AMENDMENT ON DECREE NO. 32 ON THE PROTECTION OF VALUE OF TURKISH CURRENCY

Several amendments have been made to the Decree No. 32 on the Protection of the Value of Turkish Currency (“Decree No.32”) (in Turkish, “Türk Parası Kıymetini Koruma Hakkında 32 Sayılı Karar”) with the Decree numbered 2018/11185 of the Council of Ministers (“ Amending Decree”). The Amending Decree was published in the Official Gazette on 25 January 2018 and has entered into force on 2 May 2018.

As per the new regime brought with the Amending Decree, the residents in Turkey (real persons and legal entities who have a legal residence in Turkey), particularly the ones who do not have a foreign currency income are prohibited from obtaining foreign-currency loans unless they fall into the scope of certain exceptions governed with the Amending Decree.

Accordingly, legal entities residing in Turkey (“Legal Entity/Legal Entities”) may borrow foreign currency loans from banks and financial institutions domiciled outside of Turkey (“Foreign Lenders”) only if the conditions below are met:

1. Legal Entities that generate foreign currency income may borrow foreign currency loans from Foreign Lenders. However, if the loan balance of the Legal Entity on the utilization date is below USD 15 million, the aggregate of the new loan amount required to be borrowed and the existing loan balance of the Legal Entitity should not exceed its foreign currency income for the last three (3) financial years.
2. Legal Entities may borrow foreign currency loans from Foreign Lenders without necessity of demonstrating their foreign currency income if the exceptions listed exist.

Exceptions for For Foreign Currency Income Requirement

The conditions of having foreign currency income shall not be required, if the following conditions exist ;

• Foreign currency loans obtained by public authorities and institutions, banks, Turkish resident financial leasing companies, factoring companies and financing companies,
• Foreign currency loans obtained by Legal Entities with a loan balance of at least USD 15 million on the date of utilization of the new foreign currency denominated loans,
• Foreign currency loans obtained by Legal Entities which can obtain loans in accordance with the investment incentive certificates (in Turkish, “yatırım teşvik belgesi”),
• Foreign currency loans obtained for the financing of the equipment listed under list No 17 of Appendix-I of Determination of Value Added Tax Rates to be Applied to Goods and Services,
• Foreign currency loans obtained by Legal Entities which have been awarded with internationally announced domestic tenders and that undertake defence industry project approved by the Undersecreteriat for Defence Industry,
• Foreign currency loans obtained by Legal Entities appointed to conduct public-private-partnership projects,
• Foreign currency loans obtained by Legal Entities performing foreign currency generating transactions through export, transit trade, sales and deliveries deemed as exports, although they do not have foreign currency income corresponding to last 3 (three) financial years, provided however that such Legal Entities  may demonstrate their operations generating potential foreign currency income and that such foreign currency loan shall not exceed their potential foreign currency income.

Council of Ministers is authorized to introduce further exceptions to the foreign currency income requirement from time to time.

Utilization of Foreign Currency Loans in Turkey

Those who obtain foreign currency loans from Foreign Lenders are in principal obliged to use and utilize these loans in Turkey by transferring the loan amounts denominated in a foreign currency through local banks in Turkey.

As an exemption from this general rule, the Legal Entities will be exempt from transferring and utilizing such loan amount in Turkey, if the Legal Entity uses subject foreign-currency loan for its business abroad and does not transfer the loan proceeds to Turkey for its investments in Turkey.

Legal Liability

If the residents in Turkey fail to comply with the Decree No:32 and the Amending Decree, they shall directly be kept liable and be subject to administrative sanctions.

Impact of Amendments to Outstanding Foreign Currency Loans and Foreign Indexed Loans

1. Outstanding foreign currency loans obtained from abroad or Turkey with a loan balance less than USD 15 millions will only be renewed if the total of the renewed loan balance and the new loan amount requested to be borrowed does not exceed the foreign currency income of the relevant resident for the last 3 (three) financial years or any of the exceptions set forth exist,
2. Outstanding foreign currency indexed loans obtained from abroad or Turkey will not be renewed in any case as foreign currency indexed loan or as foreign currency loan unless the condition of foreign currency income or the exceptions listed above are met,
3. The foreign currency loans and foreign currency indexed loans borrowed before 2 May 2018 will be added to the calculation of loan balance.

Our Law Firm remains at your disposal for any further clarifications you may need.