As per the amendment to the Decision no.32, on redefining the payment obligations in contracts concluded among persons resident in Turkey in Turkish Liras.

Through the Presidential Decision no.85 Requiring Amendments to the Decision for the Protection of Turkish Currency which was published in the Official Gazette dated 13.09.2018 no.30534, Article 4 titled “Foreign currency” within the Decision no.32 has been amended and the provision of “Contract value and the other payment obligations arising from that contract cannot be set in foreign currencies or foreign currency indexed concerning the contracts of purchase and sale of movable and immovable property, leasing of all sorts of movable and immovable property including vehicle and financial leasing, business, service and work contracts among Turkish residents, except the cases indicated by the Ministry“ has been added to the aforementioned article as (g) clause.   

Pursuant to this arrangement enacted as of its publication date, implementation of this amending provision over the contracts to be concluded on the date of 13.09.2018 and later directly (a 30 days of adjustment period will not be applied) and setting the values in Turkish Liras for transactions that are not considered as exceptional cases indicated by the Ministry is mandatory.     

On the other side, values set in foreign currencies over the running contracts agreed-upon prior to 13.09.2018 should be redefined in Turkish currency by the parties within the legal period of 30 days, except the cases indicated by the Ministry.

The contracts that the payment obligations can be determined in foreign currency or foreign currency indexed concluded among the persons resident in Turkey will seperately be identified while it has been indicated in the Press Announcement published on 17.09.2018 that the input costs or liabilities in foreign currency will be taken as basis for evaluation. The Ministry, within its example for the exemption implementation indicated in the text of the press announcement, cites contracts concluded among residents in Turkey that were able to obtain foreign currency loans without being subject to any restrictions as per the articles 17 and 17/A within the Decision no.32 arranging access to the foreign currency loans and therefore liable to foreign currency denominated obligations.   

The decision is likely to be subject to different assessments on the grounds of  freedom of contract principle arranged in Article 26 of the Turkish Code of Obligations and regulations for deciding on paying in any other currency other than the national currency arranged in Article 99 and retrospectivity.    

However, at this stage, the matters that we support to be considered are provided below in brief.   

• Persons who are not allowed to set foreign currency or foreign currency indexed values

Contract value and the other payment obligations arising from that contract will not be set in foreign currencies or foreign currency indexed regarding the contracts (excluding the cases indicated by the Ministry) concluded and to be agreed-upon among residents in Turkey (2 or over).      

The expression of “Persons resident in Turkey” has been defined in the Artice 2 of the Decision no.32 and accordingly; it refers to the “b) Persons resident in Turkey: Real persons and legal entities with legal settlement in Turkey including the Turkish citizens abroad as a worker, self-employed and dealing with an independent occupation”. Pertaining to that, all real persons and legal entities with a legal settlement in Turkey (including the Turkish companies with foreign capital) are considered within the scope. Since the arrangement is shaped on the principle of  “legal settlement”, we are of the opinion that nationality will not be determinant especially for the foreign real persons and the item of location that the person lives with the intention of continuous stay (subjective item) should absolutely be taken into account as well.     

While the exemptions that would stand as a guidance to the implementation are identified by the Minstry, payments to be made to the foreign personnel that do not have an intention of continuous stay in Turkey and living dependent on the duration of work permit may also be considered to be covered by the exception. Otherwise, with the argument that work permit substitutes residence permit and is a presumption for location; comments may arise claiming that the employment contracts concluded with foreign personnel should be set in Turkish currency.

• Contracts that cannot be set with values in foreign currency or foreign currency indexed  

Pursuant to the statement added into Decision no.32, contracts that cannot be concluded among residents of Turkey with values in foreign currency or foreign currency indexed are indicated below;

• Contracts for purchase/sale of movable and immovable property,
• Leasing contracts for all sorts of movable and immovable property,
• Contracts for financial leasing and vehicle leasing, leasing contracts,
• Business contracts,
• Service contracts and
• Contracts of work.  

According to the Decision, the requriment concerning the usage of Turkish currency for each type of contract will be clarified through sub-regulations and legal comments. Since the contract types in scope are indicated in a confined manner within the text of the Decision, although it may be considered that any requirement for using Turkish currency does not exist in terms of the contract types that are not spelled among the mentioned contracts (e.g. contract of mandate, loan agreement); it would be appropriate to wait for  the sub-regulations for clarifications on implementation.   

• Exchange rate to be applied for redefining contract value by converting them into the Turkish currency 

Pertaining to the provisional Article 8 added to the Decision no.32, values set in foreign currency on the running contracts concluded prior to 13.09.2018 will be redefined in Turkish Liras by the parties, except the cases  indicated by the Ministry.          

It is essential for the parties to redefine values on the contract in Turkish Liras through mutual covenant. While the Decision no.32 does not contain any determination concerning the exchange rate to be applied for conversion into Turkish Liras, it may be considered to resort to the Central Bank exchange buying rate valid for the date in which the contract would be amended. In this respect, the agreement to be ensured between contracting parties would be essential. As long as the parties, as per  freedom of contract which is one of the basic principles within the Turkish Code of Obligations, do not handle the currency conversion, conclude the contract to contain values in foreign currency or as foreign currency indexed in itself; it would be considered as appropriate to the legislation.          

Any specification does not exist so as to prevent possible controversial cases for the circumstances when parties fail to make an agreement within the indicated deadline  regarding the agreed-upon contracts. On the other side, difficulties in setting a conversion method to be spontaneously applicable at the end of the period are apparent. General codes of law designed for the resolution of controversies  will apply on the cases that parties fail to set an agreement (including disputes about annulment).     

• Penalty for failing to redefine contract value in Turkish currency within the 30 day period

Decision no.32 is based on the Law for Protection of Turkish Currency no.1567 dated 20.02.1930. The penalties to be applied in case of violation of the foreign exchange legislation are regulated by the Law no.1567 as well. As per the Article 3 of the Law, individuals breaching the liabilities regarding the general regulatory transactions set by the President would be penalized with an administrative fine from TL 3000 up to TL 25000.   

(According to the Article 17/7 of Law of Misdemeanor, administrative fine amounts  should be increased annually at the revaluation rate and the administrative fine amounts for 2018 would apply between TL 5.631 and TL 46.964).

All payment obligations (eg, penal clause) within the contract, particularly the contract value should be redefined in Turkish currency until 13.10.2018. In the circumstance that any compromise could not be ensured over the contract value in Turkish currency within that period and parties carry on transactions in foreign currency/foreign currency indexed; the aforementioned administrative fines will be applied to all contracting parties seperately. On the other hand, as per the terms of gathering within the Law of Misdemeanor, if the act of breach is resorted more than once (eg the continuation of more than one contract with a value in foreign currency), each act (each foreign currency contract) shall be subject to a separate administrative fine.     In other words, all parties of the contracts in foreign currency concluded with violations to the amending terms or carried on being implemented shall be penalized with seperate administrative fines as much as the number of cantracts.  

If such misconduct is committed for the benefit of a legal entity, the same legal penalty shall be imposed on the related legal entity, too.         

The administrative fine to be applied will be subject to a delay interest to be collected with a penalty detected as per the late fee set according to the Law no.6183 for the period between the date of the offense and the date of collection (2 % monthly as of 05.09.2018). Penalties to be given in the form of repetition are doubled. The public prosecutor is authorized to decide on an administrative fine due to a violation of Decision no. 32.       

• What to do at this stage by the parties

Aside from the requirement of waiting for the regulations concerning the exceptional cases to be identified by the Ministry, taking the 30 days of compliance process for the running agreed-upon contracts into account, it would be appropriate to create a detailed list of the foreign currency contracts concluded with persons resident in Turkey as soon as possible.     

In terms of getting prepared, handling the below tasks for updates to the obligations and benchmarks to be taken as basis for each contract within the list will be essential;

• Review of contractual and performance obligations,
• Determining the terms for redefining payment obligations set in foreign currency into Turkish currency in line with the business model and
• Performing tasks about the updates to payment obligations featured with     continous performance that are set in Turkisn currency, in a forward looking manner. 

Thus, at the time that the Ministry identifies exemptions, it would be possible to quickly detect whether the concerning contract is within those exemptions or not and the process of completing the conversion of payment obligations into Turkish currency will be functioning by resuming the negotiations with other parties as soon as possible    if a requirement arises.     

Also, to be effective from 13.09.2018, for the circumstances requiring the usage of Turkish currency regarding the upcoming contracts,  revising the standard contracts and creating draft terms for the updates to the payment obligations concerning the contracts particularly in the form of continuous debt relation would be useful.   

When a regulation is announced regarding the cases deemed as exemption by the Ministry, a separate notification will be made and this article may be revised by taking into account exceptional circumstances.