— Att. Irem Sultan Gulden, LL.M

Dec 2, 2024

1. Introduction

The sale of movable goods constitutes a significant part of commerce. It’s almost inevitable, particularly for imported commercial goods, that the sales price is determined based on or indexed to a foreign currency. Similarly, lease agreements concerning movable properties that are linked to foreign exchange are seen often, because businesses cannot solely denominate input costs in Turkish Lira (TL).

There have been significant legislative changes concerning foreign currency-denominated or foreign currency-indexed contracts in recent years. These regulations include specific provisions for contracts concerning movables executed between persons resident in Turkey. In this article, let’s examine the current situation regarding foreign currency clauses and the fulfillment of payments in movable sales and lease contracts.

2. General Prohibition of Foreign Currency-Denominated or Foreign Currency-Indexed Contracts

An amendment to Article 4 of the Decree No. 32 on the Protection of the Value of Turkish Currency (“Decree No. 32”) on September 13, 2018, introduced a regulation detailing that payment obligations in certain types of contracts between persons resident in Turkey cannot be stipulated in or indexed to a foreign currency.[1] The procedures, principles, and exceptional circumstances related to this were regulated within the Communiqué Regarding Decree No. 32 (“the Communiqué”) issued by the Ministry of Treasury and Finance (“the Ministry”).[2]

3. Movable Sales Contracts

a. Possibility of Stipulating in or Indexing to Foreign Currency

Firstly, it’s beneficial to state that the term “movable” refers to all types of goods and assets that do not fall under the definition of immovable property (real estate).[3] Movable sales contracts are placed within the Communiqué as an exception to the regulation introduced by Decree No. 32, which prohibits residents of Turkey from stipulating certain types of contracts in or indexing them to foreign currency.

In movable sales contracts executed between persons resident in Turkey, the contract price and other payment obligations arising from these contracts can be stipulated in or indexed to a foreign currency. Vehicle sales contracts, however, are among the contracts that cannot be stipulated in or indexed to foreign currency. (Communiqué Art. 8/9)

While foreign currency clauses can be included in contracts for the sale of movables, vehicle sales cannot be stipulated in or indexed to foreign currency. The term “vehicle” is understood to mean “vehicles used for the transportation of people, animals, and goods on the highway.”[4]

Contracts for the sale of construction (work) machinery are considered within the scope of movable sales, and they can be stipulated in or indexed to a foreign currency.[5] Work machinery is defined in the legislation as “motor vehicles used for road construction machinery and similar agricultural, industrial, public works, national defense, and various institutional works and services; fitted with various equipment according to the work purpose; and which cannot be used for the transportation of people, animals, or goods on the highway.“[4]

b. Obligation for Payments to be Fulfilled and Accepted in Turkish Lira

In movable sales contracts between persons resident in Turkey (excluding vehicle sales contracts), although there is no restriction on stipulating them in or indexing them to a foreign currency, there are restrictions regarding the fulfillment and acceptance of payments related to them. Pursuant to the regulation that entered into force on April 19, 2022:

Payment obligations for movable sales, which can be stipulated in or indexed to a foreign currency between persons resident in Turkey, must be fulfilled and accepted in Turkish Lira. (Communiqué Art. 8/9)

The following exceptional circumstances that do not fall within the scope of this rule were regulated by the amendment that entered into force on April 21, 2022:

• Payment obligations under foreign currency-denominated commercial papers that entered circulation before April 19, 2022, in the context of the performance of movable sales contracts concluded before April 19, 2022, may be fulfilled and accepted in foreign currency. (Communiqué Art. 8/9-a)
• Payment obligations under invoices issued before April 19, 2022, may be fulfilled and accepted in foreign currency. (Communiqué Art. 8/9-b)
• Payment obligations within the scope of precious metal and precious stone buying and selling transactions conducted in foreign currency and the settlement of these transactions in the Precious Metals and Precious Stones Market of Borsa İstanbul A.Ş. may be fulfilled and accepted in foreign currency. (Communiqué Art. 8/9-c)

Regarding the obligation for payments in movable sales contracts to be fulfilled and accepted in Turkish Lira, the Ministry’s announcement dated April 21, 2024, stated that on or after the effective date of the amendment, April 19, 2022;

It is not possible to use foreign currency-denominated payment instruments such as cheques in the fulfillment of payment obligations subject to movable sales contracts concluded or to be concluded between persons resident in Turkey.

The obligation for payment obligations to be fulfilled and accepted in Turkish Lira also does not apply to the following exceptions. However, these entered into force on February 28, 2024, which is a different date than the above section:

• Payment obligations under movable sales contracts for exports to be carried out through Foreign Trade Capital Companies or Sectoral Foreign Trade Companies based on an intermediary export contract within the scope of the Communiqué on Foreign Trade Capital Company Status (Export: 2004/12) and the Communiqué on Sectoral Foreign Trade Companies Status (Export: 2004/4), may be fulfilled and accepted in foreign currency. (Communiqué Art. 8/9-ç)
• Payment obligations under movable sales contracts for exports to be carried out through companies with the status of Export Consortium within the scope of the Decision on Export Supports (Decision No. 5973 dated August 17, 2022) and E-Export Consortium within the scope of the Decision on E-Export Supports (Decision No. 5986 dated August 24, 2022), based on an intermediary export contract, may be fulfilled and accepted in foreign currency. (Communiqué Art. 8/9-ç)
• Payment obligations under movable sales contracts concluded for the delivery of goods subject to transit and customs warehousing regimes under the Customs Law, as well as temporary storage and free zone provisions, including the sale and delivery of ship fuel (bunkering) subject to a customs declaration, may be fulfilled and accepted in foreign currency. (Communiqué Art. 8/9-d)
• Payment obligations related to the delivery of goods subject to a movable sales contract made with companies operating in the free zone within the scope of foreign trade transactions may be fulfilled and accepted in foreign currency. (Communiqué Art. 8/9-e)

4. Movable Lease Contracts

Article 4/g of Decree No. 32 stated that it is prohibited to stipulate or index to a foreign currency in all types of movable lease contracts. However, paragraph 10 of Article 8 of the Communiqué softened this regulation in Decree No. 32, adopting a more moderate approach. Accordingly:

In movable lease contracts executed between persons resident in Turkey, the contract price and other payment obligations arising from these contracts can be stipulated in or indexed to a foreign currency. Vehicle lease contracts, however, are among the contracts that cannot be stipulated in or indexed to a foreign currency.

In movable lease contracts (excluding vehicles), not only can the agreement be stipulated in or indexed to a foreign currency, but there is also no restriction on the fulfillment and acceptance of payment obligations; the payments related to these can be made in foreign currency.

5. Contracts to Which Public Institutions and Organizations or Companies of the Turkish Armed Forces Foundation are a Party

a. Possibility of Stipulating in or Indexing to Foreign Currency

When one of the parties to contracts subject to the prohibition of foreign currency-denominated or indexed stipulations is a public institution or organization or a company of the Turkish Armed Forces Foundation, these are regulated as exceptions:

In contracts (excluding real estate sales and real estate leases) to which public institutions and organizations or companies of the Turkish Armed Forces Foundation (companies like ASELSAN, ROKETSAN, HAVELSAN) are a party, it is possible to stipulate the contract price and other payment obligations arising from these contracts in or indexed to a foreign currency. (Communiqué Art. 8/15)

b. Possibility of Payments Being Fulfilled and Accepted in Foreign Currency

The aim was to exempt public institutions and organizations and companies of the Turkish Armed Forces Foundation from the aforementioned “obligation for payment obligations in movable sales contracts to be fulfilled and accepted in Turkish Lira,” which was added to paragraph 8/9 of the Communiqué effective from April 19, 2022. Therefore, according to paragraph 8/15 of the Communiqué:

Effective from April 19, 2022, in contracts (excluding real estate sales and real estate leases) to which public institutions and organizations or companies of the Turkish Armed Forces Foundation are a party, it is possible to stipulate, pay, and accept the contract price and other payment obligations arising from these contracts in or indexed to a foreign currency.

(This provision is regulated subject to the provisions of paragraph 8/16 of the Communiqué.)

According to this provision, while payments in movable sales contracts must essentially be fulfilled and accepted in Turkish Lira, if one of the parties is a public institution or organization or a TAF Strengthening Foundation company, it becomes possible for the payments to be fulfilled and accepted in foreign currency.

6. Conclusion

Although the legislation generally does not permit foreign currency-denominated or indexed stipulations for certain types of contracts between persons resident in Turkey, there are some exceptions for contracts concerning movables, necessitated by the functioning of the market and the need to ensure the continuity of trade. In this context, it is allowed to stipulate or index to a foreign currency in movable sales and lease contracts (excluding vehicles). However, in order to prioritize the use of the Turkish Lira and continue the combat against dollarization, there is a restriction for payment obligations in movable sales contracts to be fulfilled and accepted in Turkish Lira. Public institutions and organizations and companies of the Turkish Armed Forces Foundation are intended to be exempt from this restriction.

References

[1] Türk Parası Kıymetini Koruma Hakkında 32 Sayılı Karar

[2] Türk Parası Kıymetini Koruma Hakkında 32 Sayılı Karara İlişkin Tebliğ (Tebliğ No: 2008–32/34)

[3] Hazine ve Maliye Bakanlığı, Türk Parası Kıymetini Koruma Hakkında 32 Sayılı Karara İlişkin 2008–32/34 Sayılı Tebliğ’de Değişiklik Yapılmasına Dair 2022–32/66 Sayılı Tebliğ’e İlişkin Duyuru, 21/4/2022.

[4] 2918 sayılı Karayolları Trafik Kanunu m.3/1

[5] Hazine ve Maliye Bakanlığı, Türk Parası Kıymetini Koruma Hakkında 32 Sayılı Karara İlişkin Tebliğ (Tebliğ No: 2008–32/34)’de 16/11/2018 Tarihinde Yapılan Değişiklik ile İlgili Olarak Sıkça Sorulan Sorular, Soru 11.