Executive summary

On 13 September 2018, Turkish Presidential Decision No. 85 amending the Decree No. 32 Regarding the Protection of the Value of the Turkish Currency (Decree No. 32) entered into force.¹ The Presidential Decision stated that except for cases to be declared by the Ministry of Treasury and Finance (Ministry), for contracts concluded among Turkish residents, the contract price and other payment obligations arising from such contract shall not be determined in foreign currency or indexed to foreign currency.

On 6 October 2018, the Ministry issued a Communiqué listing both the exemptions from and the transactions that require the Turkish Lira (TL) obligation on such contracts.

Detailed discussion

The exemptions set forth by the Communiqué are summarized below.

Contract value cannot be determined in foreign currency or indexed to foreign currency in the following contracts executed by and between Turkish residents:

• Sales and rental contracts regarding real estate (including residence and office) located in Turkey (including the free trade zones)
• Employment contracts, (except for the works to be performed by the employees in abroad)
• Service contracts (including consultancy, intermediary and logistics) except for the following exceptions:
  • Service contracts where the parties to the service contract are non-Turkish citizens
  • Service contracts that are executed for exportation, transit commerce, sales and deliveries that are deemed as exportation and foreign exchange revenue generating services and activities
  • Service contracts executed for the activities of Turkish residents outside of Turkey
  • Service contracts regarding the electronic communication which (i) starts in Turkey and ends abroad, or (ii) starts abroad and ends in Turkey
• Work contracts, (except for the work contracts executed for the construction, repair and maintenance of the ships defined in the Turkish International Ship Registry Code dated 16/12/1999 and No. 4490 and Code No. 491)

The contract value of the following contracts can be determined in foreign currency or indexed to foreign currency:

• Contracts executed by and between Turkish residents for the sales and rental of movable property (except for vehicles, including the engineering vehicles)
• Sales contracts executed by and between Turkish residents for software produced abroad that is in the scope of information technologies
• License and service contracts executed by and between the Turkish residents for hardware and software
• Financial leasing contracts of ships that are defined in the Turkish International Ship Registry Code dated 16 December 1999 and No. 4490 and Code No. 491
• Employment contracts executed by the Turkish residents who are not Turkish citizens
• Except for real estate sales and rental contracts, contracts to be executed by public institutions and organizations and Turkish Armed Forces Foundation
• Except for real estate sales, rental and employment contracts, contracts executed by subcontractors with third parties provided that these contracts are related to the performance of the bids, international agreements and contracts bearing foreign currency remuneration executed by the public institutions and organizations
• Contracts executed by banks regarding the transactions performed by the Ministry of Treasury and Finance as per the Code No. 4749
• Employment and service contracts executed by nonresidents who have branches, representatives, offices, liaison offices and subsidiaries (shareholding rate must be at least 50% directly or indirectly) in Turkey
• Employment and service contracts executed by companies in a free trade zone for their operations such free trade zone
• Commercial airline businesses carrying on passenger, carriage and post transportation activities; companies that provide technical maintenance services related to aircrafts, aircraft engines, and aircraft parts, public or private entities which have obtained a license or are authorized for providing ground services in airports in line with civil aviation legislation and entities which directly or indirectly participate (at least 50%) in the capital of these entities may determine contracts in foreign currency (except for contracts executed for real estate sale, rental and employment)

Contract values can be determined only in foreign currency for the following contracts:

• Financial leasing contracts to be executed as per Articles 17 and 17/A of Decree No.32
• Issuance, sales and purchase of capital markets instruments within the scope of Capital Markets Code No. 6362 and its respective legislation

In addition to the above, other terms of the Communiqué are as follows:

• Amounts for securities that will be issued within the scope of contracts which require Turkish Lira consideration as per this Communiqué cannot be determined in or indexed to foreign currency.
• The following entities located abroad but owned by Turkish residents are deemed as Turkish residents: Branches, representatives, offices, liaison offices, funds that are managed or operated, companies with participation of Turkish residents at 50% or more than 50%, directly or indirectly.
• Contracts that are signed before 13 September 2018 and are determined as exempt from TL conversion requirement under this amendment, are exempt from Temporary Article 8 of the Decree No. 32.
• Vehicle leasing contracts (including engineering vehicles) that are concluded before 13 September 2018 are exempted from the requirement to convert the contract amount to TL.
• It is obligatory to redefine the contract amounts into TL except for the exceptions listed above.
• If the parties are unable to reach a mutual agreement on determining the TL amount, they should use the indicative selling rates of the Central Bank of the Republic of Turkey on 2 January 2018. The converted amount must then be adjusted based on the monthly consumer price index rates changes determined by the Turkish Statistical Institute for the period from 2 January 2018 to the restatement date.

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ENDNOTE

¹ See EY Global Tax Alert, Turkey requires contracts between Turkish residents to be valued in Turkish Lira, dated 13 September 2018.

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CONTACTS

For additional information with respect to this Alert, please contact the following:

Kuzey Yeminli Mali Müsavirlik A.S. Istanbul

• Ates Konca
  ates.konca@tr.ey.com
• Gamze Durgun
  gamze.durgun@tr.ey.com

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ATTACHMENT

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