T
he recent economic situation in Turkey, characterized by a high increase in exchange rates, has necessitated new regulations. Consequently, with an amendment to the Decision on the Protection of the Value of Turkish Currency dated September 12, 2018, and the publication of Notification No. 30557 on October 6, 2018, it became mandatory to specify the consideration in Turkish Lira (TL) in all kinds of lease, employment, service, and work contracts in Turkey. The details of this regulation have been established through these legal instruments.
Who is required to specify the contract consideration in TL? The amendment and Notification No. 30557 use the term “individuals residing in Turkey” as the addressee of the regulation. This term encompasses individuals and legal entities with legal residence in Turkey, including Turkish citizens working abroad as employees, self-employed professionals, and independent business owners. The Notification specifies that these “individuals residing in Turkey” shall decide regarding the contract consideration among themselves. Therefore, there is no obligation to specify the contract consideration in TL if one of the contracting parties is not a resident in Turkey.
Which contracts are covered by the regulation?
The regulation prohibits specifying the consideration in foreign currency for the sale and lease of immovables located within Turkey, including residential and roofed workplaces. It also applies to other payment obligations arising from these contracts.
Furthermore, in employment contracts, service contracts (including consulting, intermediation, and transportation), except for those to be performed abroad, and all payment obligations arising from these contracts, specifying the contract consideration and other payment obligations in foreign currency is prohibited. However, regarding service contracts, service contracts entered into by non-Turkish citizens and those within the scope of export, transit trade, and foreign currency earning services and activities are exempt from this prohibition. Additionally, service contracts for services to be provided abroad and for services that commence abroad and end in Turkey or commence in Turkey and end abroad related to electronic communication services are also exempt from this regulation.
Contracts for all work other than the construction, repair, and maintenance of ships, as well as the consideration for the sale and lease of vehicles, including construction equipment, and other payment obligations arising from these contracts, must also be specified in Turkish Lira.
It should be noted that the regulation covers contracts to be concluded in free zones, but it does not require specifying the contract consideration in foreign currency for movable sales and lease contracts, financial leasing, and sales, licensing, and service contracts for software produced abroad.
How should the consideration in TL be determined for contracts that previously specified consideration in foreign currency?
Firstly, because of the amendment to the Decision on the Protection of the Value of Turkish Currency dated September 12, 2018, contracts that previously specified the consideration in foreign currency must be converted into TL within 30 (thirty) days starting from the publication date of the amendment, which is September 12, 2018. However, the method for making this conversion and the exchange rate to be used for converting the contract consideration into TL were not specified in the relevant law, leaving room for uncertainty. Notification No. 30557, published on October 6, 2018, addresses these issues.
According to the Notification, in contracts where the consideration cannot be specified in foreign currency, it is initially expected that the parties will reach an agreement on the amount to be accepted in TL. If the parties mutually agree on a TL-based consideration, the contract will continue based on this amount. However, if the parties cannot reach an agreement, the TL value of the foreign currency consideration, which is the contract consideration, will be determined by calculating the TL value of the foreign currency at the Turkish Central Bank’s effective selling rate on January 2, 2018. This value will be increased each month by the Turkish Statistical Institute’s (TÜİK) consumer price index (CPI) rate from January 2, 2018, to the date when the contract is changed.
It should be noted that in lease contracts where the contract consideration was indexed to foreign currency, if the contract consideration is redefined in TL, the new contract consideration can be determined in TL for a period of 2 (two) years.
