TAX NEWS NO: 2018/13
October 6, 2018
Subject: The communiqué on the exceptions to the restriction of foreign currency contracts has been published.
“Communique (No. 2018-32/51) amending Communique (No. 2008-32/34) regarding Decree no. 32 on the Protection of the Value of Turkish Currency” has been published in the Official Gazette on October 6, 2018 and entered into force on the same date.
As you may remember, with the Presidential Decree no.85 dated September 13th, 2018, determination of foreign currency or foreign currency indexed values in both new and existing contracts among Turkish residents have been restricted and the values in the existing contracts shall be converted in Turkish Lira within 30 days from the date of 13.09.2018.
With this Communiqué, exceptions to this restriction have been announced by the Ministry of Treasury and Finance.
1) Real Estate Sales and Lease Contracts
In the Communiqué, real estate sales and leases among Turkish residents have not been included within the scope of the exemption.
Accordingly, the value and any other payment liabilities arising from the real estate sales and lease contracts, executed among Turkish residents, and related with residence and roofed workplaces located in Turkey including free zones are not allowed to be denominated in a foreign currency or foreign currency indexed value.
2) Employment Contracts
Except for the contracts with respect to the employment activities to be performed abroad, the value and any other payment liabilities arising from the employment contracts among the Turkish residents are not allowed to be denominated in a foreign currency or foreign currency indexed value.
On the other hand, employment contracts executed with persons who have no bonds of citizenship with the Republic of Turkey, although residing in Turkey, may be denominated in a foreign currency or foreign currency indexed value.
Furthermore, the value and any other payment liabilities arising from the employment contracts which are executed by;
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The non-Turkish residents’ branches, representatives, offices, liaison offices located in Turkey,
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Companies participated by non Turkish residents directly or indirectly at a rate of 50% or more, and
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Free zone companies, only for their activities in the free zone
may be denominated in a foreign currency or foreign currency indexed value.
However,
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branches, representation offices, offices, liaison offices located abroad, that are owned by the persons resident in Turkey,
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the funds operated or managed by the Turkish residents,
3) Service Contracts
The value and any other payment liabilities arising from the service contracts (including consultancy, intermediation and transportation contracts) which are executed among Turkish residents are not allowed to be denominated in a foreign currency or foreign currency indexed value except;
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In circumstances where a person who has no bonds of citizenship with the Republic of Turkey is a party to these service contracts,
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The service contracts with respect to export, transit trade, export sales and deliveries and foreign exchange earning services and activities,
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The service contracts regarding the activities to be performed abroad by the residents in Turkey,
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The services contracts, which are executed among Turkish residents, relating to electronic communication starting in Turkey and ending abroad, or starting abroad and ending in Turkey.
However, the value and any other payment liabilities arising from the service contracts which are executed by;
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The non-Turkish residents’ branches, representatives, offices, liaison offices located in Turkey,
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Companies participated by non Turkish residents directly or indirectly at a rate of 50% or more, and
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Free zone companies, only for their activities in the free zone
may be denominated in a foreign currency or foreign currency indexed value.
Also, as mentioned above;
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branches, representation offices, offices, liaison offices located abroad, that are owned by the persons resident in Turkey,
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the funds operated or managed by the Turkish residents,
4) Sales of Movable Properties or Lease Contracts
The value and any other payment liabilities arising from the movable properties’ sales or lease contracts (except for vehicle and engineering vehicle sales contracts) which are executed among Turkish residents may be denominated in a foreign currency or foreign currency indexed value.
5) Vehicle Lease Contracts
Monetary values stated on vehicle lease contracts (including engineering vehicles) must be denominated in Turkish Lira. However, the same kind contracts that already have been executed prior to September 13, 2018 do not need to be converted into Turkish Lira.
6) Contract of Work
As per the Article 470 of the Turkish Code of Obligations (“TCO”) numbered 6098, a contract of work is defined as a contract in which the contractor undertakes to perform a certain specified duty whereas the principal undertakes to pay the price for the contractor’s performance. Construction or infrastructure work contracts may be given as contract of work examples.
Pursuant to Communiqué, the value and any other payment liabilities arising from the contracts of work to be executed among Turkish residents are not allowed to be denominated in a foreign currency or foreign currency indexed value, with only one exception as the contracts of work regarding construction, repair and maintenance of the vessels.
7) Financial Leasing Contracts
As a general rule, the value and any other payment liabilities arising from the financial leasing contracts are not allowed to be denominated in a foreign currency or foreign currency indexed value. However, there are certain exceptions.
Accordingly;
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In financial leasing contracts for vessels,
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In financial leasing contracts to be executed within the scope of Articles 17 and 17/A of the Decree No.32.
value and any other payment liabilities arising from the financial leasing contracts may be denominated in a foreign currency or foreign currency indexed value.
8) Sales Contracts related to Software Products Produced Abroad and Hardware - Software License and Service Contracts
In the sales contracts to be signed for software products produced abroad within the scope of information technologies and in the hardware – software licence and service contracts to be executed among the residents in Turkey, the value and any other payment liabilities are allowed to be denominated in a foreign currency or foreign currency indexed value.
9) Arrangements with respect to the Capital Markets Board Instruments
Without prejudice to the provisions of the Decree Numbered 32 on the Protection of the Value of the Turkish Currency, within the framework of the Capital Markets Law Numbered 6362 and arrangements made based on this Law, establishment, issuance, purchase-sale of capital markets instruments (including foreign capital markets instruments and depositary receipts and foreign investment fund shares), and the obligations relating from transactions made, can be denominated in a foreign currency.
10) Contracts with Public Institutions and Organizations
There are also exceptions regarding the following type of contracts to which the public institutions and organizations are parties.
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Contract values relating to and other payment obligations arising from contracts other than the real estate sale and real estate lease contracts, to which the public institutions and organizations or the companies of the Turkish Armed Forces Foundation exist as a party, can be denominated in or indexed to a foreign currency.
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Contract values relating to and other payment obligations arising from contracts other than the real property sale, real property lease and employment contracts executed between the contractors and the third persons, can be denominated in or indexed to foreign currency, provided that it is included within the scope of performance of tenders, contracts and international treaties denominated or indexed to in foreign currency, executed by public institutions and entities.
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Contract values relating to and other payment obligations arising from contracts to be executed by the banks with respect to the transactions realized by the Ministry of Treasury and Finance, within the scope of Law on Regulating Public Finance and Debt Management can be denominated in or indexed to a foreign currency.
11) Contracts pertaining to airline businesses
The exceptions with regard to commercial airline operators are defined below.
Accordingly,
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The entities engaged in the provision of technical maintenance services for the air transport vehicles, theirs motors, parts, and components,
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Public or private entities which are authorized or licensed to render ground services at the airports and entities that are established or owned with at least 50% share by these entities,
can have contracts denominated or indexed to a foreign currency with the persons residing in Turkey. However, contracts relating to sale and lease of immovable property and employment contracts are not included and must be denominated in Turkish Lira.
12) Values Stated on Negotiable Instruments and Considerations for the Contracts Valued in International Markets
The values set out in the negotiable instruments to be issued within the scope of contracts, in which the contract values and the other related payment liabilities are not allowed to be denominated in or indexed to a foreign currency can also not be denominated in or indexed to a foreign currency.
Contracts that are indexed to precious metals and/or commodities, the values of which are denominated in a foreign currency and/or that are indirectly indexed to a foreign currency in the international markets, shall be regarded as contracts indexed to foreign currency.
13) The Conversion FX Rate for the Contracts Denominated In a Foreign Currency and Renewal of Contracts
As per the provisional Article 8 of the Decree 32, foreign currency or foreign currency indexed contract values and other payment liabilities in the contracts which are not in the scope of exemptions mentioned in this Communique have to be re-determined by the parties in Turkish Lira until 13.10.2018.
If the parties may agree, it is allowed for them freely to determine the new exchange rate for conversion.
If the parties do not agree on the exchange rate, it is expected initially to convert the existing value into Turkish Lira based on 02.01.2018 Banknote Selling rate announced by the Central Bank of the Republic of Turkey and later expected to index utilizing monthly consumer price index figures determined by the Turkey Statistical Institute in order to achive the contract value at the re-determination date.
Additionally as per the Communique, for the residence and roofed workplace lease contracts executed prior 13.09.2018, the values denominated in a foreign currency or foreign currency indexed have to be determined in Turkish Lira for a period of two years.
If may not be agreed by the parties, to be effective for 1 year term and starting from the year end of the lease period, the Turkish Lira denominated lease value will be increased based on Turkey Statistical Institute’s consumer price index (CPI) determined for each month.
If the parties do not agree on the Turkish Lira amount for the next year, the effective lease value applicable for the previous year will again be increased as per the Turkey Statistical Institute’s montly consumer price index (CPI) and this amount will be effective until the end of the 2 years period mentioned in this paragraph.
14) Contracts Valued In TL although Exemption is Available
The parties to whom the exception is granted and who are in mutual agreement may demand to execute new contracts in Turkish Lira or may demand to re-determine the values of the existing foreign currency or foreign currency indexed contracts in Turkish Lira as per the temporary article 8 of the Decree no. 32.
Yours sincerely,
Deloitte Turkey
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