Business Law

THE MINISTRY OF TREASURY AND FINANCE HAS ANNOUNCED RANCHES OF TURKISH COMPANIES IN FREE ZONES ARE ALSO ACKNOWLEDGED AS TURKISH RESIDENT REGARDING FOREIGN EXCHANGE RESTRICTIONS

As will be recalled, a remarkable change has been made with a presidential decree titled “Decree on the Amendment of the Decision No. 32 on the Protection of the Value of the Turkish Currency” (Decree) published in the Official Gazette dated 13 September 2018 and numbered 30534.
Regarding this decree Subparagraph (g) added to the fourth article of Decision no. 32. Subparagraph (g) regulated that apart from exceptional cases determined by the Ministry, Turkish residents cannot agree on their payment obligations in foreign currency or indexed in foreign currency concerning all kinds of movable and real estate purchase and sale contracts, all kinds of movable and real estate leases, including vehicle and financial leasing contracts as well as employment, service and work contracts among themselves.

Subsequently, the Ministry of Treasury and Finance (“Ministry”) published “Communiqué on the Decision No. 32 on the Protection of the Value of Turkish Currency” in the Official Gazette dated 19/04/2022 and numbered 31814. Further to this Communique, although payment obligations in the sales contracts of movable properties can be determined in foreign currency, it is obligatory to fulfill and accept payment obligations in Turkish Currency. Vehicle sales are excluded from this restriction.

The main criterion for the application of restrictions arising from the Decree is being a “Turkish Resident”. Therefore, clarifying the scope of this concept would be useful. Since numerous questions have been asked by the parties in the Turkish market, The General Directorate of Financial Markets and Foreign Exchange of the Ministry discussed the concept of “Turkish residents” in its opinion letter dated 24.06.2022 and numbered E-37518347-045.99-1314528 (“Opinion Letter”).
According to the Opinion Letter; free zone branches, representative offices, bureaus or liaison offices of companies residing in Turkey, as well as funds operated or managed by, and companies with direct or indirect shareholdings of fifty percent or more by companies residing in Turkey are also admitted as “resident in Turkey”.
Companies that do not have a place of residency in Turkey and operate only in the free zone are admitted to be residents abroad.

On the other hand, as per Article 6 of the Free Zones Law numbered 3218, Free Zones are outside the scope of the foreign exchange legislation. Accordingly, Turkish resident companies in the free zone are excused from the foreign exchange restrictions. Therefore, companies operating in the free zone can make contracts among themselves in foreign currency. However, the Ministry clearly stated in its Opinion Letter that it would be against the legislation for companies resident in Turkey and operating in a free zone to conclude a contract in foreign currency with a company resident in Turkey outside the borders of the free zone. Therefore, only companies located in Turkey operating in the free zone can make contracts among themselves in foreign currency.

The most practical way for companies not located in the free zone but operating through their branches to conclude contracts in foreign currency with companies residing in Turkey would be moving the company’s domicile to the free zone upon the approval of the Ministry and not having a Turkish residency at all. In this way, the company will be recognized as “resident abroad” and they will be exempted from foreign exchange restrictions.

Uğur Serkan Köksal

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