Do the Foreign Investment Companies and Turkish Branches of Foreign Companies Fall Within the Scope of the Communiqué on Protection of the Value of Turkish Currency? 12 November 2018
In our previous articles, we reviewed the President Decision No. 85 published in Official Gazette and entered into force in 13 September 2018 (“President Decision no.85”) and the Communiqué No. 2018-32/51 on the Amendment of the Communiqué regarding the Decree No. 32 on Protection of the Value of Turkish Currency (“Communique”) issued to regulate the application of President Decision no.85.
However, in practice, it is observed that there are still ambiguous points regarding new regulations on contractual value and other payment obligations of agreements determined in or indexed to foreign currency; so there is need for the interpretation of such regulations. In this sense, some of the questions are gathered at the point of the place of foreigners and foreigner investors within the scope of new regulations and the scope of the application regarding the element of foreignness.
In general sense, new regulations regarding the Decree No. 32 on Protection of the Value of Turkish Currency are related to agreements concluded between Turkish residents. Particularly, the extent of these regulations were clarified; types of agreements not to be concluded in foreign currency or indexed to foreign currency and the exceptions of such restrictions were regulated with Communiqué issued by Ministry of Treasury and Finance. (See. Our article dated. 16 October:
http://www.kasaroglu.av.tr/en/what-are-the-exemptions-regulated-by-the-communique-on-the-protection-of-the-value-of-turkish-currency)
At this point, in terms of the element of foreignness, the bench mark for the determination of the agreements subject to the related restrictions and exceptions is the conclusion of such agreements between Turkish resident. Therefore, agreements concluded with non-Turkish residents and legal persons are excluded from the restrictions related to agreements concluded or indexed to foreign currency.
However, it is necessary to state that, foreign branches, representative offices, liaison offices and funds of Turkish residents, as well as the foreign entities which are directly or indirectly managed or owned by Turkish residents with a minimum shareholding of 50% shall also be considered as a Turkish resident under the Communiqué.
On the other hand, regulations of the Communiqué are applicable to foreigners who reside in Turkey and Turkish branches, representative offices, liaison offices and funds of foreign residents, as well as Turkish entities which are directly or indirectly managed or owned by a foreign resident with a minimum shareholding of 50% and the free zone companies. Herein, element of foreignness become crucial and the agreements to be concluded between Turkish residents and abovementioned persons or their representatives are also subjected to restrictions and exceptions regulated by the Communiqué.
However, the Communiqué regulates a number of exemptions regarding the transactions of foreigners reside in Turkey. Within this scope, agreements exempted from the restrictions are as follows:
- Employment agreements to which Turkish residents who are not citizen of Turkey are parties.
- Service and employment agreements executed by non-Turkish residents who have branch office, liaison office and companies of which fifty percent and more shares are owned by non-Turkish residents in Turkey or by free zone companies within the scope of their activities in free zone.
The contractual value and other payment obligations arising from abovementioned agreements can be determined in foreign currency or indexed to foreign currency. As is seen; the exceptions related to foreigners who reside in Turkey and Turkish companies which include element of foreignness only cover service and employment agreements.
Another important matter is to identify characters of agreements concluded by foreigners who reside in Turkey and Turkish companies which include element of foreignness. It will only become clear whether the agreements are covered by exceptions or not; only if the characteristic of the agreements is precise. Therefore, the subject, scope, contractual claims stated in the agreements is important for the identification of the legal characteristic of agreements.
For instance; the exception may be valid for the service agreements that are concluded a Turkish company which is owned by a foreign resident with a minimum shareholding of 50% and Turkish residents. However, since there is no exceptions in the Communiqué in terms of construction agreements and the registered office of company is located in Turkey, the contractual value of construction agreements to be concluded between such company and a Turkish residents, cannot be determined in foreign currency or be indexed to foreign currency. Thus, the identification of legal characteristic of agreement is as important as to be covered by the exceptions.
For example, general character of maintenance agreement is accepted as service agreement. Within this scope, it can be said that maintenance agreements concluded by abovementioned companies and branches which includes element of foreignness are covered by exceptions. However, if an activity of production is also undertaken with the activity of maintenance, in this case, the agreement should not be considered as a service agreement but as a construction agreement and the contractual value should be determined in Turkish currency. As is seen, it is not possible to identify the legal characteristic of an agreement by looking the subject and title of the agreement and taking action with such an assumption may be cause serious sanctions.
For conclusion; new regulation regarding the agreements, contractual value of which is determined in or indexed to foreign currency has importance particularly for the investors who make investment in Turkey and foreigners who reside in Turkey. The presence of element of foreignness in a company shall not automatically constitute an exemption for this company regarding the restrictions within the scope of the Communiqué and the President Decision no.85. Therefore, it is crucial that characteristic of existing and future agreement of these companies and branches should be interpreted appropriately and in the light of this interpretation, it should be evaluated whether they would be covered by the exceptions stated in the Communiqué or not.
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