Recent Developments and Penalties on the Prohibition on Contracts in Foreign Currency in Turkey

The scope of the prohibition on contracts in foreign currency has been narrowed following the publication of the “Communique (Communique No: 2025-32/72) on the Amendment to the Communique (Communique No: 2008-32/34) Regarding Decision No. 32 on the Protection of the Value of Turkish Currency” in the Official Gazette dated March 6, 2025. Under the amended regulation, persons residing in Turkey may now agree on the price and other payment obligations in movable property sales contracts (excluding vehicle sales contracts) in foreign currency or indexed to foreign currency. They can also make and accept payments in foreign currency. This article will discuss the scope of this change and the penalties for violating the prohibition on foreign currency contracts. The term "price" refers to both the contract price and other payment obligations, such as collateral, penalties, and guarantees.

Background of the Change

The “Communique (Communique No: 2018-32/51) on the Amendment to the Communique (Communique No: 2008-32/34) Regarding Decision No. 32 on the Protection of the Value of Turkish Currency” published in the Official Gazette dated October 6, 2018, imposed a foreign exchange ban on various types of contracts. However, movable property sales contracts, excluding vehicle and work machine sales, were exempt from the ban, maintaining the freedom of contract. In a Communique published on April 19, 2022, the price in movable property sales contracts could be determined in foreign currency but could not be paid in foreign currency. The most recent amendment lifts this restriction, allowing payment and acceptance in foreign currency once again.

What Does the Provision Say?

"In movable property sales contracts concluded between persons residing in Turkey, except for vehicle sales contracts, it is possible to agree on the contract price and other payment obligations arising from these contracts in foreign currency or indexed to foreign currency."

Who Are Resident Persons in Turkey?

A "resident" in Turkey is defined as both natural and legal persons whose legal place of residence is in Turkey. This definition has been expanded by Decree No. 32 on the Protection of the Value of Turkish Currency (the "Decree") to include Turkish citizens working abroad (as employees, freelancers, or independent business owners) as residents of Turkey. Additionally, the "Communique Regarding Presidential Decree No. 32 on the Protection of the Value of Turkish Currency (Communique No: 2008-32/34)" ("Communique") further broadens the definition to include branches, representative offices, offices, liaison offices, funds operated or managed by them, and companies in which they directly or indirectly hold fifty percent or more of the shares, even if these entities are located outside Turkey.

What Is a Movable Property Sales Contract?

A movable property sales contract refers to the transfer of ownership of movable goods. Article 209 of the Turkish Code of Obligations ("TCO") defines movable property as items not classified as immovable property under the Turkish Civil Code. According to Article 762 of the Turkish Civil Code, movable property includes physical objects that can be moved by their nature or natural forces and are suitable for acquisition. Examples include machinery, agricultural products, industrial goods, precious stones, raw materials, and electricity.

However, vehicle sales contracts remain excluded from the exception. Under Highway Traffic Law No. 2918, vehicles are defined as any means of transporting people, animals, or cargo. As a result, the foreign currency ban continues to apply to sales contracts involving both new and second-hand vehicles.

In contrast, construction machinery does not qualify as a vehicle. Construction machinery is defined as machinery used for road construction, agriculture, industry, national defense, and public works, and is not suitable for transporting people, animals, or cargo on highways. Consequently, the foreign currency ban on construction machinery sales has been lifted under the current amendment. Thus, in sales contracts involving construction machinery, the price and other payment obligations may be determined in foreign currency or indexed to foreign currency.

In Summary, persons residing in Turkey can now determine the price and other payment obligations in foreign currency or indexed to foreign currency in contracts related to movable property sales, including those involving agricultural products, industrial products, construction machinery, and spare parts for vehicles, among others. Payments and receipts in foreign currency are also permitted.

Penalties for Violating the Foreign Currency Contract Ban

For contracts concluded before September 13, 2018 that violate the foreign currency contract ban, Paragraphs 28 and 29 of Article 8 of the Communiqué require the parties to re-determine the contract price in Turkish lira within 30 days. If no agreement is reached, the price shall be determined by applying the monthly change rates of the Consumer Price Index (CPI) published by the Turkish Statistical Institute (TSI), calculated as of January 2, 2018.

If the parties cannot agree on the price in Turkish lira, they may request the court to have the calculation performed by an expert. Indeed, in its decision dated November 16, 2021[1], the plaintiff requested the court to determine the price of a foreign currency-indexed contract in Turkish lira in accordance with the newly enacted legislation. The Court of Cassation confirmed that, if necessary, the amount should be re-determined in Turkish lira by obtaining an expert report from a specialist in the field. In the absence of agreement, the parties face a lengthy process involving the preparation of an expert report, objections to the report, the submission of written statements, and, if required, the preparation of a second or additional report.

There is no explicit provision governing the consequences of a failure to re-determine the price in Turkish lira for contracts concluded in violation of the foreign exchange ban after September 13, 2018. This issue remains debated in legal doctrine. One opinion holds that such contracts should be deemed null and void due to their conflict with mandatory legal provisions, citing Article 27 of the Turkish Code of Obligations. An opposing view suggests that the violation, as the Communiqué is subordinate to the law, may result only in an administrative fine, rather than the invalidation of the contract.

Regardless of when the contract was concluded, administrative fines may be imposed for violations of the foreign currency contract ban. According to Article 3 of Law No. 1567 on the Protection of the Value of Turkish Currency, the administrative fine for such violations in 2025 ranges from TRY 72,252.00 to TRY 602,778.00. The public prosecutor has the authority to impose these fines, with double penalties applied in case of recurrence within five years.

What Does the Court of Cassation Say?

In several of its decisions, the Court of Cassation has consistently ruled that contracts violating the foreign currency ban are null and void. For instance, in a case involving a contract dated June 1, 2020, where the price was in foreign currency, the first-instance court held that the contract could not serve as a basis for enforcement proceedings. The appellate court emphasized that "the protection of economic public order must be considered ex officio by the courts," and accordingly rejected the creditor’s claim. The Court of Cassation upheld this decision.[2]

In its decision of February 25, 2025, the appellate court again invoked public order concerns related to the protection of the value of Turkish currency and ruled that contracts violating the foreign currency ban cannot serve as the basis for enforcement proceedings regarding receivables from 2020. The Court of Cassation confirmed this ruling.[3]

Based on the Court of Cassation's decisions, it has become more difficult for creditors to enforce receivables derived from contracts that violate the foreign currency contract ban. To illustrate this, consider the following example: Suppose a consultancy contract is signed in violation of the foreign currency contract ban. The consultant initiates enforcement proceedings against the debtor who has failed to make payment, using the contract that violates the ban as the basis for the proceedings. The debtor objects to the enforcement within the prescribed time, which suspends the proceeding. If the consultant then files a lawsuit to have the objection lifted, the court will declare the contract null and void, and therefore, dismiss the case. This situation presents a significant risk for creditors involved in contracts that breach the foreign currency ban.

Tax Implications

From a tax law perspective, foreign currency income obtained in violation of the foreign currency contract ban may be considered unlawful if included in the corporate income account. To avoid potential tax penalties, it is essential to ensure that such revenues are properly classified and reported in the corporate tax return.

References

12th Civil Chamber of the Court of Cassation, E. 2023/2188, K. 2023/3418 Numbered Decision. (2023, 05 16).

12th Civil Chamber of the Court of Cassation, E. 2025/248, K. 2025/1619 Numbered Decision. (2025, 02 25).

3rd Civil Chamber of the Court of Cassation, E. 2021/1139, K. 2021/11528 Numbered Decision. (2021, 11 16).

3rd Civil Chamber of the Court of Cassation, E. 2023/1344, K. 2023/3293 Numbered Decision. (2023, 11 22).