Capital Movements Circular of the Central Bank of the Republic of Turkey (“Circular”) was amended on May 11, 2020 in accordance with the letter numbered 267896 of the Ministry of Treausry and Finance (“Ministry”). The said amendments are made with respect to the payment of share capital in company establishment and share capital increases, and convertible debts.1

Amendment re. Payment of Capital Share in Joint Stock Companies at Incorporation:

With Article 5(a) of the Circular, it has been previously regulated that at incorporation and prior to registration, at least 25% of the nominal value of shares subscribed in cash should be paid to a bank residing in Turkey, deposited to an account to be opened in the name of the new company and in a way that the new company can solely use such funds. The amendment dated May 11, 2020 has added that even if the paid amount exceeds 25% of the nominal value of shares, these amounts shall be deposited in a way that solely the new company can use such funds.

Amendments re. Payment of Share Price for Share Capital Increases in Public and Closed Companies in Share Capital

  • Article 6 of the Circular regulates the payment of shares for capital increases in companies with foreign shareholders. The amendment seperates the procedure to be followed for public and closed companies, regulating the process in detail. The existing share capital increase procedure for companies with shareholders are preserved only to be applied to closed companies and minor changes have been made. Furthermore, new regulations to share capital increases in public companies have been introduced. As per these new procedures for the public companies, in the event that the examination of the Capital Markets Board (“Board”) exceeds 3 months, letter to be obtained from the Board confirming that the examination is pending should be submitted to the intermediary bank for the transfer of share capital.
  • The new transaction procedures for share capital increase in public companies should be followed by the intermediary bank for the transfer of share capital. In the event that the foreign currency is not added to the share capital and that the share capital increase or the pending examination of the Board are not documented within the granted period, the foreign currency amount received shall be refunded to its owners by the bank. If the company wishes to utilize this foreign currency as loan, separate regulations have been foreseen in the amendment.
  • In the event that the public companies fail to obtain approval of the Board for the prospectus, export document or announcement pertaining to the share capital increase, a letter verifiying the same should be obtained from the Board and submitted to the bank. Upon submission of this letter, the bank shall refund the said amounts to the owners. Also, if the company wishes to utilize this foreign currency as loan, separate regulations have been foreseen in the amendment.
  • The conversion of the amount deposited by the foreign shareholders for share capital increases to be realized in the future, to share capital, is allowed provided that (i) the company submits a written undertaking to the bank stating that the related amount will be converted to share capital within 3 months as of its depositing or for public companies, that the company will apply to the Board for share capital increase, (ii) the said foreign currency amount is added to the share capital within 3 months in accordance with the procedures set forth in the Circular and (iii) the share capital increase is documented to the bank. Until the relevant documents are submitted to the bank, the bank will block the amount and if the foreign currency is not converted to share capital and the share capital increase or pending examination are not documented within 3 months, the amounts will be refunded to the owners by the bank. Also, if the company wishes to utilize this foreign currency as loan, separate regulations have been foreseen in the amendment
  • In the event that the company fails to document the share capital increase within the granted period or declares in writing that the company wishes to utilize the said amounts as loans, the intermediary banks shall carry out compliance check with the general rules of foreign currency loans. If the bank determines that the said amounts are in compliance with the rules, these amounts shall be added to the loan balance of the company and reported to the Risk Center. In case of non-compliance, the said amounts shall be refunded to the owners by the bank.
  • The amounts in the blocked account to be refunded to the foreign shareholder will not be regarded as loans.

Amendments re. Convertible Debts Executed in Foreign Currency:

  • Pursuant to the Article 6/12 of the Circular, exemptions are granted from the conditions set out in Article 14 regarding foreign currency loans on the condition that some requirements related to the content of the agreement are met in convertible debt agreements executed between residents in Turkey and venture capital funds established abroad. The obligation to meet the conditions under Article 14 is not required with regard to the foreign currency amount transferred to the account of a Turkish resident which is party to the agreement, on condition that (i) an explicit provision stating that the amount will be added to the share capital within a maximum of 12 months from the date of transfer must be included in the agreement, (ii) there is a provision in the agreement stating that the amount in question will be added to the share capital (not to continue as debt), unless for the company’s dissolution or liquidation, (iii) there is a provision that the entire amount transferred in the agreement will be added to the share capital.
  • The agreement, the written declaration prepared by by the company that no funds have been used before converting them into capital and the commitment to add that amount to the share capital within a maximum of 12 months should be submitted to the relevant bank’s commitment by the party of the agreement who is resident in Turkey and foreign currency amount transferred to the account. Otherwise, the amount is added to the credit balance of the company and reported to the Risk Center upon the notification of the bank to the Ministry.
  • In the event that the amount transferred to residents in Turkey is used without adding to the capital under the agreement, funds cannot be used as part of a more related item by the resident in Turkey.
  • It is regulated that, in event of force majeure conditions during the 12 months maximum period stated above, the Ministry may extend for up to 6 months upon request of Turkish resident party.