The Decree Numbered 32 on the Protection of Value of Turkish Currency (the “Decree”) of the Council of Ministers numbered 89/14391 and published in the Official Gazette dated August 7, 1989 numbered 20249 was amended with the Decree Regarding the Amendment to the Decree Numbered 32 on the Protection of Value of Turkish Currency numbered 2018/11185 (the “Decree numbered 2018/11185”) published in the Official Gazette dated January 25, 2018 numbered 30312. Pursuant thereto, Article 17 of the Decree regarding the credits is reformulated under two articles titled i) Credits Obtained From Abroad, and ii) Credits Obtained From Turkey. Therefore, the Article 11 regarding the credits of the Communique Regarding the Decree Numbered 32 on the Protection of Value of Turkish Currency published in the Official Gazette dated February 28, 2008 numbered 26801 (the “Communique”) was amended in accordance and in compliance with the above mentioned amendments, with the Communique Regarding the Amendment to the Communique Regarding the Decree Numbered 32 on the Protection of Value of Turkish Currency numbered 2018-32/46 (the “Decree numbered 2018/32-46”) published in the Official Gazette dated January 25, 2018 numbered 30312. In this Newsletter, the said amendments will be explained under different sections.

  • Amendments to the Decree
  • Credits Obtained from Abroad

Pursuant to the Decree numbered 2018/11185, the Article 17 regarding the credits obtained from abroad of the Decree is reformulated with respect to credits in Turkish currency and in foreign currency. Before the amendment, the term “credit” was used and any and all credits obtained from abroad were permitted. Yet, in the amended article, different regulations are provided for credits in Turkish currency and in foreign currency. Pursuant to the amended Article 17 of the Decree, “Turkish residents are permitted to obtain credits in Turkish currency from abroad. Such credits shall be obtained through banks.” However, obtaining credits in foreign currency is restricted and a number of exceptions are provided in the related article. Pursuant thereto, “Turkish residents are permitted to obtain credits in foreign currency from non-residents within the scope of this article. Such credits shall be obtained through banks. The credit period for the pre-financing credits shall be determined by the Ministry. ”

The general condition stated in the said Article 17 is the “condition to have foreign currency income” and solely Turkish residents which have foreign currency income are permitted to obtain credits in foreign currency. However, in the event of the below mentioned exceptions, the requirement to have foreign currency income shall not apply:

a) Credits in foreign currency to be obtained by public institutions and organizations, banks and Turkish resident financial leasing companies, factoring companies and financing companies.

b) Credits in foreign currency to be obtained by Turkish residents of which the credit balance is 15 million US Dollars or above on the date of use.

c) Credits in foreign currency to be obtained by Turkish residents who shall obtain credits within the scope of investment incentive certificate and credits in foreign currency to be obtained for the financing of machinery and equipment (except for the ones which are used and for parts, components, accessories and appurtenances) which are stated in customs tariff statistic position in the 17th row of the list annexed (I) to the Decree regarding the Determination of Value Added Tax to be Applied to Goods and Services put into force with the Decree of the Council of Ministers dated 24/12/2007 numbered 2007/13033.

ç) Credits in foreign currency to be obtained by Turkish residents which have won the tenders with regards to the activities regarding domestic tenders announced internationally or Turkish residents undertaking defense industry projects approved by the Undersecretariat for Defense Industries.

d) Credits in foreign currency to be obtained by Turkish residents which are authorized to conduct projects within the scope of public private partnership model.

e) Credits in foreign currency to be obtained by Turkish residents which do not have foreign currency income corresponding to the last three fiscal years, provided however that operations and potential foreign currency income regarding exports, transit trades, sales and deliveries deemed as exports and services and activities are authenticated and provided that the credit in foreign currency shall not exceed the potential foreign currency income.

f) Credits in foreign currency to be obtained by Turkish residents to be determined by the Ministry.

Subparagraph 4 of the relevant article regulates the limitations to amount to be applied to the credits in foreign currency obtained by Turkish residents with foreign currency income and the supervision of compliance with such limitations is left to the banks. The said limitations will be explained below under the amendments to the Communique.

Pursuant to subparagraph 8 of Article 17, “Banks, financial leasing companies, factoring companies and financing companies may obtain credits from abroad in the framework of their own customs, provided that the provisions of the relevant legislations are reserved.”

  • Credits Obtained from Turkey

Before the amendment, the article regarding the credits of the Decree did not regulate credits obtained from abroad and credits obtained from Turkey separately. On the other hand, in addition to the above mentioned provisions, the Decree numbered 2018/11185 sets a comprehensive regulation with regards to the credits obtained from Turkey.

Pursuant to Article 17/A;

“(1) Turkish residents are permitted to obtain commodity credits according to their import and export regimes.

(2) Banks and Turkish resident financial leasing companies, factoring companies and financing companies may provide credits in foreign currency to Turkish residents within the framework of this article.”

The said article regulates credits obtained from Turkey and organizations and institutions authorized to provide credits in foreign currency are listed.

The condition of generating foreign currency income for credits obtained from abroad is required for credits in foreign currency obtained from Turkey as well and the exceptions in which the requirement for foreign currency income shall not apply are stated in the related article. The exceptions set forth in subparagraph 3 of Article 17 for credits obtained from abroad shall also apply for credits obtained from Turkey and two additional exceptions are regulated, which are as follow:

“(d) Foreign currency credits to be obtained by Turkish residents which do not exceed the amount of foreign currency or foreign currency securities issued by or under the warranty of central administrations and central banks of the member states of the Organization for Economic Co-operation and Development (OECD), deposited in banks or branches in Turkey as security,

(g) Financial leasing transactions in foreign currency in relation to the purchase of machinery and equipment (except for the ones which are used and for parts, components, accessories and appurtenances) which are stated in customs tariff statistic position in the 17th row of the list annexed (I) to the Decree regarding the Determination of Value Added Tax to be Applied to Goods and Services.”

Article 17/A of the Decree determines the limitations to amount to be applied to the credits in foreign currency obtained from Turkey by Turkish residents and the supervision of compliance with such limitations is left to banks and Turkish resident financial leasing companies, factoring companies and financing companies. The said limitations will be explained below under the amendments to the Communique.

Pursuant to subparagraph 8 of Article 17/A, “Banks and financial leasing companies, factoring companies and financing companies resident in Turkey, may provide credits to each other, in the framework of their own customs, provided that the provisions of the relevant legislations are reserved, either directly or through participation to an international syndication, without limitation to term.”

Pursuant to subparagraph 9 of the related article, “Banks and financial leasing companies, factoring companies, financing companies resident in Turkey and other persons to be determined by the Ministry are permitted to provide credits in foreign currency and in Turkish Lira, for non-residents.” With this provision, which was also included in the previous text of the Decree, institutions providing credits in Turkey may provide credits both in Turkish currency and foreign currency for non-residents.

Furthermore, subparagraph 10 states that “Turkish resident financial leasing companies may execute financial lease transactions with legal entities resident in Turkey and non-residents, in foreign currency, provided that it does not breach the provisions of this article. The amounts of financial lease transactions executed in foreign currency shall be included in credit balance calculation.” Thus, financial leasing companies are permitted to execute financial lease transactions in foreign currency with both Turkish residents and non-residents. Considering the old version of the article which permitted determining the said amounts in foreign currency or foreign exchange, it can be said that the Decree numbered 2018/11185 has restricted the scope of the article.

  • Common Provisions

Subparagraph 5 of Article 17 and 17/A of the Decree states that “Provisions of subparagraph 4 shall not apply to credits in foreign currency obtained within the scope of circumstances set forth in subparagraph 3 by Turkish residents with foreign currency income.” This subparagraph regulates that in the event that Turkish residents with foreign currency income obtain credits listed in subparagraph 3, such persons shall not be subject to the limitations to amount determined in subparagraph 4, neither for credits obtained from abroad nor from Turkey.

Decree numbered 2018/11185 sets forth a number of prohibitions with regards to the credits to be obtained by real persons. Pursuant thereto, “Real persons residing in Turkey are prohibited to obtain credits in foreign currency.” A condition or an exception is not regulated for such provision regarding real persons. In addition, pursuant to subparagraph 6 which prohibits any and all Turkish residents from obtaining foreign exchange credits, the possibility of obtaining foreign exchange credits from abroad or Turkey by both by legal entities and real persons residing in Turkey is eliminated unconditionally and without exception. Such prohibition was intended only towards real persons before the amendment, and with the Decree numbered 2018/11185, the exceptions are eliminated as regards real persons and the prohibition as for the foreign exchange credits is regulated involving legal entities.

  • Provisional Articles

Decree numbered 2018/11185 has set forth a number of regulations with regards to credits that had already been extended on the date the amendments enter into force. Pursuant thereto:

“Provisional Article 5 – (1) Credits in foreign currency obtained by Turkish residents from Turkey or from abroad, and extended on the date this article enters into force and of which the credit balance is below 15 million US Dollars, shall not be renewed as credits in foreign currency except for circumstances stated in subparagraphs 3, 4 and 5 of Article 17 and subparagraphs 3, 4 and 5 of Article 17/A.

Provisional Article 6 – (1) Foreign exchange credits extended on the date this article enters into force shall not be renewed as foreign exchange credits in any case or shall not be renewed as credits in foreign currency except for circumstances stated in subparagraphs 3,4 and 5 of Article 17 and subparagraphs 3,4 and 5 of Article 17/A.

Briefly, provisional articles regulate which credits that have already been extended shall be renewed excluding subparagraph 3 regarding exceptions to the requirement of generating foreign currency income, subparagraph 4 determining the limitations to amounts for credits to be obtained by generators of foreign currency income and subparagraph 5 regulating the exceptions to subparagraph 4.

Subparagraph 5 regarding limitations to amount and the scope of “credit balance” mentioned in the provisional articles above are explained in Provisional Article 7 stating “Credits in foreign currency and foreign exchange credits used prior to the entry into force by this article shall be included in credit balance calculation.”

  • Effective Date

Article 5 of the Decree numbered 2018/11185 states that the provisions of this decree are effective as of May 2, 2018.

  • Amendments to the Communique
  1. Amendments Regarding Credits

The matters left to the discretion of Prime Ministry (the “Ministry”) to which the Undersecretariat of Treasury is affiliated, are regulated with the Communique. The Communique numbered 2018-32/46 amended Article 11 of the Communique regarding credits.

Pursuant to the amendment, subparagraphs 9 and 15 of Article 11 of the Communique are revoked, thus the Communique is regulated in compliance with the amendments to the Decree. The revoked subparagraphs are as follows:

“(9) Banks are permitted to provide credits in foreign currency to Turkish residents for the purpose of fulfilling the needs of businesses, amounting to the one thirds of credits in foreign currency extended for the financing of import of investment goods.

(15) Financing companies are permitted to supply foreign exchange credits to legal entities and in the event that it is for commercial and occupational purposes, to real persons.”

Furthermore, subparagraph 8 of Article 11 of the Communique is amended as follows in accordance with the amendment to the Decree:

“Banks and financial leasing companies, factoring companies and financing companies resident in Turkey, may provide credits to each other, in the framework of their own customs, provided that the provisions of the relevant legislations are reserved, either directly or through participation to an international syndication, without limitation to term.”

Pursuant to the article before the amendment, banks were solely permitted to provide such credits. However, with the amendment, financial leasing companies, factoring companies and financing companies are included within the scope of the article, hence are permitted to provide credits in foreign currency to each other.

As mentioned above, Articles 17 and 17/A of the Decree determine a number of limitations to amount of credits in foreign currency obtained from abroad and from Turkey. The said limitations in the related articles are adopted in the Communique. Pursuant thereto:

“(5) Pursuant to subparagraph 4 of Article 17 and subparagraph 4 of Article 17/A of the Decree no.32, the following are provided for credits in foreign currency obtained from Turkey or from abroad by Turkish residents:

a) In the event that the credit balance of the borrower is below 15 million US Dollars on the date of utilization, the sum of the credit amount to be obtained and the credit balance shall not exceed the total foreign currency income corresponding to the last three fiscal years. (b) Turkish residents of which the credit balance is below 15 million US Dollars shall authenticate their foreign currency income corresponding to the last three fiscal years with documents approved by their financial accountants, during the credit requests.

(c) In the event that it is detected that the credit balance exceeds the foreign currency income corresponding to the last three fiscal years, the exceeding amount shall be reclaimed or converted into credits in Turkish Lira by the respective creditors which are banks (including free trade zone branches), financial leasing companies, factoring companies and financing companies resident in Turkey.

(ç) In the event that it is detected that the credit balance exceeds the foreign currency income corresponding to the last three fiscal years, the exceeding amount shall be reclaimed or converted into credits in Turkish Lira by the respective creditors which are branches abroad (including off-shore branches and excluding free trade zone branches) of banks, financial leasing companies, factoring companies and financing companies.

  • Effective Date

Article 3 of the Communique numbered 2018-32/46 states that Article 2 regulating the abovementioned amendments are effective as of May 2, 2018.