June 7,2022

Authors: Berfu Yalçın, Beyza Büyükağaçcı

With the sudden changes in the economy, unexpected fluctuations occur in the exchange rate. Therefore, parties would like to draw up certain contracts in foreign currency or indexed to foreign currency in order to assure themselves. However, this is not possible for all contracts, and some regulations are made under the Law on the Protection of the Value of Turkish Currency. One of these regulations is the  Decision No. 32 on the Protection of the Value of the Turkish Currency Rescript. With the aforementioned rescript, it is inhibited to determine the price and other payments as in foreign currency or indexed to foreign currency. However it is allowed for determining in foreign currency indexed regarding certain contracts, it is obligated to discharge in Turkish currency at the payment stage. The aforementioned prohibitions are restricted in terms of  persons  by stating that they are ‘’ agreements concluded or to be concluded between persons residing in Turkey". Regarding  the hereby note, the statement ‘’parties’’ shall be understood as persons resident in Turkey. Finally, the restrictions imposed on contracts by the Rescript and the impact of this situation on the issuance of negotiable instruments are presented to you with the information note we have prepared.

Moveable Estate Sale and Lease Contracts: Parties may determine the contract price and other payment obligations arising from these contracts in foreign currency or indexed to foreign currency in the Moveable Estate Sale and Lease Contracts. However, vehicle rent contracts are excluded from the scope of this exemption. Therefore the contract prices and other payment obligations arising from these contracts shall be determined in Turkish currency. Although the moveable estate sale contract is determined in foreign currency, the payment obligations under the contract must be fulfilled and accepted in Turkish currency. For this reason, it is not possible to use payment instruments such as checks, etc., issued in foreign currency on or after April 19,2022 to fulfill payment obligations under moveable estate sales contracts concluded/to be concluded between Turkish residents.

Vehicle Rent Contracts: Parties shall not determine the prices and other payment obligations of vehicle rent contracts and the sale of commercial vehicles for passenger transportation contracts signed after September 13,2018 in foreign currency. Contracts signed before this date are excluded from the scope of this exemption.

Real Estate Sale And Lease Contracts: Except for the exemptions below, in real estate lease and sale agreements, including residential and roofed workplaces, the parties shall not agree on the contract price and other payment obligations arising from these agreements in foreign currency or indexed to foreign currency.

·   Real estate sale and real estate lease contracts to which Turkish residents who do not have citizenship ties with the Republic of Turkey or branches, representative offices, offices, liaison offices, direct or indirect 50% or more shareholding or joint control and/or control of companies located in Turkey of persons resident in Turkey or persons resident abroad are party as buyers or lessees

·      Real estate lease contracts for the operation of accommodation facilities certified by the Ministry of Culture and Tourism.

·         Real estate lease contracts for the lease of duty-free shops.

Employment Contracts: The parties may not determine the contract price and other payment obligations arising from these contracts in foreign currency or indexed to foreign currency in employment contracts other than those to be performed abroad and those to which seafarers are a party. In addition to this, in employment contracts to which persons who are resident in Turkey but do not have citizenship ties with the Republic of Turkey are parties, the contract price and the other payment obligations arising from these contracts may be determined in foreign currency or indexed to foreign currency.

Service Contracts: The parties shall not determine the contract price or the other payment obligations in foreign currency or indexed to foreign currency in service contracts except the contracts listed below including consulting, brokerage and transport contracts.

·    Service contracts to which persons who do not have citizenship ties with the Republic of Turkey are parties.

·   Service contracts made within the scope of export, transit trade, sales and deliveries accounted for export and foreign currency-earning services and transactions.

·   contracts made within the scope of the transactions to be operated abroad by persons resident in Turkey.

·   Service contracts to be made among the persons resident in Turkey, starting in Turkey and ending abroad, starting abroad and ending in Turkey or starting abroad and ending abroad.

·     Accommodation services contracts to be made by persons resident in Turkey for the accommodation facilities certified by the Ministry of Culture and Tourism.

·    Sales contracts for software produced abroad within the scope of information technologies and license and service contracts for hardware and software produced abroad to be made among the persons resident in Turkey.

·    Employment and service contracts to which non-residents are party as employers or service recipients of branches, representative offices, offices, liaison offices, companies in which they directly or indirectly have fifty percent or more shareholding or joint control and/or control, and companies in free zones within the scope of their activities in free zones.

Contracts of Construction: The parties may determine the contract price and the other payment obligations arising from these contracts in foreign currency or indexed to foreign currency in construction contracts involving costs in foreign currency.

Software and License Contracts: In sales contracts for software produced abroad within the scope of information technologies and license and service contracts for hardware and software produced abroad, it is possible to determine the contract price and other payment obligations arising from these contracts in foreign currency or indexed to foreign currency.

Leasing Contracts: The parties may determine the contract price regarding leasing contracts to be made within the scope of Articles 17 and 17A of Decision No. 32 in foreign currency.

Contracts made by state institutions and organizations: The contract price and other payment obligations arising from the contracts below to which state institutions and organizations are parties, may be determined in foreign currency or indexed to foreign currency.

·      Within the scope of the projects to be conducted within the scope of foreign currency or foreign currency-indexed tenders, contracts and international conventions to which public institutions and organizations are a party, contracts other than real estate sales contracts and employment contracts to be made with third parties by contractors or incumbent companies and their contracting parties or to be made within the framework of the aforementioned projects, and

·      Contracts made in relation to transactions carried out under the Law on the Regulation of Public Finance and Debt Management.

However, the contract price and other payment obligations arising from these contracts may be determined in foreign currency or indexed to foreign currency in the contracts to which state institutions, organizations and companies of the Turkish Armed Forces Foundation are parties, except real estate sale and real estate lease contracts.

Contracts carried out under the Law on the Capital Market Law: Without prejudice to the provisions of Decision No. 32, within the framework of the regulations based on the Capital Markets Law No. 6362, it is possible to create, issue and trade capital market instruments (including foreign capital market instruments and depository receipts and foreign investment fund shares) in foreign currency and to determine the obligations related to the transactions in foreign currency.

Regulations regarding negotiable papers: In accordance with Article 8 of the Rescript on Decision No.32, it is not possible to determine the prices in foreign currency or indexed to foreign currency in the negotiable instruments to be issued within the scope of the contracts, the contract price and other payment obligations arising from these contracts, which are clearly explained above, cannot be determined in foreign currency or indexed to foreign currency. However, the negotiable instruments issued and got into circulation before the enforcement date (September 13, 2018) of the Temporary Article 8 of the Rescript on Decision No.32 are exemptions from the aforementioned Temporary Article.

Finally, pursuant to the aforementioned article, this paragraph does not apply to negotiable instruments in contracts where the contract price and other payment obligations arising from these contracts cannot be determined in foreign currency or indexed to foreign currency, collected or overdue receivables and deposits given within the scope of real estate lease agreements and got into circulation within the scope of the performance of the contracts

CONCLUSION

Pursuant to Article 3/1 of Law No. 1567, administrative fines amounting to TL 14,300 and TL 119,175 for the year 2022 for each party to the contract separately for the breaches in the Rescript will be applied. If the violation of the prohibition of making contracts in foreign currency or indexed to foreign currency is repeated, the administrative fine to be imposed will be doubled. Moreover, pursuant to Law No.6183 on the Procedure for Collection of Public Receivables, default interest will be applied to be collected with a fine at the rate of default interest for the period between the date of misdemeanor and the date of collection of the administrative fine to be imposed. Besides, there is not any adjudgment in this scope, there are several remarks stating the contracts made against the aforementioned regulations may be invalid.