Turkey expands scope of foreign currency payment ban

Communique No. 2008-32/34 on the protection of the value of Turkish currency was amended by Communique No. 2022-32/66 and accordingly a new prohibition was introduced on foreign currency transactions . According to the amendment, the contract price shall be paid in Turkish Lira for contracts for the sale of goods other than those relating to vehicles. The new regulation widened the scope of the prohibition of transactions in foreign currencies and entered into force as from its publication in the Official Journal, i.e. on April 19, 2022. “Goods” in contracts for the sale of goods are defined as any type of property that does not fall under the definition of immovable property.

Implications of the new regulation

Prior to the amendment, it was possible to pay the contract price in foreign currency in contracts for the sale of goods concluded between residents of Turkey. However, now the price agreed in these 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 a foreign currency. In other words, the parties to a contract for the sale of goods can agree on their payment obligation in foreign currency or indexed to a foreign currency, but these amounts must be paid in Turkish Lira on the date of payment.

It should be emphasized that the prohibition in question only applies to contracts between Turkish residents. Thus, payments under a contract for the sale of goods between a Turkish resident and a foreign resident can be made in foreign currencies.

Application of the exchange 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 currencies for the payment of the price in the contracts for the sale of goods from 19 April 2022 However, the prohibition does not apply to negotiable instruments issued in foreign currency and put into circulation before April 19, 2022. That is to say, it is allowed to pay for a negotiable instrument in foreign currency in the same motto as long as it was published and distributed before the amendment.

Penalties for non-compliance with the exchange ban

Those who violate the aforementioned ban on foreign currency transactions face administrative fines ranging from TRY 14,200 to TRY 118,500, imposed separately for each party to the contract for the sale of goods. If the parties violate the ban a second time, the fines will be doubled.

Review

Since April 19, 2022, payments can only be made in Turkish lira in contracts for all properties that do not fall under the category of real estate, and even if the contract price is stipulated in foreign currency or indexed on foreign currency, debtors must pay in Turkish Lira and creditors cannot accept payments in foreign currencies. The new regulatory ban only applies to contracts between two Turkish residents. To avoid any potential conflict that may arise as a result of the ban, it would be advisable that the price denominated in foreign currencies 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 currencies.

About Louis Miller

Check Also

Global central banks expected to hike rates this week

Yahoo Finance’s Jared Blikre breaks down Wall Street’s expectations for upcoming central bank policy changes. …