The Communique Related to the Decree on the Protection of the Value of the Turkish Currency Numbered 32, Prepared by the Ministry of Treasury and Finance 09 October 2018

By the Decree amending the Decree on the Protection of the Value of the Turkish Currency numbered 32 published on September 13th, 2018 (“the Decree”), it has been decided that prices of real estate and movable purchase and sell contracts , all kinds of movable and real estate rental contracts including vehicle renting and financial leasing, employment, leasing, service and construction contracts executed between residents in Turkey shall not be drawn in foreign currency or foreign currency indexed. It has been also indicated in the Decree that details regarding the implementation of the Decree will be issued by the Ministry of Treasury and Finance.

The expected Communiqué prepared by the Ministry of Treasury and Finance was published on the Official Gazette dated October 6th, 2018 numbered 30557. The main aspects that are pivotal and have arisen out of the issuance of the Communiqué on the Amendment to the Decree on the Protection of the Value of the Turkish Currency numbered 32 (“The Communique”) are as follows;

1)Which contracts have been excluded from the Decree?
In the Decree entered into force on September 13th, 2018, it has been regulated that the implementation will be valid except for the situations to be specified by the Ministry. These exceptions have been specified in the Communiqué dated October 6th, 2018 issued by the Ministry of Treasury and Finance and parties will be able to determine the price of the contract and other payment liabilities in foreign currency or foreign currency indexed in the situations stated below;

·     Service contracts executed by the parties who are not of Turkish nationality
·     Service contracts executed in the scope of exportation, transit trade, selling and deliveries deemed as an exportation and foreign currency saver services and activities.
·     Service contracts drawn up in the scope of Turkish residents’ activities to be carried out abroad.
·     Service contracts executed between the parties who are resident in Turkey on electronic communication which begins in Turkey and ends abroad and vice versa.
·     Movable purchase and rental contracts executed between the parties who are resident in Turkey except for vehicle purchase and rental contracts including heavy equipment.
·     Selling contracts, executed between the parties who are resident in Turkey, related to software generated abroad as a part of informatics technology and service and license contracts related to software and hardware.
·     Leasing agreements related to ships.
·     Leasing contracts executed within the scope of loans granted abroad and domestic.
·     Employment contracts of which parties are not of Turkish nationality but residing in Turkey.
·     Contracts, excluding real estate selling and rental contracts, which state institutions and organizations and the companies of the Turkish Armed Forces Foundation are a party to.
·     Other specific contracts which state institutions and organizations are a party to and certain specific transactions of the Ministry of Treasury and Finance
·     Liabilities related to constitution, exportation, purchasing, selling of capital market instruments and to the transactions performed
·     Employment and service contracts which branch, agency, office, liaison bureau of the persons who are not resident in Turkey and the companies owned directly or indirectly by the persons who are not resident in Turkey by 50% or more and the companies in the free trade zones provided that it is only related to their activities in the free trade zones are a party to
·     Contracts (excluding real estate selling and rental and employment contracts) executed with Commercial airline companies of which registered office is in Turkey; companies which serve technical maintenance to the means of aerial transportation, companies which serve floor maintenance service and companies and undertakings that were established by the said companies.

2)Can the negotiable instruments, drawn in the scope of the contracts which have not been specified as an exception in the scope of the Communiqué and of which prices shall not be determined in foreign currency or foreign currency indexed, be drawn in foreign currency?
It is clearly stated in the Communiqué that prices of negotiable instruments to be drawn within the scope of contracts, of which prices shall not be determined in foreign currency or foreign currency indexed pursuant to the Decree dated September 13th, 2018 numbered 85, shall not be determined in foreign currency or foreign currency indexed.

3)Can the contracts which precious metal and/or commodity is indexed to be executed?
In the Communiqué, it is stated that “the contracts which are indexed to the precious metals and/or goods of which prices are determined in foreign currency in the international markets and/or the contracts which are indirectly indexed to foreign currency shall be deemed as contracts indexed to foreign currency.”
Therefore, contracts of which prices shall not be determined in foreign currency or foreign currency indexed, shall not be determined in gold indexed as well.

4)What happens to the contracts signed before the date of September 13th, 2018?
The contracts which were signed before the date of September 13th, 2018 and were specified as an exemption in the Communique dated October 6th, 2018 will continue to be executed in foreign currency or foreign currency indexed.

If the price of these contracts was converted into the Turkish Lira by conciliation of parties after the date of September 13th, 2018, these conversions shall be deemed as valid but parties are able to re-determine the contract price in foreign currency or foreign currency indexed.
Prices of contracts, which were signed before the date of September 13th, 2018, were not specified as an exception in the Communiqué dated October 6th, 2018 and of which prices can’t be determined in foreign currency or foreign currency indexed as per to the related Decree and the Communiqué, shall be re-determined in Turkish Lira by parties.
Vehicle rental contracts (including heavy equipment) signed before the date of September 13th, 2018 can continue to be executed in foreign currency or foreign currency indexed, but prices of vehicle rental contracts signed after September 13th, 2018 shall be re-determined in Turkish Lira.

5)Which criterions shall be taken as a basis in re-determining process?
If parties fail to agree on a contract price in Turkish Lira, the contract price shall be deemed to be determined in Turkish Lira corresponding to the contract price determined in foreign currency over Central Bank effective selling rate dated January 2nd, 2018 and over this price, increasing in monthly rates of change of consumer price index for each month from January 2nd, 2018 until the re-determination date. The important issue is that monthly rates of change of consumer price index for each moth will be implemented separately and the final price will be determined accordingly.

6)What is the process of re-determining in rental contracts of residences and roofed workplaces?
Prices of rental contracts of residences and roofed workplaces signed before September 13th, 2018 will be determined in Turkish Lira by means of procedure stated in the fifth provision abovementioned and the new price shall be valid for two years. If parties do not reach an agreement on the new price, new contract price shall be determined for new rental year, at the end of the rental year in which re-determination was done by increasing over consumer price index in the manner of that whole year will be effected. For rental year after related one year period, if parties do not reach an agreement for rental in Turkish Lira, the new price, which is calculated by the way of increasing the rent amount of the previous rental year on the basis of monthly rates of change of consumer price index, shall be valid until the end of period of two years indicated above.

7)Can defaulted liabilities of contracts, of which prices shall not be determined in foreign currency or foreign currency indexed, be determined in Turkish Lira?
In the scope of the contracts of which prices shall not be determined in foreign currency or foreign currency indexed, due debts (deferred and/or defaulted) before October 6th, 2018 which is the publication and effect date of the Communiqué shall be paid in foreign currency or foreign currency indexed.
As clearly indicated in the Communiqué, within the scope of the contracts of which prices shall not be determined in foreign currency or foreign currency indexed, related provisions shall not be applied for deferred and/or defaulted debts before October 6th, 2018.

8)What is the due date for contracts of which price was determined in foreign currency but to be required to be re-determined in Turkish Lira in accordance with the Decree?
For price re-determination of contract price, new time period as additional or diversified to the Decree has not been regulated by the Communiqué dated October 6th, 2018. Hence, due time for re-determination of contracts of which prices were determined in foreign currency or foreign currency indexed, however of which prices are required to be converted in Turkish Lira is October 13th, 2018 since period of 30 days has been granted to parties by the Decree dated September13th, 2018

The expected Communiqué prepared by the Ministry of Treasury and Finance was published on the Official Gazette dated October 6th, 2018 numbered 30557. The main aspects that are pivotal and have arisen out of the issuance of the Communiqué on the Amendment to the Decree on the Protection of the Value of the Turkish Currency numbered 32 (“The Communique”) are as follows;

1)Which contracts have been excluded from the Decree?
In the Decree entered into force on September 13th, 2018, it has been regulated that the implementation will be valid except for the situations to be specified by the Ministry. These exceptions have been specified in the Communiqué dated October 6th, 2018 issued by the Ministry of Treasury and Finance and parties will be able to determine the price of the contract and other payment liabilities in foreign currency or foreign currency indexed in the situations stated below;

·     Service contracts executed by the parties who are not of Turkish nationality
·     Service contracts executed in the scope of exportation, transit trade, selling and deliveries deemed as an exportation and foreign currency saver services and activities.
·     Service contracts drawn up in the scope of Turkish residents’ activities to be carried out abroad.
·     Service contracts executed between the parties who are resident in Turkey on electronic communication which begins in Turkey and ends abroad and vice versa.
·     Movable purchase and rental contracts executed between the parties who are resident in Turkey except for vehicle purchase and rental contracts including heavy equipment.
·     Selling contracts, executed between the parties who are resident in Turkey, related to software generated abroad as a part of informatics technology and service and license contracts related to software and hardware.
·     Leasing agreements related to ships.
·     Leasing contracts executed within the scope of loans granted abroad and domestic.
·     Employment contracts of which parties are not of Turkish nationality but residing in Turkey.
·     Contracts, excluding real estate selling and rental contracts, which state institutions and organizations and the companies of the Turkish Armed Forces Foundation are a party to.
·     Other specific contracts which state institutions and organizations are a party to and certain specific transactions of the Ministry of Treasury and Finance
·     Liabilities related to constitution, exportation, purchasing, selling of capital market instruments and to the transactions performed
·     Employment and service contracts which branch, agency, office, liaison bureau of the persons who are not resident in Turkey and the companies owned directly or indirectly by the persons who are not resident in Turkey by 50% or more and the companies in the free trade zones provided that it is only related to their activities in the free trade zones are a party to
·     Contracts (excluding real estate selling and rental and employment contracts) executed with Commercial airline companies of which registered office is in Turkey; companies which serve technical maintenance to the means of aerial transportation, companies which serve floor maintenance service and companies and undertakings that were established by the said companies.

2)Can the negotiable instruments, drawn in the scope of the contracts which have not been specified as an exception in the scope of the Communiqué and of which prices shall not be determined in foreign currency or foreign currency indexed, be drawn in foreign currency?
It is clearly stated in the Communiqué that prices of negotiable instruments to be drawn within the scope of contracts, of which prices shall not be determined in foreign currency or foreign currency indexed pursuant to the Decree dated September 13th, 2018 numbered 85, shall not be determined in foreign currency or foreign currency indexed.

3)Can the contracts which precious metal and/or commodity is indexed to be executed?
In the Communiqué, it is stated that “the contracts which are indexed to the precious metals and/or goods of which prices are determined in foreign currency in the international markets and/or the contracts which are indirectly indexed to foreign currency shall be deemed as contracts indexed to foreign currency.”
Therefore, contracts of which prices shall not be determined in foreign currency or foreign currency indexed, shall not be determined in gold indexed as well.

4)What happens to the contracts signed before the date of September 13th, 2018?
The contracts which were signed before the date of September 13th, 2018 and were specified as an exemption in the Communique dated October 6th, 2018 will continue to be executed in foreign currency or foreign currency indexed.

If the price of these contracts was converted into the Turkish Lira by conciliation of parties after the date of September 13th, 2018, these conversions shall be deemed as valid but parties are able to re-determine the contract price in foreign currency or foreign currency indexed.
Prices of contracts, which were signed before the date of September 13th, 2018, were not specified as an exception in the Communiqué dated October 6th, 2018 and of which prices can’t be determined in foreign currency or foreign currency indexed as per to the related Decree and the Communiqué, shall be re-determined in Turkish Lira by parties.
Vehicle rental contracts (including heavy equipment) signed before the date of September 13th, 2018 can continue to be executed in foreign currency or foreign currency indexed, but prices of vehicle rental contracts signed after September 13th, 2018 shall be re-determined in Turkish Lira.

5)Which criterions shall be taken as a basis in re-determining process?
If parties fail to agree on a contract price in Turkish Lira, the contract price shall be deemed to be determined in Turkish Lira corresponding to the contract price determined in foreign currency over Central Bank effective selling rate dated January 2nd, 2018 and over this price, increasing in monthly rates of change of consumer price index for each month from January 2nd, 2018 until the re-determination date. The important issue is that monthly rates of change of consumer price index for each moth will be implemented separately and the final price will be determined accordingly.

6)What is the process of re-determining in rental contracts of residences and roofed workplaces?
Prices of rental contracts of residences and roofed workplaces signed before September 13th, 2018 will be determined in Turkish Lira by means of procedure stated in the fifth provision abovementioned and the new price shall be valid for two years. If parties do not reach an agreement on the new price, new contract price shall be determined for new rental year, at the end of the rental year in which re-determination was done by increasing over consumer price index in the manner of that whole year will be effected. For rental year after related one year period, if parties do not reach an agreement for rental in Turkish Lira, the new price, which is calculated by the way of increasing the rent amount of the previous rental year on the basis of monthly rates of change of consumer price index, shall be valid until the end of period of two years indicated above.

7)Can defaulted liabilities of contracts, of which prices shall not be determined in foreign currency or foreign currency indexed, be determined in Turkish Lira?
In the scope of the contracts of which prices shall not be determined in foreign currency or foreign currency indexed, due debts (deferred and/or defaulted) before October 6th, 2018 which is the publication and effect date of the Communiqué shall be paid in foreign currency or foreign currency indexed.
As clearly indicated in the Communiqué, within the scope of the contracts of which prices shall not be determined in foreign currency or foreign currency indexed, related provisions shall not be applied for deferred and/or defaulted debts before October 6th, 2018.

8)What is the due date for contracts of which price was determined in foreign currency but to be required to be re-determined in Turkish Lira in accordance with the Decree?
For price re-determination of contract price, new time period as additional or diversified to the Decree has not been regulated by the Communiqué dated October 6th, 2018. Hence, due time for re-determination of contracts of which prices were determined in foreign currency or foreign currency indexed, however of which prices are required to be converted in Turkish Lira is October 13th, 2018 since period of 30 days has been granted to parties by the Decree dated September13th, 2018

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