Prohibition on Contracts in Foreign Currency or Indexed to Foreign Currency in Light of Recent Regulations
Introduction
To ensure economic stability in Turkiye and preservere the value of the Turkish Lira, an amendment was introduced to Decree No. 32 on the Protection of the Value of the Turkish Currency through Presidential Decree No. 85, published in the Official Gazette No. 30534, dated September 13, 2018. This regulation prohibits determining contract prices in foreign currency or indexed to foreign currency in certain contracts concluded between residents of Turkiye. The regulation is a preventive measure against economic fluctuations by restricting contract parties from conducting transactions in foreign currency.
This article examines the scope of the prohibition on contracts in foreign currency, the exceptions introduced, subsequent regulations, and the adaptation of existing contracts.
Scope of the Prohibition on Contracts in Foreign Currency or Indexed to Foreign Currency
The prohibition applies to certain contracts to be concluded between residents of Turkiye. Under this regulation, the determination of contract prices, as well as any interest, delay penalties, liquidated damages, or other compensatory obligations associated with such contract prices, in foreign currency or indexed to foreign currency is prohibited for the following contract types:
- Sales contracts for movable and immovable property;
- Lease contracts for movable and immovable property, including vehicle and financial leasing contracts;
- Employment, service, and work contracts.
Additionally, negotiable instruments issued about contracts falling within the scope of the prohibition cannot specify amounts in foreign currency or indexed to foreign currency.
However, certain contracts are exempt from this prohibition under specific exceptions.
Exceptions to the Prohibition
The procedures and principles regarding the implementation of this prohibition, as well as exceptions thereto, were established through the Communiqué on the Amendment of the Communiqué on Decree No. 32 on the Protection of the Value of the Turkish Currency (Communiqué No. 2018-32/51), published in the Official Gazette No. 30577 on October 6, 2018, by the Ministry of Treasury and Finance. Further restrictions were introduced through the regulation dated April 19, 2022, while an amendment made on March 6, 2025, reinstated the possibility of making payments in foreign currency for certain contracts.
The exceptions allowing payment obligations to be determined in foreign currency or indexed to foreign currency can be categorized based on (i) the type of contract or (ii) the contracting parties.
(i) Based on Contract Type
Employment Contracts:
Payment obligations in foreign currency or indexed to foreign currency are permitted for employment contracts to be performed abroad and for employment contracts involving seafarers.
Service Contracts:
Payment obligations in foreign currency or indexed to foreign currency are permitted for service contracts relating to:
- Export, transit trade, sales and deliveries deemed export transactions, and foreign currency-generating services and activities;
- Activities conducted abroad by Turkish residents;
- Telecommunications services start in Turkiye and end abroad, or vice versa.
Technology and Licensing Agreements:
Payment obligations in foreign currency or indexed to foreign currency are permitted for contracts involving the sale of software produced abroad and for licensing and service agreements concerning hardware and software.
Work Contracts:
Payment obligations in foreign currency are allowed for work contracts between Turkish residents that involve costs incurred in foreign currency.
Financial Leasing Contracts:
Payment obligations in foreign currency or indexed to foreign currency are permitted for financial leasing contracts related to ships defined under Law No. 4490 and for financial leasing contracts concluded under Articles 17 and 17/A of the Decree.
Movable Sales Contracts: Under the amendment introduced by Communiqué No. 2025-32/72, published in the Official Gazette No. 32833 on March 6, 2025, payment obligations in foreign currency or indexed to foreign currency are permitted for movable sales contracts, except for vehicle sales contracts.
(ii) Based on Contracting Parties
Payment obligations in foreign currency or indexed to foreign currency are permitted, subject to certain exceptions, for contracts where one of the parties falls within the following categories:
- Branches, representative offices, liaison offices, companies with direct or indirect foreign ownership of 50% or more, and companies operating within free zones in Turkiye, provided that the contract relates to free zone activities (Exception: real estate sales and lease contracts, contracts for the sale and lease of vehicles, including construction machinery, and work contracts)
- Contracts involving individuals who are not citizens of the Republic of Turkiye (Exception: real estate sales and lease contracts, contracts for the sale and lease of vehicles, including construction machinery, and work contracts)
- Contracts in which public institutions and organizations, as well as companies owned by the Turkish Armed Forces Foundation, are parties (Exception: real estate sales and lease contracts)
- Contracts for tenders, contracts, and international agreements involving public institutions and organizations, provided that they relate to foreign currency-based transactions (Exception: real estate sales and lease contracts, employment contracts)
- Contracts involving banks related to transactions conducted by the Ministry under Law No. 4749 on Public Finance and Debt Management
- Contracts involving commercial airline operators engaged in passenger, cargo, or mail transportation in Turkiye, companies providing technical maintenance services for air transport vehicles, their engines, and parts, as well as companies authorized for ground handling services at airports under civil aviation regulations, and their subsidiaries where they hold a direct or indirect stake of at least 50% (Exception: real estate sales and lease contracts, employment contracts)
Adaptation of Existing Contracts
For contracts falling within the scope of the prohibition that were executed before September 13, 2018, the contracting parties must renegotiate and determine the contract prices in Turkish Lira. In cases where the parties fail to reach an agreement, the following method is applied:
- The contract price is calculated based on the effective selling rate of the Central Bank of the Republic of Turkiye as of January 2, 2018;
- The determined amount is adjusted according to the monthly changes in the Consumer Price Index (CPI) to establish the new contract price in Turkish Lira;
- The newly determined Turkish Lira amount remains valid for the duration of the contract.
Sanctions for Non-Compliance with the Relevant Regulations
Under Article 3 of the Law on the Protection of the Value of the Turkish Currency, individuals who fail to comply with the obligations stipulated in the relevant regulations and the general and regulatory provisions issued by the President are subject to administrative fines ranging from TRY 3,000 TL to TRY 25,000. These amounts are updated annually based on the revaluation rate. For 2025, the revaluation rate has been announced as 43.93%, increasing the applicable administrative fines to a range of TRY 4,317 TL to TRY 36,000.
Additionally, administrative fines imposed under the relevant law are subject to late payment interest calculated at the rate determined under Law No. 6183 on the Collection of Public Receivables for the period between the date of the offense and the date of collection. In cases of repeated violations, the fines are doubled.
Moreover, under Article 21 of the relevant law, natural and legal persons in Turkiye must provide the necessary documents and information requested by the competent audit authorities. Failure to comply with this obligation may result in the partial or complete, temporary or permanent suspension of activities, the requirement to provide collateral, or, if necessary, the forfeiture of such collateral to the Treasury.
Conclusion
The prohibition on contracts in foreign currency or indexed to foreign currency aims to protect Turkish residents from economic uncertainties and promote the use of the Turkish Lira. However, regulatory amendments have introduced flexibility for certain sectors, allowing some contracts to be concluded in foreign currency. Notably, removing restrictions on foreign currency payments in movable sales contracts represents a significant development for foreign currency-based transactions. Therefore, parties must review the current regulations before entering into contracts.
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