Former Regulations Concerning FX Prohibition
The Presidential Executive Decree numbered 85 and dated 12 September 2018 (the “Decree”) prohibits the private and public residents in Turkey from agreeing their payment obligations in or indexed to foreign currencies in contracts between them concerning sale and purchase of movable and immovable, all kinds of lease and rentals of movables or immovable including vehicle leases and financial leases, employment, service and commissioning of works, except for circumstances to be determined by the Ministry of Treasury and Finance (the “Ministry”).
As per the authorization given to the Ministry by the Decree, the Ministry published the Communiqué numbered 2018/32-52 Amending the Communiqué numbered 2008-32/34 on the Decree No. 32 Regarding the Protection of the Value of the Turkish Currency (the “Communiqué”) on 16 November 2018.
The Communiqué removes certain types of contracts, price and other payment obligations of which should be determined in Turkish currency in accordance with the Decree, from the scope of the prohibition and regulates them under the exceptions. As per the Communiqué, one of the exceptions to the contract types mentioned in the Decree is movable sale contracts.
Accordingly, the Communiqué states that persons residing in Turkey may determine the contract price and other payment obligations in foreign currency or indexed to foreign currency in movable sale contracts to be concluded between themselves and that only vehicle sale contracts are excluded from the scope of this exception.
Amendment to the Payment Obligation in Movable Sale Contracts
Following the above summarized regulations realized in 2018, article 8(9) of the Communiqué numbered 2008-32/34 regulating movable sale contracts was amended with the Communiqué numbered 2022-32/66 Amending the Communiqué numbered 2008-32/34 on the Decree No. 32 Regarding the Protection of the Value of the Turkish Currency, which was published on the Official Gazette dated 19 April 2022 and numbered 31814.
With the amendment made, the sentence of “However, it is mandatory that the payment obligations subject to those contracts are fulfilled and accepted in Turkish Lira” was added at the end of article 8(9) of the Communiqué numbered 2008-32/34 and full text of the said article became as follows:
Except for vehicle sale contracts, persons residing in Turkey may determine the contract price and other payment obligations in foreign currency or indexed to foreign currency in movable sale contracts to be concluded between themselves. However, it is mandatory that the payment obligations subject to those contracts are fulfilled and accepted in Turkish Lira.
According to the wording of the latest version of article 8(9) of the Communiqué numbered 2008-32/34, it became separately compulsory for the buyers who are resident in Turkey and party to a movable sale contract to make the payments in Turkish Lira while the sellers who are resident in Turkey are obliged to accept such payments which is made in Turkish Lira. In other words, payment obligations in movable sale contracts signed between persons resident in Turkey, with the exception of vehicles sale contracts, may still be determined in foreign currency whereas payments concerning those contracts shall be made in Turkish Lira.
Ministry Announcement on the Amendment to the Payment Obligation in Movable Sale Contracts
Following the publication of the Communiqué numbered 2022-32/66, the Ministry further published a press announcement on the subject matter on 21 April 2022. According to the announcement:
- The term “movable” used in both Communiqué numbered 2008-32/34 and the Communiqué numbered 2022-32/66 contains all kinds of goods and products that are not within the scope of the immovable definition.
- Cheques and other similar payment instruments that are arranged in foreign currency on 19 April 2022 which is the date on which the Communiqué numbered 2022-32/66 came into effect and thereafter, cannot be used for fulfilling the payment obligations in movable sale contracts that were/will be signed between residents of Turkey.
- Residents in Turkey are not obliged to fulfil or accept the payment obligations in Turkish Lira as long as those obligations arose from movable sale contracts executed between them before 19 April 2022 and those obligations are within the scope of negotiable instruments in foreign currency which got into circulation before 19 April 2022; and
- It will not be compulsory to fulfil or accept the payment obligations in Turkish Lira as long as those obligations arose from invoices that are issued before 19 April 2022.
That being said, there are no provisions or explanations either in the Communiqué numbered 2022-32/66 or in the Ministry announcement as to which date would be considered for determining the currency exchange rate for Turkish Lira payments in relation to movable sale contracts in which the payment obligations are determined in foreign currency.
Other Amendments Introduced with the Communiqué numbered 2022-32/66
In addition to the amendment regarding the payment obligations in movable sale contracts, the wording of article 8(15) of the Communiqué numbered 2008-32/34 numbered was changed from “determined” to “determined, paid and accepted” with the Communiqué numbered 2022-32/66.
Within this context, if one of the contracting parties is a public institution or Turkish Armed Forces Foundation company, it has become possible to determine, accept and pay the contract price and other payment obligations in foreign currency or indexed to foreign currency regarding their contracts (except immovable sale or rental contracts).
The amendments introduced with the Communiqué numbered 2022-32/66 are put into effect with its publication on 19 April 2022.
It is of great importance to take into account the above explained amendments concerning the payment obligations in movable sale contracts, which are frequently used in commercial life, and fulfil the payment obligations in Turkish Lira even though the payment obligations were determined in foreign currency in the contract, by coming to a mutual agreement on the exchange rate, at least up until a regulation or Ministry announcement is issued to clarify the exchange rate matter. In circumstances where the parties are not in a position to come to a mutual agreement on the exchange rate to be used in the Turkish Lira conversion, it is evaluated that using the effective selling exchange rate of the Central Bank of Turkey applicable at the time of fulfilling the payment obligation would be appropriate.
Administrative fines will be implemented to those who breach the provisions of the Communiqué numbered 2008-32/34; in other words, to those who continue to fulfil payment obligations in movable sale contracts by making the payments in foreign currencies. As per the revaluation rates set forth under paragraph 1 of Article 3 of the Law on the Protection of the Value of Turkish Currency regarding violations of the Communiqué, administrative fines from TRY 11,000 up to TRY 100,000 will be imposed separately to each party of the contract. In case of a recurrence, these fines will be imposed by doubling the amount.