Is it Legal to Make Contract Based on Foreign Currency in Turkey?
What Changed in the Turkish Law on Foreign Currency Contracts?
The Turkish legal system underwent significant changes on September 13, 2018, affecting contracts in foreign currency. These alterations were introduced to stabilize the Turkish Lira and impact certain agreements within Turkey.
What is the Ban on Contracts in Foreign Currency Turkey?
The presidential decree of September 13, 2018, set forth a ban on determining contract values and payments in foreign currency or indexed to foreign currency for certain contracts between residents in Turkey.
Which Parties Are Affected by the Ban on Contract in Foreign Currencies?
The ban on contracts in foreign currency in Turkey affects certain contracts between “residents of Turkey”.
For legal entities, being a “resident of Turkey” means being a company that has its headquarters in Turkey.
For real persons, having Turkish residence permit or Turkish work permit is considered to be a resident of Turkey until proven otherwise. It can be proven otherwise by proving that they reside abroad in terms of
- Location of permanent home,
- Center of personal and economic interests, and/or
- Physical presence over 6 months a year
Which Contracts Are Affected by the Ban?
These certain contracts are namely:
- Real Estate Purchase and Sale Agreements
- All kinds of Lease Agreements for Movable and Immovable Properties, including Renting Vehicle and Financial Leasing
- Leasing Agreements
- Employment Agreements
- Service Agreements
- Hiring Contractors (for construction or other types of work)
Consequently, the bank leaves out several contracts from the ban. The contracts that can be signed in foreign currency include but are not limited to lawyer retainment agreements, bank loan agreements, and realtor agreements.
How Are Current Contracts Impacted?
Existing contracts with foreign currency stipulations had to be converted to Turkish Lira by October 12, 2018. The conversion uses the exchange rate from January 2, 2018, with adjustments for inflation up to the date of the new agreement.
What Are the Implications for Foreign Nationals?
Foreign nationals not residing in Turkey at the time of the property purchase are not affected by this rule. Thus, they can execute property sale contracts in foreign currency.
Understanding the Exceptions
The Ministry of Treasury and Finance, on 06.10.2018, outlined several exceptions to the ban on signing contracts in foreign currencies. In other words, these contracts can be made in foreign currencies. These exceptions include but are not limited to:
- Contracts for services performed abroad
- Employment or Service Contracts signed with foreign nationals
- Shipbuilding contracts, ship repair contracts, ship financing contracts
- Contracts of Sale of Movable Property that is other than Vehicles and Construction Machines
- Export Agreements
Conclusion
The 2018 ban on contracts in foreign currency in Turkey brought clarity to the types of agreements that can be denominated in foreign currency, safeguarding the value of the Turkish Lira while providing a clear framework for residents and international parties. However, the ban primarily applies to the contracts of sale or lease agreements of real estate and vehicles signed between parties who are both residents of Turkey.
The Importance of Consulting a Turkish Lawyer Before Signing Contracts in Turkey
It’s essential for foreign nationals and residents in Turkey to consult with a Turkish lawyer when dealing with contracts that may involve foreign currency to ensure compliance and protect their interests.
Navigating the nuances of Turkish law on foreign currency contracts requires careful attention. Turkish lawyer Baris Erkan Celebi and his law firm in Turkey offer legal consultancy services to investors who wish to sign contracts in foreign currency in Turkey.
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