Turkish restrictions on foreign currency transactions tightened

The recommendation was made by a legal expert based in Istanbul following a recent update to Turkish law.

On 13 September, Turkey tightened restrictions on local organisations making transactions using foreign currencies.

Presidential Decree No. 85 is an amendment to the Decision on the Protection of the Value of Turkish Currency and provides a new restriction regarding the determination of the payment obligations in foreign currency by and among 'persons' residing in Turkey, according to Idil Bozoglu, a partner at Istanbul-based Arikan Law.

Bozoglu said that the new rules prevent Turkey-based organisations from making or receiving payments arising from sale and purchase agreements for movable and immovable assets; lease agreements for any movable and immovable assets, including vehicle and financial leasing; employment; service; and contract of work, including construction agreements, where they are denominated in foreign currency or indexed to foreign currency other than in circumstances determined by the Turkish Ministry of Treasury and Finance.

Healthcare projects and infrastructure expert Kate Orviss of Pinsent Masons, the law firm behind Out-Law.com, said: "The recent, and relatively unexpected, announcement of Decree 85 sends some interesting messages to the international business community operating in Turkey. Whilst the precise scope of the application of the Decree is not yet clear, but the clock is ticking, companies doing business through a legal entity in Turkey should seek advice in relation to how they might be impacted."

The new rules were issued on 12 September and published in Turkey's Official Gazette the following day where it entered into force immediately. An "adaptation period" of 30 days began on 13 September, however, Bozoglu said.

The rules will have a wide-ranging impact, including potentially on government ministries and ministers in Turkey, she said.

"The decree affects all persons residing in Turkey," Bozoglu said. "'Persons' means real people and legal entities. It is not clear whether Ministries fall under this scope, but bearing in mind the far-reaching purpose of the new rules, it may be argued that they do."

To comply with the new requirements, businesses should "re-determine the listed agreements in Turkish currency" before the end of the adaptation period, Bozoglu said.

"As the new prices cannot be indexed to foreign currency, the parties do need to mutually agree on new contract prices in Turkish Lira (TRY) as soon as possible," she said.

Bozoglu said the Ministry of Treasury and Finance is expected to outline exceptions to the new rules shortly. It said earlier this week that it was working closely with public bodies of interest and is aware of the position of investors who have undertaken debt in foreign currency, she said.

Businesses that do not comply with the new laws will be prohibited from continuing with their transactions and will face fines of between TRY3,000 ($477) and TRY25,000 ($3,973), although acts falling under Turkey's Anti-Smuggling Code could be subject to higher fines.