Turkey Expands Scope of the FX Payment Prohibition
The Communiqué No. 2008-32/34 on the Protection of the Value of Turkish Currency was amended by Communiqué No.2022-32/66, and accordingly, a new prohibition has been introduced regarding foreign currency transactions. Pursuant to the amendment, the contract price will have to be paid in Turkish Lira in sale of goods contracts, other than those for vehicles. The new regulation expanded the scope of the prohibition on foreign currency transactions and became effective as of its publishment in the Official Gazette, i.e., on April 19, 2022. “Goods” in contracts for the sale of goods are defined as any kind of goods that do not fall under the definition of immovable goods.
Implications of the New Regulation
Before the amendment, it was possible to pay the contract price in foreign currency in the sale of goods contracts concluded between residents of Turkey. However, from now on, the price agreed in such contracts can only be paid in local currency.
However, the amendment does not prevent the parties from setting the purchase price in foreign currency or indexed to foreign currency. In other words, the parties to a sale of goods contract may agree on their payment obligation in foreign currency or indexed to foreign currency, but those amounts must be paid in Turkish Lira on the payment date.
It should be emphasized that the ban in question only applies to the contracts between Turkish residents. As such, payments under a sale of goods contract between a Turkish resident and a foreign resident can be made in foreign currency.
Application of FX Ban on Negotiable Instruments
According to the statement [available in Turkish] published by the Ministry of Treasury and Finance of the Republic of Turkey regarding the new regulation, it will no longer be allowed to use negotiable instruments issued in foreign currency for the payment of the price in the sale of goods contracts as of April 19, 2022. Yet, the prohibition is not applicable to negotiable instruments issued in foreign currency and entered into circulation before April 19, 2022. That is to say, it is allowed to pay for a FX-negotiable instrument in the same currency so long as it was issued and circulated before the amendment.
Penalties for Non-Compliance with the FX Ban
Those who breach the above-mentioned ban on foreign currency transactions may face administrative fines ranging from 14,200 TRY to 118,500 TRY, imposed separately for each party to the sale of goods contract. If the parties fail to comply with the ban for a second time, the fines will be doubled.
As of April 19, 2022, payments can only be made in Turkish Lira in contracts for all goods that do not fall within the category of immovable goods, and even if the contract price is stipulated in foreign currency or indexed to foreign currency, debtors must pay in Turkish Lira and creditors cannot accept payments in foreign currency. The new regulation ban is only applicable to the contracts between two Turkish residents. To avoid any potential conflicts that may arise as a result of the ban, it would be advised that the foreign currency denominated price specified in current contracts be fixed at the exchange rate on the date agreed by the parties. It should be added that invoices issued before April 19, 2022 are not subject to the new rule and can be paid in foreign currency.