Turkey: The decree to protect the value of the Turkish currency – limitation of foreign currency and foreign currency indexed contracts
The presidential decree no. 32 issued on 12/09/2018 to protect the value of the Turkish currency ("Decree") sets the limitation of foreign currency and foreign currency indexed contracts and stipulates that these contracts must be converted within 30 days into Turkish Lira (“TL”). This is a measure of the Turkish government and was taken to cope with the ongoing loss in value of the Turkish currency and also applies to contracts that were completed before the decree was issued.
The contracts that meet the following conditions are affected:
- The contracting parties are natural or legal persons who are resident in Turkey;
- The subject matter of the contract is the purchase, sale or leasing of immovable assets (purchase and rental contracts for vehicles and construction machines excluded), or involves a work, service or work contract;
- The contract does not fall under the exceptions which were determined with a communiqué issued on 06/10/2018.
According to the communiqué, certain exceptional contracts, such as employment contracts and service contracts executed abroad, the parties to which do not have Turkish nationality, can continue to be concluded in foreign currency or be foreign currency indexed.
Conversion of the contractual values
If the parties to a contract that must be converted into TL cannot reach an agreement on the new TL value, the contractual value will be converted as follows: The sales price for effects of the Turkish central bank of 02/01/2018 will be assumed as the index value and the resulting contractual value in TL will be adjusted in the amount of the increase rate for consumer prices between 02/01/2018 and the renewal date. The increase rate will be calculated on the basis of the rate of increase of the consumer prices determined monthly by the Turkish statistics institute ("TÜFE").
For the conversion of rental contracts, the rental price will be defined for a term of two years in TL. If the parties cannot achieve an agreement on the new TL value, the rent will be increased from the conversion date to the end of the lease year by the TÜFE value for the first year after the end of the lease year in which the conversion took place. If the contracting parties can likewise not reach an agreement in the subsequent lease year, the rent will be increased by the TÜFE value of the preceding year. The rent converted into TL will be valid until the end of the two-year period.
No specific sanctions have been established for a violation of the regulation stipulated in the decree, but persons who violate the regulatory measures issued by the presidential body can be sentenced to a fine of TL 3,000.00 to TL 25,000.00 in accordance with Article 3 of the Law on Protection of the Turkish currency (which will be doubled with repeated violation).
Author: Melis Paula Aydin