INFORMATION REGARDING THE EXEMPTIONS TO THE RECENT PROHIBITIONS ON THE FOREIGN CURRENCY PAYMENTS

8 October 2018

A. INTRODUCTION

As you may already know, the amendments to the Decree No. 32 on the Protection of the Value of the Turkish Currency (the "Decree No. 32") have been published in the Official Gazette dated 13 September 2018. With these amendments, the denomination of the payment obligations in foreign currency or in a manner indexed to foreign currency has been prohibited for the following agreements between persons residing in Turkey:

Sale agreements for movable and immovable assets;
Lease agreements for movable and immovable assets, including financial leasing and leasing of vehicles;
Employment agreements;
Service agreements; and
Construction agreements.

The Ministry of Treasury and Economy (the “Ministry”) has been authorized to provide exemptions to these restrictions. Accordingly, in the Official Gazette dated 6 October 2018, the Ministry has published a communiqué (the “Communiqué”) providing certain exemptions to the aforesaid prohibitions.

B. EXEMPTIONS TO THE PROHIBITONS ON THE FOREIGN CURRENCY PAYMENTS AND OTHER PRINCIPLES

a) Exemptions

Pursuant to the Communiqué, under the following agreements, the agreement amount and other payment obligations can be determined in a foreign currency or in a manner indexed to a foreign currency:

Sale and lease agreements for movables (other than vehicle and engineering vehicle sale and lease agreements);
Sale agreements for software developed abroad;
Financial leasing agreements for ships and financial leasing agreements executed in accordance with Article 17 and 17/A of the Decree No. 32;
Employment and service agreements executed by branches, representative offices, offices and liaison offices of a person residing abroad, or by companies in which a person residing abroad has directly or indirectly 50% or more shareholding and by companies in free trade zones, only for their activities in the free trade zone;
Employment and service agreements in respect of the services to be performed abroad;
Employment and service agreements executed by a non-Turkish employee;
License and service agreements for hardware and software;
Service agreements executed within the scope of export, transit trade, sales and deliveries deemed export and foreign exchange earning services and activities;
Service agreements executed between persons residing in Turkey regarding electronic communications that start in Turkey and end abroad, or vice versa;
Construction agreements executed for the construction, repair and maintenance of ships;
Agreements executed by public institutions and agreements executed by the Turkish Armed Forces Foundation companies (other than immovable sale and immovable lease agreements);
Agreements executed between constructors and third parties, on the condition that such agreements are executed for the performance of tenders, agreements and international agreements which public institutions are party to and are in foreign currency or indexed to foreign currency (other than immovable sale, immovable lease and employment agreements);
Agreements, to which banks are party, regarding the transactions performed by the Ministry under the Law on Regulating Public Finance and Debt Management No. 4749;
Agreements executed by commercial airline companies or companies providing support and maintenance services or ground services to airlines; and
Agreements in respect of forming, issuing and selling/purchasing capital market instruments in accordance with the Turkish Capital Markets Law No. 6362 and the secondary legislation.

b) Other Principles

The Communiqué also provides the following principles in respect of the foreign currency payment prohibitions and the relevant exemptions:

Indexing the agreement prices to the precious metals and commodities traded in international markets in foreign currencies shall be treated as indexing the agreement prices to foreign currencies.
Negotiable instruments to be issued in connection with the agreements subject to the foreign currency payment prohibitions shall also be subject to such prohibitions.
Branches, representative offices, offices and liaison offices incorporated abroad by persons residing in Turkey, funds operated or managed by those persons in foreign markets; companies incorporated abroad where those persons have 50% and more shareholding and companies incorporated abroad which are directly or indirectly owned by those persons, shall be considered as resident in Turkey and therefore, they shall be subject to the foreign currency payment prohibitions.
Agreements for the leasing of vehicles and engineering vehicles which have been executed prior to 13 September 2018 and which include an amount denominated in foreign currency are not required to be converted to Turkish Lira.
In case the parties cannot mutually agree on the conversion rate for the re-denomination of the agreement amount to Turkish Lira, the indicative selling-rate of the Central Bank of Turkey announced on 2 January 2018 shall be applicable. Then, the converted amount must be revised in accordance with the consumer price index rates determined for each month by the Turkish Statistical Institute for the period starting from 2 January 2018 until the renewal date.
The collected or due receivables under the agreements which are subject to the foreign currency payment prohibitions, shall not be subject to such prohibitions.
Re-denomination of the amounts under the lease agreements for immovable properties that have been executed prior to 13 September 2018 shall be valid for a period of two years.

The deadline for the re-denomination of the agreement amounts has not been extended. Therefore, the agreements subject to the foreign currency payment prohibitions need to be re-denominated until 13 October 2018.

Should you have any queries, please do not hesitate to contact us.

Güner Law Office was established in 1996 and has since grown into one of the major corporate, M&A, banking, litigation, energy, TMT and capital markets practices in Turkey.

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