Category: News

Important Changes to Foreign Currency Designated Contracts

NEWS 20.09.2018

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Important Changes to Foreign Currency Designated Contracts

LAW ALERT: UPDATE 20/09/18

Important Changes to Foreign Currency Designated Contracts

Summary

As part of an attempt to support the Turkish Lira (“TL”) the Turkish President has issued a decree requiring all Turkish entities and individual to denominate all contracts between local parties in TL. Denominating rents or payments in foreign currencies (“FX”) is no longer possible. Indeed the decree requires all FX designated contracts to be changed within 30 days from implementation of the decree, 13 September 2018.

Following a general panic in the market and multiple questions to the Ministry a press release was issued on 17 September 2018(“Press Release”), providing some clarification.

The Press Release suggests that local companies capable of obtaining foreign currency loans may be exempted from requiring to make all contracts in local currency, but there will be exemptions provided by the cabinet.

All Change in Turkish FX Rules – The details

The amendments to the Decree No. 32 Regarding the Protection of the Value of the Turkish Currency (“New Decree”) was published in the Official Gazette on September 13, 2018. The New Decree restricts FX and FX-indexed payments for many Turkish resident-to-resident transactions.

With this New Decree, it is legally prohibited to denominate the contract price and other payment obligations in a foreign currency or to index payments in TL to foreign currency rates for the following transactions:

• Sale and purchase of real estate,
• Sale and purchase of movable properties,
• Leasing of real estate and movable properties, including financial leasing and leasing of vehicles (cars and other vehicles), and
• Employment agreements, service contracts and independent constructor agreements (work contracts)

The Ministry of Treasury and Economy is authorized to provide exemptions to the foregoing restrictions if it deems necessary.

It should be noted that this amendment came into force with immediate effect upon publication (13 September), and therefore all new agreements and transactions falling under the foregoing scope will need to be in line with the New Decree.

 

Agreement made prior to the amendment must be modified to comply with these restrictions within thirty days as of September 13, 2018.

 

In this context it is strongly recommend that the operation and business departments of our Clients to take note of these changes and make the necessary adjustments within the 1 month deadline.

 

New Update: The Press Release (which is not a law and therefore the law in the decree still prevails) states that local companies capable of obtaining foreign currency loans (under Article 17 or 17/A of Decree No 32 on Protection of Turkish Lira ) may be exempted from requiring to make all contracts in local currency.

 

Only corporate entities can be under Article 17 and 17/A and their entitlement to benefit from foreign currency loans is determined by the Central Bank. If there is an entitlement there should be an exemption.

 

However until there is a law putting the exemption in force there is still an obligation to change agreements before 14 October from FX to TL.

 

We understand the basis for the exemption is to support entities who are under article 17 or 17/A since they need foreign currency to repay their loans. Giving an exemption to parties not under Article 17 or 17/A would be against the general purpose of the decree, which among other things is to prevent landlords and sellers of property from setting rents and sale prices in FX.

 

In these circumstances, at least the seller or Landlord must be entitled to article 17 protection. If not then the contract must be in TL. Tenants need to get their Landlords to confirm their status and if they do not have Article 17 protection then they must make the agreements in TL.

 

In any event until a new law specifies the exemption all contracts must be in TL.

 

If you have any questions of require any further assistance with the foregoing we will be happy to help.

 

In the first instance please contact Baris Polat partner in charge of Corporate Matters: Baris.Polat@senguler.av.tr or call +90 212 361 50 66 x 117

20 September, 2018 www.senguler.av.tr