Post by congregatio on Mar 14, 2019 20:50:29 GMT 4
The Amendment Communique (Numbered: 2018-32/52) on the Amendment of the Communique (Numbered: 2008-32/34) on the Decision Numbered 32 on the Protection of the Value of Turkish Currency, which is published in the Official Gazette dated 16 November 2018 ("Second Amendment Communique") has introduced new exceptions, while altering the certain exceptions brought previously, to the foreign currency restrictions applicable to the majority of contracts that are executed by and between persons residing in Turkey.
Amongst others, the major differences brought about by this Second Amendment Communique are relating to,
the lease and sale of immovable property, where the foreign currency restriction applicable to the lease and sale contracts has been bended to exempt those that the foreign capitalized entities1 and the companies located in free zones stand as the lessee or buyer (of the immovable property),– and this means the foreign capitalized entities will be able to lease or buy immovable property in foreign currency, just like the lessor or seller of immovable properties will be able to lease and sell those properties to the foreign capitalized entities in foreign currency;
the construction and work contracts, where the foreign currency restriction applicable to the construction and work contracts that involves foreign currency expenditure items2 has been removed – and this means the parties of a construction and work contract, the expenditure items of which contain items in foreign currency will be able to execute those contracts in foreign currency; and
the general service and employment contracts, where the previous exception from the foreign currency restriction has been limited only for the contracts that the foreign capitalized entities and the companies located in free zone stand as the employer or buyer (of the service) – and this means the foreign capitalized entities will be able to execute service and employment contracts, provided that they are employing individuals or buying services from third parties3.
Yet, the Second Amendment Communique neither change the re-determination obligation concerning previously executed contracts4 nor the re-determination method to be used thereof5.
Background
On 12 September 2018, President Erdoğan has issued the Presidential Order numbered 85 on the Amendment (the "Amendment") of the Decision Numbered 32 on the Protection of the Value of Turkish Currency (the "Decision Numbered 32") -that had been issued pursuant to the Law Numbered 1567 on the Protection of the Value of Turkish Currency - which envisaged a new restriction relating to the determination of the payment obligations in or indexed to foreign currency by and among the persons residing in Turkey. The Amendment was published on theOfficial Gazettedated 13 September 2018 and numbered 30534 and entered into force on its publication date.
The Amendment has attributed the Ministry of Treasury and Finance (the "Ministry") the role of execution of the Amendment, including issuance of exemptions to the applicability of the Amendment, which it shall deem necessary. To that effect, the Ministry has published the Communique (Numbered: 2018-32/51) regarding the Amendment of the Communique (Numbered: 2008-32/34) on the Decision Numbered 32 on the Protection of the Value of Turkish Currency (the "Previous Amendment Communique"), which was published on the Official Gazette dated 6 October 2018 and entered into force on its publication date.
Having noticed the debates and impracticability occurred in the market, on 16 November 2018 an amendment to the Previous Amendment Communique is made by the Ministry with the Amendment Communique (Numbered: 2018-32/52) on the Amendment of the Communique (Numbered: 2008-32/34) on the Decision Numbered 32 on the Protection of the Value of Turkish Currency ("Second Amendment Communique").
The Second Amendment Communique, amending the rules established in the Previous Amendment Communique by re-writing, determines (i) the contracts that may be concluded in or indexed to foreign currency; (ii) the contracts that may not be concluded in or indexed to foreign currency as a rule, and the exceptions brought thereof.
The Contracts That May Be Concluded In or Indexed To Foreign Currency as per the Second Amendment Communique
Pursuant to the Second Amendment Communique, the prices and/or the payment obligations of the -following contracts / contracts on following transactions- may be agreed in or indexed to foreign currency among the persons residing in Turkey6:
Lease and sale of immovable properties provided that the lessee and the purchaser (as applicable) in these contracts are either (i) persons who do not have a Turkish citizenship or (ii) the branches, representative offices and liaison offices -located in Turkey- of the persons residing abroad, the entities -located in Turkey- participated directly or indirectly by the persons residing abroad, with a minimum shareholding of 50%, the companies the joint control and/or control of which is held by persons residing abroad, or (iii) the companies located in the free zone, concerning their activities within the context of free zone - (a completely new exemption);
Lease and sale of movable properties other than the vehicles - (the scope of application of this exemption is broadened to cover the working machines);
Construction and work contracts that involves currency expenditure items - (a completely new exemption);
Sale contracts concerning the software produced abroad and the license and service contracts concerning the hardware and software, produced abroad - (the fact that the requirement of being produced abroad is sought for both (i) the sale of the software and the (ii) license and service concerning the software and hardware is clarified, just in accordance with the FAQ);
Employment and service contracts, where either of (i) the branches, representative offices and liaison offices -located in Turkey- of the persons residing abroad, (ii) the entities -located in Turkey- participated directly or indirectly by the persons residing abroad, with a minimum shareholding of 50%, (iii) the entities the joint control and/or control of which is held by persons residing abroad and (iv) the companies located in the free zone, concerning their activities within the context of free zone, act as the employer or buyer of the service - (the requirement of the said entities being the employer / buyer of the service for benefiting from the exemption is brought for the first time);
Employment contracts concluded by the persons that do not have a Turkish citizenship;
Employment contracts that will be performed abroad and / or performed by the crewman - (the crewman's position as being subject to the exemption is explicitly designated);
Service contracts concluded by the persons that do not have a Turkish citizenship;
Service contracts, executed within the context of export, transit trade, sales and deliveries deemed as export and foreign currency gaining services and activities;
Service contracts concluded within the context of the activities to be conducted abroad;
Service contracts that start in Turkey and end abroad or vice versa or that start and end in abroad - (prior to the Second Amendment Communique the scope of this exemption was limited to the services concerning the electronic communication only);
Lease of immovable properties concluded for the purposes of operating the rest areas that are certified by the Ministry of Culture and Tourism - (a completely new exemption);
Lease of immovable properties concerning duty-free shops - (a completely new exemption);
Without prejudice to the above-mentioned exemption regarding public institutions; contracts -other than those relation to sale and lease of immovable property- concluded by the public institutions and/or companies of Turkish Armed Forces Foundation - (the fact that the below-mentioned exemption regarding the public procurements in general should not injure this exemption is clarified);
Contracts -other than those relating to the sale of immovable property and employment contracts– concluded by the contractors or the appointed companies and the third parties that they will transact with in the context of the projects to be realized within the scope of the performance of the public tender, agreement and international agreements, which are in or indexed to foreign currency and to which the public institutions and organizations are party - (the Second Amendment Communique broadened the scope of application of this exemption to cover the lease of immovable properties and the third parties that are involved in the performance of the projects beyond the direct contractors);
Contracts -other than those relating to sale and lease of immovable property and employment contracts- concluded by (i) the commercial airline businesses conducting passenger, cargo and mail transport activities, (ii) the companies providing technical care services for the airline transport vehicles and their motors, parts and components, (iii) public or private entities who are authorized or licensed to render ground services at the airports as well as the entities established or participated with a minimum shareholding of 50% by the foregoing;
Certain contracts executed in relation with the transactions carried out under the Law on Public Finance and Debt Management, numbered 4749 and the contracts relating to such transactions to which the banks are party - (the scope of the exemption has been clarified);
Issuance, sale and purchase of capital market instruments, under the Capital Market Law, numbered 6362 and any obligations pertaining thereto;
Certain financial leasing contracts executed under the articles 17 and 17/A of the Decision No. 327;
Financial leasing of ships;
The Contracts That May Not Be Concluded In or Indexed To Foreign Currency
Pursuant to the Second Amendment Communique, the prices and/or the payment obligations of the -following contracts / contracts on following transactions- may not be agreed in or indexed to8 foreign currency among the persons residing in Turkey9:
Lease10 and sale of immovable properties in Turkey, other than those stated under the above section,
Employment contracts, other than those stated under the above section
Service contracts, including the consultancy, brokerage and transportation contracts and excluding those stated under the above section;
Construction and work contracts, other than those stated under the above section.
Footnotes
1 For the purposes of this memorandum, the foreign capitalized entities shall refer to the (i) the branches, representative offices and liaison offices -located in Turkey- of the persons residing abroad, (ii) the entities -located in Turkey- participated directly or indirectly by the persons residing abroad, with a minimum shareholding of 50%, or (iii) the entities -located in Turkey- the joint control and/or control of which is held by persons residing abroad. – The item (iii), extending exception to the local entities controlled by the foreign entities has been brought with the Second Amendment Communique.
2 Although there is no clarity about what is meant by foreign currency expenditure items, given the nature of construction and work agreements, it should be understood as any item, (i) which is utilized by the parties, while performing their obligations to create the work result undertaken with the individual contracts and reflected to the financial accounts being kept thereof; and (ii) the costs of which is borne in foreign currency. Nevertheless, please be noted that the opinion of the financial advisors about their understanding of the foreign currency expenditure items shall be important to duly benefit from the exemption brought with this provision, in practice.
3 It should be noted that the service agreements relating to the software and hardware manufactured abroad may in any event be executed in foreign currency, as per the clause 11 of the Second Amendment Communique, which is slightly clarified version of the clause 8 of the Previous Amendment Communique. Yet, the specific exceptions relating to the employment and service agreements, covering the performances including components abroad, non-Turkish nationals and export related items are also applicable to the foreign capitalized entities.
4 The contracts relating to the lease of vehicles and (due to the new insertion with the Second Amendment Communique) also the sale of commercial vehicle for transportation which have been concluded before the entry into force of the Amendment Order (e.g. before 13 September 2018), are exempted from the adaptation obligation; and in this regard the prices and /or the payment obligations arising out of these contracts are not required to be re-determined in Turkish currency.
Furthermore, as per the Second Amendment Communique, the financial leasing contracts relating to immovable and movable properties, which have been concluded before the entry into force of the Amendment Order (e.g. before 13 September 2018), are exempted from the adaptation obligation; and in this regard the prices and /or the payment obligations arising out of these contracts are not required to be re-determined in Turkish currency.
5 As regards to the general provisions, the Second Amendment Communique, omit the last clause of the Previous Amendment Communique stating that the parties of the contracts that are exempted from the currency restriction may also set or re-determine the contractual prices -that are originally in foreign currency- in Turkish currency. Given the clarity included in the Frequently Asked Questions published by the Ministry ("FAQ"), upon the enactment of the Previous Amendment Communique, expressing that 'if the party of the contract, to which the exemption is brought asks for redetermination in Turkish currency, the other party should be bound' may be deemed to be grounded upon this specific clause, it may be construed that neither of the parties of the exempted contracts will have this privilege and they -just in accordance with the freedom of contracts principle- would be required to act mutually while (as the case may be) continuing in foreign currency, as is; or making re-determination in Turkish currency.
6 The persons residing in Turkey, have been defined in the Decision No. 32, as the legal entities and natural persons who have a legal residence in Turkey, including the Turkish citizens that are employed, has a professional occupation or operates an enterprise, abroad. Nevertheless, with the Previous Amendment Communique, it was designated that the entities, branches, representative offices, liaison offices, funds, which are abroad and directly or indirectly owned, operated, managed or participated with a minimum shareholding of 50% by the persons residing in Turkey will also be considered as persons residing in Turkey for the application of the currency restriction. This time, with the Second Amendment Communique it is designated that in cases, where the contract will be performed abroad, the currency restriction should not be applicable.
7 Article 17 and 17/A of the Decision No. 32 permits determination of values for certain financial leasing transactions (e.g. those linked to loans in foreign currency) in foreign currency.
8 The Amendment Communique sets forth that indexing the prices to the precious metal and/or commodities, prices of which are determined in foreign currency or to the foreign currency in an indirect manner shall be construed as an indexing to foreign currency. Therefore, such kind of indexing shall not be resorted, as well. It shall anyhow be noted that contrary to the Previous Amendment Communique, the Second Amendment Communique allows the indexing to oil prices in service contracts relating to transportation activities.
9 The Amendment Communique also restrain the determination of the values in the negotiable instruments -created pertaining to the contracts that may not be concluded in or indexed to foreign currency- in foreign currency. It shall also be noted that the Second Amendment Communique clarifies that the negotiable instruments issued and entered into circulation before the enactment of the Amendment Order are exempted from the restriction.
10 With the Second Amendment Communique it is clarified that (i) the deposits already paid, and (ii) the negotiable instruments already put in circulation in foreign currency, regarding the lease of immovable property shall not be affected from the foreign currency restrictions.
Amongst others, the major differences brought about by this Second Amendment Communique are relating to,
the lease and sale of immovable property, where the foreign currency restriction applicable to the lease and sale contracts has been bended to exempt those that the foreign capitalized entities1 and the companies located in free zones stand as the lessee or buyer (of the immovable property),– and this means the foreign capitalized entities will be able to lease or buy immovable property in foreign currency, just like the lessor or seller of immovable properties will be able to lease and sell those properties to the foreign capitalized entities in foreign currency;
the construction and work contracts, where the foreign currency restriction applicable to the construction and work contracts that involves foreign currency expenditure items2 has been removed – and this means the parties of a construction and work contract, the expenditure items of which contain items in foreign currency will be able to execute those contracts in foreign currency; and
the general service and employment contracts, where the previous exception from the foreign currency restriction has been limited only for the contracts that the foreign capitalized entities and the companies located in free zone stand as the employer or buyer (of the service) – and this means the foreign capitalized entities will be able to execute service and employment contracts, provided that they are employing individuals or buying services from third parties3.
Yet, the Second Amendment Communique neither change the re-determination obligation concerning previously executed contracts4 nor the re-determination method to be used thereof5.
Background
On 12 September 2018, President Erdoğan has issued the Presidential Order numbered 85 on the Amendment (the "Amendment") of the Decision Numbered 32 on the Protection of the Value of Turkish Currency (the "Decision Numbered 32") -that had been issued pursuant to the Law Numbered 1567 on the Protection of the Value of Turkish Currency - which envisaged a new restriction relating to the determination of the payment obligations in or indexed to foreign currency by and among the persons residing in Turkey. The Amendment was published on theOfficial Gazettedated 13 September 2018 and numbered 30534 and entered into force on its publication date.
The Amendment has attributed the Ministry of Treasury and Finance (the "Ministry") the role of execution of the Amendment, including issuance of exemptions to the applicability of the Amendment, which it shall deem necessary. To that effect, the Ministry has published the Communique (Numbered: 2018-32/51) regarding the Amendment of the Communique (Numbered: 2008-32/34) on the Decision Numbered 32 on the Protection of the Value of Turkish Currency (the "Previous Amendment Communique"), which was published on the Official Gazette dated 6 October 2018 and entered into force on its publication date.
Having noticed the debates and impracticability occurred in the market, on 16 November 2018 an amendment to the Previous Amendment Communique is made by the Ministry with the Amendment Communique (Numbered: 2018-32/52) on the Amendment of the Communique (Numbered: 2008-32/34) on the Decision Numbered 32 on the Protection of the Value of Turkish Currency ("Second Amendment Communique").
The Second Amendment Communique, amending the rules established in the Previous Amendment Communique by re-writing, determines (i) the contracts that may be concluded in or indexed to foreign currency; (ii) the contracts that may not be concluded in or indexed to foreign currency as a rule, and the exceptions brought thereof.
The Contracts That May Be Concluded In or Indexed To Foreign Currency as per the Second Amendment Communique
Pursuant to the Second Amendment Communique, the prices and/or the payment obligations of the -following contracts / contracts on following transactions- may be agreed in or indexed to foreign currency among the persons residing in Turkey6:
Lease and sale of immovable properties provided that the lessee and the purchaser (as applicable) in these contracts are either (i) persons who do not have a Turkish citizenship or (ii) the branches, representative offices and liaison offices -located in Turkey- of the persons residing abroad, the entities -located in Turkey- participated directly or indirectly by the persons residing abroad, with a minimum shareholding of 50%, the companies the joint control and/or control of which is held by persons residing abroad, or (iii) the companies located in the free zone, concerning their activities within the context of free zone - (a completely new exemption);
Lease and sale of movable properties other than the vehicles - (the scope of application of this exemption is broadened to cover the working machines);
Construction and work contracts that involves currency expenditure items - (a completely new exemption);
Sale contracts concerning the software produced abroad and the license and service contracts concerning the hardware and software, produced abroad - (the fact that the requirement of being produced abroad is sought for both (i) the sale of the software and the (ii) license and service concerning the software and hardware is clarified, just in accordance with the FAQ);
Employment and service contracts, where either of (i) the branches, representative offices and liaison offices -located in Turkey- of the persons residing abroad, (ii) the entities -located in Turkey- participated directly or indirectly by the persons residing abroad, with a minimum shareholding of 50%, (iii) the entities the joint control and/or control of which is held by persons residing abroad and (iv) the companies located in the free zone, concerning their activities within the context of free zone, act as the employer or buyer of the service - (the requirement of the said entities being the employer / buyer of the service for benefiting from the exemption is brought for the first time);
Employment contracts concluded by the persons that do not have a Turkish citizenship;
Employment contracts that will be performed abroad and / or performed by the crewman - (the crewman's position as being subject to the exemption is explicitly designated);
Service contracts concluded by the persons that do not have a Turkish citizenship;
Service contracts, executed within the context of export, transit trade, sales and deliveries deemed as export and foreign currency gaining services and activities;
Service contracts concluded within the context of the activities to be conducted abroad;
Service contracts that start in Turkey and end abroad or vice versa or that start and end in abroad - (prior to the Second Amendment Communique the scope of this exemption was limited to the services concerning the electronic communication only);
Lease of immovable properties concluded for the purposes of operating the rest areas that are certified by the Ministry of Culture and Tourism - (a completely new exemption);
Lease of immovable properties concerning duty-free shops - (a completely new exemption);
Without prejudice to the above-mentioned exemption regarding public institutions; contracts -other than those relation to sale and lease of immovable property- concluded by the public institutions and/or companies of Turkish Armed Forces Foundation - (the fact that the below-mentioned exemption regarding the public procurements in general should not injure this exemption is clarified);
Contracts -other than those relating to the sale of immovable property and employment contracts– concluded by the contractors or the appointed companies and the third parties that they will transact with in the context of the projects to be realized within the scope of the performance of the public tender, agreement and international agreements, which are in or indexed to foreign currency and to which the public institutions and organizations are party - (the Second Amendment Communique broadened the scope of application of this exemption to cover the lease of immovable properties and the third parties that are involved in the performance of the projects beyond the direct contractors);
Contracts -other than those relating to sale and lease of immovable property and employment contracts- concluded by (i) the commercial airline businesses conducting passenger, cargo and mail transport activities, (ii) the companies providing technical care services for the airline transport vehicles and their motors, parts and components, (iii) public or private entities who are authorized or licensed to render ground services at the airports as well as the entities established or participated with a minimum shareholding of 50% by the foregoing;
Certain contracts executed in relation with the transactions carried out under the Law on Public Finance and Debt Management, numbered 4749 and the contracts relating to such transactions to which the banks are party - (the scope of the exemption has been clarified);
Issuance, sale and purchase of capital market instruments, under the Capital Market Law, numbered 6362 and any obligations pertaining thereto;
Certain financial leasing contracts executed under the articles 17 and 17/A of the Decision No. 327;
Financial leasing of ships;
The Contracts That May Not Be Concluded In or Indexed To Foreign Currency
Pursuant to the Second Amendment Communique, the prices and/or the payment obligations of the -following contracts / contracts on following transactions- may not be agreed in or indexed to8 foreign currency among the persons residing in Turkey9:
Lease10 and sale of immovable properties in Turkey, other than those stated under the above section,
Employment contracts, other than those stated under the above section
Service contracts, including the consultancy, brokerage and transportation contracts and excluding those stated under the above section;
Construction and work contracts, other than those stated under the above section.
Footnotes
1 For the purposes of this memorandum, the foreign capitalized entities shall refer to the (i) the branches, representative offices and liaison offices -located in Turkey- of the persons residing abroad, (ii) the entities -located in Turkey- participated directly or indirectly by the persons residing abroad, with a minimum shareholding of 50%, or (iii) the entities -located in Turkey- the joint control and/or control of which is held by persons residing abroad. – The item (iii), extending exception to the local entities controlled by the foreign entities has been brought with the Second Amendment Communique.
2 Although there is no clarity about what is meant by foreign currency expenditure items, given the nature of construction and work agreements, it should be understood as any item, (i) which is utilized by the parties, while performing their obligations to create the work result undertaken with the individual contracts and reflected to the financial accounts being kept thereof; and (ii) the costs of which is borne in foreign currency. Nevertheless, please be noted that the opinion of the financial advisors about their understanding of the foreign currency expenditure items shall be important to duly benefit from the exemption brought with this provision, in practice.
3 It should be noted that the service agreements relating to the software and hardware manufactured abroad may in any event be executed in foreign currency, as per the clause 11 of the Second Amendment Communique, which is slightly clarified version of the clause 8 of the Previous Amendment Communique. Yet, the specific exceptions relating to the employment and service agreements, covering the performances including components abroad, non-Turkish nationals and export related items are also applicable to the foreign capitalized entities.
4 The contracts relating to the lease of vehicles and (due to the new insertion with the Second Amendment Communique) also the sale of commercial vehicle for transportation which have been concluded before the entry into force of the Amendment Order (e.g. before 13 September 2018), are exempted from the adaptation obligation; and in this regard the prices and /or the payment obligations arising out of these contracts are not required to be re-determined in Turkish currency.
Furthermore, as per the Second Amendment Communique, the financial leasing contracts relating to immovable and movable properties, which have been concluded before the entry into force of the Amendment Order (e.g. before 13 September 2018), are exempted from the adaptation obligation; and in this regard the prices and /or the payment obligations arising out of these contracts are not required to be re-determined in Turkish currency.
5 As regards to the general provisions, the Second Amendment Communique, omit the last clause of the Previous Amendment Communique stating that the parties of the contracts that are exempted from the currency restriction may also set or re-determine the contractual prices -that are originally in foreign currency- in Turkish currency. Given the clarity included in the Frequently Asked Questions published by the Ministry ("FAQ"), upon the enactment of the Previous Amendment Communique, expressing that 'if the party of the contract, to which the exemption is brought asks for redetermination in Turkish currency, the other party should be bound' may be deemed to be grounded upon this specific clause, it may be construed that neither of the parties of the exempted contracts will have this privilege and they -just in accordance with the freedom of contracts principle- would be required to act mutually while (as the case may be) continuing in foreign currency, as is; or making re-determination in Turkish currency.
6 The persons residing in Turkey, have been defined in the Decision No. 32, as the legal entities and natural persons who have a legal residence in Turkey, including the Turkish citizens that are employed, has a professional occupation or operates an enterprise, abroad. Nevertheless, with the Previous Amendment Communique, it was designated that the entities, branches, representative offices, liaison offices, funds, which are abroad and directly or indirectly owned, operated, managed or participated with a minimum shareholding of 50% by the persons residing in Turkey will also be considered as persons residing in Turkey for the application of the currency restriction. This time, with the Second Amendment Communique it is designated that in cases, where the contract will be performed abroad, the currency restriction should not be applicable.
7 Article 17 and 17/A of the Decision No. 32 permits determination of values for certain financial leasing transactions (e.g. those linked to loans in foreign currency) in foreign currency.
8 The Amendment Communique sets forth that indexing the prices to the precious metal and/or commodities, prices of which are determined in foreign currency or to the foreign currency in an indirect manner shall be construed as an indexing to foreign currency. Therefore, such kind of indexing shall not be resorted, as well. It shall anyhow be noted that contrary to the Previous Amendment Communique, the Second Amendment Communique allows the indexing to oil prices in service contracts relating to transportation activities.
9 The Amendment Communique also restrain the determination of the values in the negotiable instruments -created pertaining to the contracts that may not be concluded in or indexed to foreign currency- in foreign currency. It shall also be noted that the Second Amendment Communique clarifies that the negotiable instruments issued and entered into circulation before the enactment of the Amendment Order are exempted from the restriction.
10 With the Second Amendment Communique it is clarified that (i) the deposits already paid, and (ii) the negotiable instruments already put in circulation in foreign currency, regarding the lease of immovable property shall not be affected from the foreign currency restrictions.