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Sweeping Currency Restrictions

Legal Briefing 14 September 2018

Presidential Decision No. 85 has effected changes to Decree No. 32 Regarding the Protection of the Value of the Turkish Lira (“Decree No. 32”) which governs Turkey’s general currency control and capital flows regime. The changes restrict foreign currency and currency-indexed payments under certain categories of transactions between Turkish residents and require existing payment obligations to be re-negotiated in Turkish Lira.

Key Issues

  • Turkish residents no longer permitted to agree foreign currency or currency-indexed payments in certain categories of transactions with other Turkish residents

  • Existing contracts will need to be renegotiated within 30 days


The Government’s latest measure in the self-proclaimed “economic  war”  has  been  rolled  out  in the form of amendments to Decree No. 32 by way of Presidential Decision No. 85 which has entered into force following its publication in the Official Gazette dated 13 September 2018 and numbered 30534. Presidential Decision No. 85 attempts to address the increasing currency pressures facing the private sector by restricting the use of foreign currency and currency-indexed payments under certain categories of transactions between Turkish residents and requiring existing payment obligations to be re-negotiated in Turkish Lira. The Government had been expressing intentions to limit the use of foreign currency and currency indexing in commercial real estate, in particular in the context of shopping malls – which had mushroomed under the Government’s relaxed zoning policies – for a number of years and the commercial real estate market was long-expecting they would have to operate with a lesser degree of freedom relatively soon.   However, Presidential Decision No. 85 has gone aggressively beyond commercial real estate, covering financial leasing, sale and purchase of assets, construction and service agreements, sending shockwaves through affected markets.

Scope of the new restrictions

According to Presidential Decision No. 85, Turkish residents may no longer provide foreign currency or currency-indexed  “contract  considerations”  or  other related payment obligations in the following categories of transactions entered into with another Turkish resident:

  • sale and purchase of movable and immovable assets;

  • all types of rental agreements including vehicle rentals, leasing, financial leasing and the rental of immovable properties;

  • employment agreements; 

  • service agreements; and construction agreements.

Note that Decree No. 32 describes Turkish residents as “natural  and  legal  persons  who  have  their  legal residence in Turkey, including Turkish citizens who are employed or have businesses abroad”. Presidential Decision No. 85 suffers from the misuse (not to say a complete abandonment) of technical drafting - note for example the repetitive and sometimes interchangeable use of the terms “leasing, financial leasing, rental”. This adds further uncertainty to an already sensitive market around the extent to which technical distinctions can be relied upon to flesh out a negative scope to the new restrictions. Some examples, which are by no means meant to be exhaustive, include discussions around the extent to which parts of the consideration on hybrid contracts (where some elements fall within the restricted categories but others do not) can be foreign currency based or currency-indexed and whether the “sale and purchase of movables” is intended to capture the sale and purchase of shares in companies if they have been formalised by way of share certificates.   There is silent hope in the market that the Ministry of Treasury and Finance, which has been authorised to produce a list of exceptions to these new restrictions, will provide more reasonable and comprehensive answers to these pressing questions soon.

Transition Issues

Presidential Decision No. 85 provides a 30-day transition period for Turkish residents to convert any foreign currency or currency-indexed payment obligations under affected transactions to Turkish Lira. This may very well be possible for a limited number of entities with a small number of relatively straightforward arrangements. However, it is a gross underestimation of the scale of the transition being requested, given the commercial steps required to unwind many years of established business practices, sophisticated contract terms where a transition may not be as simple as a notional conversion to Turkish Lira and the administrative burden of having to amend potentially hundreds of contracts.   Presidential Decision No. 85 does not provide any built-in option for time extension whereby the Ministry of Treasury and Finance or a regulatory body can push the timing out as necessary, although there is always the possibility that another Presidential Decision may be adopted to grant more time.

Consequences of non-compliance

Law No. 1567 on the Protection of the Value of the Turkish Currency sets out administrative fines of TL3,000 to TL25,000 for breaches of Decree No. 32 and any associated secondary legislation, including Presidential Decision No. 85. These fines will be doubled on repeat offences.     From a technical perspective, it would be difficult to say that a breach of Decree No. 32 could render contracts unenforceable. It would be similarly difficult to say that Presidential Decision No. 85 could result in a mandatory conversion of foreign currency and currency-indexed payments in contracts after the expiry of the 30-day transition period. This would mean accepting that freedom of contract, which is a constitutionally protected right, can be limited or restricted by administrative action.   However, constitutional protections do not necessarily exclude all substantive effects. For example, parties who fail to reach an agreement on conversion negotiations could find themselves subject to court intervention under article 138 of the Turkish Code of Obligations to re-adjust the commercial balance in light of exceptional and unforeseen circumstances.   The  Court  of  Appeals’  position  on  whether  the exceptional remedy under article 138 of the Turkish Code of Obligations can more easily be utilised in furtherance of the new regulations remains ambiguous. 

Alternative structures

Notwithstanding the sweeping approach taken by Presidential Decision No. 85, the commercial need to provide hard-currency payment obligations continues to be ever pressing amidst current currency trends, in particular in contracts with mid-to-long payment terms or where input or supply costs have foreign currency exposure. While the primary hope is that the Ministry of Treasury and Finance will provide a wholesome list of exceptions that will bring the new restrictions back into the realm of reasonableness, parties should prepare for the possibility that all of their transactions may not be afforded protection and consider alternative structures, possibly by referencing other appropriate indices that are not currency-based or moving contracts offshore, where possible.


Presidential Decision No. 85 has been an unpleasant surprise to markets that were already under heavy strain from currency and rate pressures. All eyes are now on the Ministry of Treasury and Finance and its approved list of exceptions to provide much needed balance and commercial reasonableness to the unhelpfully broad set of new currency restrictions.


This material is for general information purposes only. It does not constitute legal advice and should not be relied upon as such. You should always seek specific legal advice about your specific legal circumstances before taking any action based on the contents of this material. While we make all reasonable efforts to ensure that all factual information set out in this material is obtained from external sources which we reasonably believe are reliable, we do not guarantee their accuracy or completeness. © Bezen & Partners 2018

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