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Turkish Ministry of Treasury and Finance brings new amendments to foreign exchange legislation
Global | Publication | November 2018
The Ministry of Treasury and Finance (the Ministry) issued a new Communiqué amending the rules applicable to foreign currency-denominated or indexed agreements.
As explained in our previous publication, on September 13, 2018, the Turkish Presidential Decree No. 85 (the Presidential Decree) amending the Decree No. 32 on the Protection of the Value of the Turkish Currency (the Decree No. 32) was published in the Official Gazette. The Presidential Decree required that the agreement price and other payment obligations arising from certain agreements between Turkish residents cannot be denominated in, or indexed to, foreign currency. The Ministry was authorized to provide exemptions to these restrictions, which were announced and published under a communiqué dated October 6, 2018 (the Previous Communiqué).
A new Communiqué was promulgated on November 16, 2018 amending the rules and exemptions introduced by the Previous Communiqué (the Amendment Communiqué).For ease of reference, please see below a chart showing the amended provisions:
| Contract type | Previous Communiqué | Amendment Communiqué |
| Real property lease | No exemptions. | Following lease agreements may be denominated in, or indexed to, a foreign currency
|
| Real property purchase | No exemptions. | If the purchaser is any of the exempted parties listed in paragraphs 1 and 2 above or if the property is located in a free trade zone (paragraph 3 above), then the real property purchase agreement may be denominated in, or indexed to, a foreign currency. |
| Contracts for work, including construction contracts (eser sözleşmeleri) | The Previous Communiqué only exempted contracts relating to construction, repair and maintenance of ships. | The New Communiqué introduces a general exemption for contracts for work involving foreign currency denominated expenditure, without referring to a specific industry or activity. |
| Service agreements | One of the exempted type of service agreements related to electronic communication that is initiated in Turkey and concluded abroad (and vice versa). | Any service agreement (not only those relating to electronic communication)
is now exempt. |
| The Previous Communiqué provided for an exemption for service agreements, if they are executed by the branch, representative office, liaison office of a foreign entity, or a Turkish company in which a foreign individual/legal entity directly or indirectly holds 50 per cent or more of the capital. | The Amendment Communiqué introduces an additional exemption, which relates to the Turkish companies in which a foreign entity/entities exercises full or joint control. | |
| Employment agreements | The Previous Communiqué provided for the same exemption set out immediately above for employment agreements (i.e. certain entities held or controlled by foreign entities). | The Amendment Communiqué also introduces the additional exemption (full or joint control) set out above for employment agreements. An additional exemption has been introduced for employment agreements executed with seamen. |
| Sale or lease of construction vehicles | Not exempt. | Exempt. |
| License and service agreements for software and hardware | The New Communiqué clarifies that such software and hardware need to be developed abroad to be exempt from the restrictions. | |
| Agreements executed in relation to transactions to be carried out under the Law on Public Financing and Regulation of Debt Management numbered 4749 | The Previous Communiqué only exempted those agreements to which banks are a party. The aforementioned law regulates, among others, debt assumption by the state and debt securities. | The New Communiqué brings a general exemption for all transactions to be carried under the said legislation. |
| Other issues | Previous Communiqué | Amendment Communiqué |
| No obligation to convert to Turkish Lira | Receivables already collected or delayed receivables would not be converted into Turkish Lira. | The following payments also do not have to be converted into Turkish lira
|
| Conversion into Turkish Lira despite exemptions | The Previous Communiqué allowed the parties to whom certain exemptions were granted to request the denomination in Turkish Lira of the relevant agreements notwithstanding such exemptions. | This provision has been removed. This change has been interpreted to provide that exempted parties may no longer force their counterparties to execute their agreements in, or to convert into, Turkish Lira. |
| Indexation | In an effort to prevent indirect indexation to foreign currency, the Previous Communiqué prohibited parties from indexing their agreements to the price of precious metals or commodities, which are priced in a foreign currency in international markets. | The New Communiqué keeps the general rule, but allows transport related service agreements to be indexed to fuel prices. |
| Definition of Turkish resident | Branches, representation offices, liaison offices or funds owned/operated by Turkish residents outside of Turkey, or foreign companies where Turkish residents hold at least 50 per cent of the share capital or Turkish residents' wholly owned subsidiaries (direct or indirect) were deemed Turkish residents. | The New Communiqué slightly amends the language by deleting the last part (foreign companies directly or indirectly owned by Turkish residents) and adds that if the agreement is performed outside of Turkey, these entities will not be deemed Turkish residents. |
| Certain contracts executed before September 13, 2018 (date of the Presidential Decree) | Vehicle lease agreements, including construction vehicles, executed before September 13, 2018 were exempted from conversion into Turkish Lira. | The New Communiqué also allows the following agreements (if executed before September 13, 2018) to remain in a foreign currency
|
Global Head of Corporate, M&A and Securities
Email
ayse.yuksel@nortonrosefulbright.com
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