Prohibition of Payment in Foreign Currency in Share Transfer Agreements

Decree No. 32 on the Protection of the Value of the Turkish Lira (the "Decree") and Communiqué No. 2008-32/34 on the Decree (the "Communiqué") have been revised and updated several times in recent years, prohibiting the use of foreign currency in certain payments in order to prevent the depreciation of the Turkish Lira.

The Ministry of Treasury and Finance (the "Ministry") amended paragraph (9) of the Communiqué in April 2022, making it mandatory for Turkish residents to make and accept payments in Turkish lira for the sale of immovable property. According to this amendment, while Turkish residents are still allowed to determine the price and other payment obligations arising from contracts in a foreign currency or have payments indexed to a foreign currency, the payment must be made in Turkish Liras. According to the amended paragraph (9) of the Communiqué, in the case of real estate sales, while the parties may determine the payment obligations in a foreign currency or have payments indexed to a foreign currency, they must make the actual payment in Turkish Liras converted at the applicable exchange rate. The obligation to perform and accept payment in Turkish Liras for real estate purchase agreements applies only to agreements between Turkish residents and would therefore not apply to agreements with a non-Turkish resident party.

On 21 April 2022, the Ministry issued a press statement regarding the amendment to the Communiqué, emphasising its efforts to prioritise the use of Turkish lira within the framework of free market conditions. In its statement, the Ministry also clarified that the term "movable" in the Communiqué covers all types of goods that do not fall under the definition of immovable goods. The distinction made by the Ministry between movable and immovable property raises certain controversies, with the result that securities are also considered "immovable property".

Whether unregistered shares (çıplak pay) can be considered immovable and whether their sale would fall within the scope of paragraph (9) of the Communiqué is questionable in light of the provisions of the Turkish Commercial Code. Although unregistered shares are not considered movable assets under Turkish law, certain provisions on movable assets apply to unregistered shares. As the Communiqué does not explicitly address this specific issue, some argue that the purchase price of the unregistered shares could be in foreign currency and the payment could also be in foreign currency. However, in light of the Ministry's statement, it is also argued that unregistered shares will be subject to the same regime as securities and that the purchase price must be paid in Turkish lira. Irrespective of this theoretical debate, in practice payments for unregistered shares are made in Turkish liras, which removes the practical value of the debate.

Conclusion

The Ministry of Treasury and Finance has amended Decree No. 32 on the Protection of the Value of the Turkish Currency, making it mandatory for Turkish residents to make and accept payments in Turkish lira for the sale of real estate. According to the amendment, while Turkish residents are still allowed to determine the price and other payment obligations arising from contracts in a foreign currency or have payments indexed to a foreign currency, the payment must be made in Turkish liras. The Ministry has stated that the term "movable" in the Communiqué covers all types of goods that do not fall under the definition of immovable property. Therefore, in practice, payments for share transfers will be made in Turkish Liras even if they are agreed in a foreign currency.

For more information on the Decree and its application, please contact your CMS partner or local CMS expert: Dr. Döne Yalçın, or Merve Akkuş.