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Turkey Expands Scope of the FX Payment Prohibition

Turkey Expands Scope of the FX Payment Prohibition

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The Communiqué No. 2008-32/34 on the Protection of the Value of Turkish Currency was amended by Communiqué No.2022-32/66, and accordingly, a new prohibition has been introduced regarding foreign currency transactions. Pursuant to the amendment, the contract price will have to be paid in Turkish Lira in sale of goods contracts, other than those for vehicles. The new regulation expanded the scope of the prohibition on foreign currency transactions and became effective as of its publishment in the Official Gazette, i.e., on April 19, 2022. “Goods” in contracts for the sale of goods are defined as any kind of goods that do not fall under the definition of immovable goods.

Implications of the New Regulation

Before the amendment, it was possible to pay the contract price in foreign currency in the sale of goods contracts concluded between residents of Turkey. However, from now on, the price agreed in such contracts can only be paid in local currency.

However, the amendment does not prevent the parties from setting the purchase price in foreign currency or indexed to foreign currency. In other words, the parties to a sale of goods contract may agree on their payment obligation in foreign currency or indexed to foreign currency, but those amounts must be paid in Turkish Lira on the payment date.

It should be emphasized that the ban in question only applies to the contracts between Turkish residents. As such, payments under a sale of goods contract between a Turkish resident and a foreign resident can be made in foreign currency.

Application of FX Ban on Negotiable Instruments

According to the statement [available in Turkish] published by the Ministry of Treasury and Finance of the Republic of Turkey regarding the new regulation, it will no longer be allowed to use negotiable instruments issued in foreign currency for the payment of the price in the sale of goods contracts as of April 19, 2022. Yet, the prohibition is not applicable to negotiable instruments issued in foreign currency and entered into circulation before April 19, 2022. That is to say, it is allowed to pay for a FX-negotiable instrument in the same currency so long as it was issued and circulated before the amendment.

Penalties for Non-Compliance with the FX Ban 

Those who breach the above-mentioned ban on foreign currency transactions may face administrative fines ranging from 14,200 TRY to 118,500 TRY, imposed separately for each party to the sale of goods contract. If the parties fail to comply with the ban for a second time, the fines will be doubled.

Review

As of April 19, 2022, payments can only be made in Turkish Lira in contracts for all goods that do not fall within the category of immovable goods, and even if the contract price is stipulated in foreign currency or indexed to foreign currency, debtors must pay in Turkish Lira and creditors cannot accept payments in foreign currency. The new regulation ban is only applicable to the contracts between two Turkish residents. To avoid any potential conflicts that may arise as a result of the ban, it would be advised that the foreign currency denominated price specified in current contracts be fixed at the exchange rate on the date agreed by the parties. It should be added that invoices issued before April 19, 2022 are not subject to the new rule and can be paid in foreign currency.

By Zahide Altunbas Sancak, Partner, and Beliz Boyalikli, Legal Trainee, Guleryuz & Partners

Guleryuz & Partners at a Glance

Güleryüz & Partners Attorneys at Law is an Istanbul based law firm offering a broad scope of high-quality legal services to domestic and multinational clients across a wide range of regulated and non-regulated industries. The Firm is comprised of energetic young professionals, led by experienced lawyers with a proven track record of working in the most demanding environments possible. Our team has comprehensive experience in serving clients in connection with a full breadth of Turkish law matters including Litigation & Dispute Resolution, M&A, Wealth Management & Family Businesses, General Corporate & Contract Law, Real Estate & Construction, Enforcement and Bankruptcy Proceedings, Labor Law, Administrative Law, and Anti-Corruption & White-Collar Crimes. 

Our core business culture is centered on integrity, dedication to clients’ needs, and excellence of legal advice and services. Therefore, our primary objective is to ensure the most personalized and reliable legal service for our clients. In pursuit of this objective, the international academic backgrounds of our partners at prestigious universities in USA, UK and Germany coupled with more than ten years of past experience at top tier Turkish law firms enhances the visionary practice of the Firm.

We blend our practical expertise with our outstanding grasp of legal theory in order to provide our clients with legal services of unmatched quality. Our clients range from multinational companies where we provide a level of attention normally only expected from in-house counsels in order to timely manage every aspect of the clients’ legal needs, to individuals for whom we make their objectives ours in order to provide comfort and ease of life. While we always put client service above all, we are proud to be on a quest to make reliable legal information available for everyone. Hence, we are constantly authoring articles on a broad scope of legal topics for respectable publications including Bloomberg Businessweek and the monthly magazine TR Monitor.

While Güleryüz & Partners operates mainly in Turkish and English, we are capable of providing legal services in French, German and Russian as well. The Firm also has an associated office in Ankara.

You can learn more about the Firm at guleryuz.av.tr