Foreign Exchange Control in Turkey

Loans to be borrowed in foreign currency and indexed to foreign currency from Turkish or foreign banks are regulated under the Decree No. 32 and its secondary legislation. Pursuant to such decree, persons residing in Turkey cannot borrow foreign currency loans in Turkey or from foreign countries.

Additionally, there are certain restrictions for Turkish legal entities borrowing loans (i) in foreign currency and (ii) indexed to foreign currency from local or foreign banks. Accordingly, no foreign currency loans can be extended to a Turkish legal entity unless such entity has foreign currency income or meet the below exceptions:

(i). The borrower is public authority and institution, bank and inancial leasing company, factoring company or inancing company;
(ii). The cumulative loan balance of the borrowing legal entity denominated in foreign currency, whether utilized from abroad or in Turkey, is USD 15 million or more at the time of the utilisation.
(iii). Where the foreign currency loans are extended to inance an internationally announced domestic tender or a public private partnership project, to undertake a defence industry project approved by the Undersecretariat for Defence Industries, to acquire certain machines and devices (the details are in the decree) or for a transaction within the scope of an investment incentive certiicate; or
(iv). Where the foreign currency loan does not exceed the expected foreign currency income of the entity, as certiied by such entity;
(v). Where the foreign currency loans are extended for the inancing of investments regarding renewable energy sources in accordance with the Law No. 5346 on Use of Renewable Energy Resources for Generating Electricity. The amount of such foreign currency loans cannot exceed 80% of the total amount
calculated by way of multiplying the annual generation amount with the subject price (local content rate included) for the remaining period with State guarantee;
(vi). Where foreign currency loans to be borrowed by Turkish legal entities who won the tenders announced in the scope
of Privatization Implementations Law No. 40463 regardless of their currency, and for other public tenders in which the price is determined in a foreign currency. The amount of such loans cannot exceed the tender price;
(vii). Where foreign currency loans to be borrowed by special purpose companies who are established for acquiring a new company share. The amount of such loans cannot exceed the total amount regarding the company shares that are projected to be acquired;
(viii). Where the foreign currency loan will be used to acquire certain machines and devices through a foreign currency denominated inancial leasing transaction undertaken by a Turkish financial institution;
(ix). Where the amount of the foreign currency loan to be extended by a Turkish bank or inancial institution does not exceed the
foreign currency deposits and/or the value of government or central bank securities issued by or under the surety of the members of the Organization for Economic Cooperation and Development (OECD), held as collateral by the branches of a Turkish bank.

Finally, new restrictions on foreign currency denominated or indexed payments was introduced last year by the Executive Order of the President amending the Decree No. 32, as a result of which, denomination in foreign currency had become prohibited for many agreements. Nevertheless, this blanket prohibition was later softened up to an extent through certain exemptions under the Communiques issued by the Ministry of Treasury and Finance. The exemptions include agreements including agreement for sale/lease of movable property, employment contracts, service contracts, works contracts, technology contracts, and public contracts. However, in order to fall under the exemptions, there are conditions regarding the parties and the scope of such agreements.