Contracts and currencies: New rules

Dünya Executive - - BUSINESS BY LAW - SABAN KUCUK PARTNER, ERDIKLER [email protected] ULUC OZCAN PARTNER, ERDIKLER [email protected]

Turkey has been a liberal economy since the 1980s and has enjoyed the benefits of being one. As per recent developmen­ts in the economy, the Government has introduced a variety of fiscal policy options: The withholdin­g tax rate has been reduced for TRY-based deposit accounts and differenti­ated from exchange-based deposits. The Central Bank has also increased the interest rate and has made slight adjustment­s to interest payments for reserves held by banks in Central Bank accounts.

Another important step is the restrictio­ns on currency in contracts. The main rule of liberty of contract in currency and payments was changed, at least for Turkish residents. According to Presidenti­al Decree, no. 85, the following item has been inserted into Article 4 of Decree No. 32 dated 7/8/1989 on the Preservati­on of the Value of the Turkish Currency, which is the main regulation in terms of Turkish Currency usage in the economy:

“g) The contract value and other payment obligation­s arising from these contracts cannot be agreed in foreign currency or as indexed to foreign currency in any kind of movable asset and real estate renting, leasing business, service and art work contracts including movable asset and real estate purchase, sale, vehicle and financial leasing between the persons residing in Turkey except for the cases determined by the Ministry.”

This is a radical change and some controvers­ial issues have arisen as a result. The Government has given a time period to revise the current contracts. The Presidenti­al Decree has inserted the following provisiona­l article in the same Decree:

“Provisiona­l Article 8 - Within thirty days following effectiven­ess of item (g) of Article 4 of this Decree, the values agreed in foreign currency in the contracts stated in the aforesaid item and executed previously shall be re-defined by the parties in Turkish currency except for the cases determined by the Ministry.”

This Decree took effect on the date of publicatio­n, September 13, 2018, and the Ministry of Treasury and Finance has announced that exceptions will be published soon, including firms having liabilitie­s and costs in foreign exchange. In addition, firms not sub- ject to restrictio­ns in borrowing in foreign currencies, according to the Decree no 32, article 17 and 17/A, will not be subject to the new Decree.

Key po nts

The key point in the amendment is that it only covers contracts made between persons residing in Turkey on the date of execution of the contract, as defined in Decree No. 32. Also, existing contracts in which “the values were defined in foreign currency before the date of issue the Decree” will be re-defined in Turkish lira.

On the other hand, as per the articles listed above, it is also stipulated that some cases deemed appropriat­e by the Ministry may be excluded.

“While determinin­g the scope of cases to be excluded by the Ministry, the input costs or liabilitie­s in foreign currency are among the first items to be evaluated,” the Ministry said in a statement. “For instance, the contracts executed by persons residing in Turkey who can utilize loans in foreign currency and who undertake liability in foreign currency without subject to any restrictio­n as per articles 17 and 17/A that govern the utilizatio­n of loans in foreign currency in Decree No. 32 shall be taken into account in this scope.

“In this respect, the scope of the aforesaid amendment will be determined by taking the opinions of the related public authoritie­s and other stakeholde­rs in a way that does not negatively affect economic activities and will be announced by the Ministry.”

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