THE USE OF FOREIGN CURRENCY LOANS FROM ABROAD BY RESIDENTS IN TURKEY WITHOUT FOREIGN EXCHANGE INCOME 5 May 2021

Regulations on foreign and domestic use of foreign currency loans are regulated within the scope of the Capital Movements Circular ("Circular") dated 2 May 2018. The Circular has been prepared by the Central Bank of the Republic of Turkey on the basis of the Decree No. 32 on the Protection of the Value of Turkish Currency and the Article 16 of the Communiqué on the Decision No. 32 on the Protection of the Value of Turkish Currency.

1. Can Residents in Turkey Use Foreign Currency Loan?

According to the 14th article of the Circular, which regulates the general rules of using foreign currency loans, real persons residing in Turkey cannot use foreign currency loans from abroad or domestically.

However, among the residents of Turkey with foreign exchange income, those with a loan balance below 15 million USD at the date of loan usage can use foreign currency loans provided that the total amount of the loan they want to use and the current loan balance does not exceed the total foreign exchange income of the last three fiscal years. 

In addition, persons residing in Turkey who do not have foreign exchange income are not able to obtain foreign currency loans from abroad, except for some exceptions. These exceptions are regulated in articles 21 and 40 of the Circular. According to this, residents in Turkey who do not have foreign exchange income cannot use foreign currency loan, except for the exceptions stated in articles 21 and 40 of the Circular.

2. What Are the Foreign Currency Loans That Can Be Used Without the Requirement of Foreign Exchange Income?

Persons resident in Turkey who do not have foreign exchange income in accordance with Articles 21 and 40 of the Circular shall only be able to obtain foreign currency loans from abroad without the condition of having foreign exchange income in the following cases: 

a) Foreign currency loans to be used by public institutions and organizations, banks and financial leasing companies, factoring companies and financing companies resident in Turkey.

b) Foreign currency loans to be used by residents of Turkey with a loan balance of 15 million USD or more on the date of use.

c) Foreign currency loans to be used by residents in Turkey who are envisaged to receive loans within the scope of Investment Incentive Certificate, or Foreign currency loans to be used for financing the machinery and equipment listed in Annex 1/17 of the Decree No. 2017/13033 on Determination of VAT Rations of Goods and Services

ç) Foreign currency loans to be used by residents of Turkey who have won the tender regarding the activities related to domestic tenders announced internationally, or those residing in Turkey who undertake defense industry projects approved by the Undersecretary of Defense Industry.

d) Foreign currency loans to be used by residents of Turkey who are responsible for carrying out projects to be realized within the scope of the public-private partnership model.

e) Foreign currency credits to be used by residents of Turkey who do not have foreign exchange income in the last three fiscal years, in a way that will not exceed the total of potential foreign exchange revenues, provided that they prove their connections regarding exports, transit trade, sales and deliveries deemed to be exports and foreign currency earning services and activities, and potential foreign exchange revenues.

f) Foreign currency loans to be used by residents in Turkey within the principles to be determined by the Ministry of Treasury and Finance:

f-1) Foreign currency credits to be used by residents in Turkey to be used in financing investments related to renewable energy resources within the scope of the government’s purchase guarantee, within the framework of the Law No. 5346 on the Use of Renewable Energy Resources for Electric Energy Production.

f-2) Foreign currency loans to be used by residents of Turkey who win public tenders within the scope of the Law No. 4046 on Privatization Practices, and public tenders, the cost of which is determined as foreign currency.

f-3) Foreign currency loans to be used by residents in Turkey, which are established for the purpose of buying a new company share and do not have any activity other than realizing this purpose (special purpose vehicle-SPV).

f-4) Foreign currency loans to be used by group companies residing in Turkey, where foreign capital companies with foreign capital are fully owned, from group companies with foreign capital residing abroad.

f-5) Foreign currency loans to be used by legal entities resident in Turkey, who are partners of persons residing in Turkey, who are assigned to carry out projects to be carried out within the scope of the public-private partnership model, provided that they are added to the capital of the person resident in Turkey who is in charge of carrying out the project in question.

f-6) Foreign currency loans to be used by legal entities residing in Turkey, who are partners of persons residing in Turkey, who are in charge of carrying out projects to be realized within the scope of the public-private partnership model, provided that they are used within the scope of the project.

3. What are the Conditions of Foreign Currency Loan Usage within the Scope of the Investment Incentive Certificate?

Foreign currency loans can be used by residents of Turkey who are envisaged to obtain loan within the scope of the Investment Incentive Certificate (“IIC”) both domestically and abroad (without seeking foreign exchange income). Utilization of foreign currency loans within the scope of IIC is made in accordance with the principles determined by the Decision on Government Assistances in Investments and the Communiqué on the Implementation of the Decision on Government Assistances in Investments. In this context, foreign currency loan can be used up to the foreign resource amount specified in the IIC at most. If the equity amount is included in the IIC, foreign currency loan can be used up to the amount to be calculated by deducting the equity amount from the total investment amount. Since the loan amount is shown in Turkish lira in IIC, banks are based on the Central Bank foreign exchange selling rates on the date of use of these loans by banks in the calculation of the Turkish lira equivalent of foreign currency loans.