant?

In accordance with the Communique, it is required to determine prices and payment obligations taking place in the agreements within the scope of foreign currency restriction and containing contract price or payment obligation in or indexed to foreign currency, in Turkish Lira until 13.10.2018 at the latest being agreed upon by the parties. In case the parties cannot reach an agreement on this matter, calculation shall be made considering effective selling rate of Central Bank of Turkey determined on 02.01.2018 and CPI with procedures foreseen in the following article of the Communique:

(24) In case the parties cannot reach an agreement while determining again the prices in the contracts, in which contract price and other payment obligations arising from these contracts are not possible to determine in or indexed to foreign currency, in Turkish currency within the scope of article 8 of the Decree no. 32 on the Protection of the Value of Turkish Currency; prices determined in the agreements executed in or indexed to foreign currency shall be determined by increasing Turkish currency equivalent of the mentioned prices calculated using effective selling rate of Central Bank of Turkey determined on 02.01.2018 in nature of indicator based on monthly change rate of consumer price index (CPI) stated by the Turkish Statistical Institute  for each month from 02.01.2018 until the date when the prices are determined again.

Prices determined in or indexed to foreign currency in house and roofed working place rental contracts executed before the enforcement date of the Provisional Article 8 of the Decree no. 32 on the Protection of the Value of Turkish Currency shall be determined din Turkish currency for a period of two years in accordance with the first paragraph of this subarticle. However, provided that it is valid for one year following the end of the rental year when determination is made in Turkish currency, in case the parties cannot reach an agreement, rental price determined in Turkish currency in accordance with the aforementioned article, shall be determined by increasing based on monthly change rate of consumer price index (CPI) stated by the Turkish Statistical Institute for each month from the date of determination until the end of the rental year. In case agreement cannot be reached by the parties, rental price in Turkish currency for the following rental year shall be determined by increasing the rental price valid in the previous year based on monthly change rate of consumer price index (CPI) stated by the Turkish Statistical Institute and the rental price determined in Turkish currency shall be valid until the end of the two-years period stated in this subarticle.”

In addition, the Communique does not foresee the obligation to be determined again in Turkish Lira for collected or overdue receivables in contracts that are impossible to execute in or indexed to foreign currency.

Although some contracts are subject to exception about foreign currency restriction in the Communique, it is possible to determine payment obligations in or indexed to foreign currency in contracts within the scope of exception in Turkish Lira upon mutual agreement by the parties. 

Av. Derya Baksı
Av. Kerem Utku Örer

EKİM 2018

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