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Restriction for the Residents of Turkey on Contracting in Foreign Currencies

The Decision no. 85 of the President of the Republic of Turkey (the “Decision”) published in the Turkish Official Gazette and enforced on September 13, 2018 has introduced new provisions into the Decree Law no. 32 on the Protection of the Value of the Turkish Currency (“Decree”), and thus imposes an obligation to fix contract fees in Turkish Lira for residents in Turkey.

The respective provision reads as follows:

Contract fees and payment obligations from such contracts shall not be fixed in a foreign currency for purchasing and sales contracts of movable and immovable property; lease contracts of all movable and immovable property including vehicle and financial leasing; employment, service and work contracts between residents in Turkey, except for conditions provided by the Ministry of Treasury and Finance (the “Ministry”).

Although the scope and exceptions of such restriction are yet to be detailed by the Ministry, we may infer from this provision that not only Turkish citizens or foreign citizens who reside in Turkey, but also Turkish subsidiaries of foreign parent companies will be bound by the respective rule. However, regardless of nationality, if one of the parties of a contract resides (or is based) in another country, they should be exempted from this rule as may be inferred from the respective provision.

Furthermore, the Decision also imposes a retroactive obligation on residents in Turkey. According to the provisional clause introduced in the Decree, the fees of contracts previously fixed in a foreign currency falling into the boundaries of the mentioned restriction, shall be converted into Turkish Lira within one (1) month as of September 13, 2018. Therefore, an addendum will need to be signed for the respective contracts. However, the date of the currency exchange rate, which the conversion should be based on, has not yet been clarified by the Ministry.

The Decision indicates that the respective provisions gain their legal basis from the Law on the Protection of the Value of the Turkish Currency enacted in 1930. The question on whether such restriction complies with other laws and the principle of the freedom of contract secured by the Turkish Constitution is, however, another matter.

For further queries, please contact:

Dogukan Berk Aksoy, LL.M.

Attorney at Law


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