Clarifications are provided and certain exemptions are announced regarding the recent amendments on the Decree No. 32 on the Protection of the Value of Turkish Currency. Accordingly, below is an overview of the Communiqué, published in the Official Gazette numbered 30557 and dated October 6, 2018.

Below arrangements cannot include contract prices and other payment obligations in or indexed to foreign currency:

• Sales and lease agreements among residents of Turkey regarding domestically located immovable, including free zones

• Employment agreements among residents of Turkey, other than those that will be performed abroad

• Service contracts among residents of Turkey, including consultancy, intermediation and transportation; except for those listed below:

a. service contracts to which non-citizens are party,

b. service contracts that are made within the scope of export, transit trading, sales and deliveries that are considered as exports, as well as services and activities that gain foreign exchange,

c. service contracts that are made within the scope of activities of residents of Turkey to be carried out abroad, and

d. service contracts among residents of Turkey regarding electronic communication starting in Turkey, ending abroad and starting abroad, ending in Turkey.

• Contracts for work products (independent contractor) among residents of Turkey, except for construction, repair and maintenance of vessels

Below arrangements are exempted from the above rule; i.e. may include contract prices and other payment obligations in or indexed to foreign currency:

• Contracts among residents of Turkey concerning sales and lease of movables, except for sale and lease of vehicles including construction machinery (contracts re. lease of vehicles including construction machinery, which were executed before the date on which the amendments are entered into force are also exempted)

• Sales agreements among residents of Turkey concerning software produced abroad within the scope of information technologies and license and service agreements concerning hardware and software

• Financial leasing contracts regarding vessels

• Financial leasing contracts to be entered into within the scope of Articles 17 and 17/A of the Decree No. 32

• Employment agreements to which non-citizen residents are party

• Employment agreements and service contracts to which (i) branches, representation offices, offices, liaison offices of non-residents, (ii) companies in which non-residents directly or indirectly have a fifty per cent or more shareholding, and (iii) companies located in free zones (within the scope of their activities) are party

It should also be noted that it is compulsory for contract prices except for the ones allowed under the exemptions to be re-determined by the parties in Turkish currency. In case the parties fail to reach an agreement in re-determining the same; the prices shall be determined by first calculating the Turkish currency equivalent based on Turkish Central Bank’s effective selling rate on 2/1/2018, and increasing the same on the basis of consumer price index (CPI) monthly variation rates from the date of 2/1/2018 to the date of re-determining of the prices. Further requirements are also introduced for contract values of immovable lease contracts executed before the effectiveness date of the new rule.

In addition to the above, there are also (i) further exemptions that are introduced for certain contracts to which governmental institutions, banks, airline operators and their service providers are party, (ii) clarifications regarding branches and liaison offices located abroad, (iii) as well as exemptions regarding capital market instruments. Further, the amounts under negotiable instruments that will be issued within the scope of contracts subject to above restrictions may also not be agreed based on or indexed to foreign currency. On the other hand, the contracts in which price is indexed to precious metals and/or commodity whose price is designated in foreign currency in international markets and/or in which price is indirectly indexed to foreign currency shall also be considered as foreign currency-indexed contracts.

Finally, it is possible for the parties to whom an exemption is granted to request that the new contracts to be mutually arranged in Turkish currency or that the amounts in the existing contracts to be re-agreed in Turkish currency.