• It is the spirit and not the form of law that keeps justice alive.
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RECENT RESTRICTIONS ON THE UTILIZATION OF FOREIGN CURRENCY LOANS BY TURKISH RESIDENTS

The Decree No.32 on the Protection of the Value of the Turkish Currency (“Decree No: 32”) has recently been amended by the Council of Ministers by introducing significant restrictions on the utilization of foreign currency loans to be effective as of 2 May 2018.

 

i.               Utilization of foreign currency loans from abroad by Turkish residents

 

According to the amendments, only those Turkish residents having foreign exchange income will be allowed to utilize loans from abroad in foreign currency and the loan is still transferred or utilized through Turkish banks. The said restriction, however, shall not apply to the following:

 

a)    Foreign currency loans to be utilized by public authorities and institutions, Turkish banks and financial leasing companies, Turkish factoring companies and financing companies;

 

b)    Foreign currency loans to be utilized by those Turkish residents having a total (outstanding) loan balance in the amount of USD 15 million or more at the time of the utilization;

 

c)   Foreign currency loans to be utilized by Turkish residents subject to an investment incentive certificate or foreign currency loans to be utilized for the financing of machines and equipment listed in Annex I/17 of the Decree No. 2007/13033 on Determination of VAT Ratios of Goods and Services;

 

d)  Foreign currency loans to be utilized by Turkish residents in respect of activities within the context of an international tender or by Turkish residents undertaking defence industry projects approved by the Undersecretariat for Defence Industries;

 

e)   Foreign currency loans to be utilized by Turkish residents employed/assigned/charged with conducting PPP projects;

 

f)   Foreign currency loans to be utilized by Turkish residents without any generated income in foreign currency to the extent that the total amount shall not exceed their possible income in foreign currency in the last three financial years and provided that those Turkish residents certify their connections in relation to export, transit trade, sale and deliveries that are considered to be export and service and activities that generate foreign currency .

 

g)    Other foreign currency loans to be determined by the ministry.

 

For the purpose of this Decree No. 32, “foreign exchange income” shall refer to the incomes in the foreign currency gained from the activities and services in respect of exportation, transit trades, sales and deliveries constituting exportation. Furthermore, “loan balance” shall refer to the sum of unpaid foreign currency loans in cash utilized from Turkey and abroad.

 

ii.             Restrictions on the utilization of foreign currency loans from abroad by Turkish residents with foreign exchange income:


Turkish residents who have foreign exchange income will be allowed to utilize foreign currency loans subject to the limitations listed under the Decree No: 32. Accordingly, if on the utilization date, the borrower’s total loan balance is less then USD 15 million, the sum of the loan to be utilized and the current loan balance shall not exceed the total foreign exchange income of the last three financial years. If it is determined that the loan, provided by the branches of banks, financial leasing companies, factoring companies and financing companies abroad (including banks' offshore branches but excluding free zone branches), exceeds the total foreign exchange income of the last three financial years, the exceeding amount shall be recalled or converted into Turkish lira loans.

Other than those exceptions and limitations stated under Sections (i) and (ii) above, Turkish residents shall not be allowed to utilize loans from abroad in foreign currency.

It should however worth noting that the banks, financial leasing companies, factoring companies and financing companies are free to utilize loans from abroad, without being subject to any restrictions under the Decree No.32, provided that such utilization complies with the relevant legislation.

 

iii.            Restrictions on the utilization of foreign currency loans from Turkey by Turkish residents

 

The new changes bring similar provisions in relation to the foreign currency loans to be utilized from abroad.  In addition to the exceptions listed in Section (i) above, only those Turkish residents having foreign exchange income will also be allowed to utilize foreign currency loans from Turkey. On the other hand, foreign currency loans utilized from Turkey by Turkish residents, which do not exceed the amount of the receivables kept as foreign exchange in the Turkish branches of banks as collateral or the amount of issued securities by the centralized governments and central banks of the Organization for Economic Cooperation and Development (OECD) member countries or the amount of securities issued through their sureties are also exempt from the recent restrictions. In addition to the foregoing, financial leasing transactions, concluded in foreign currency loans, related to machines and equipment (excluding the used sections, spares, accessories and particulars) listed in Annex I/17 of the Decree No. 2007/13033 on Determination of VAT Ratios of Goods and Services shall also qualify as an exemption.

 

Turkish residents shall be free to utilize commodity loans pursuant to their importation and exportation regimes.

 

Turkish banks, financial leasing companies, factoring companies and financing companies will be entitled to provide foreign currency loans to each other, without being subject to any maturity limitations, directly or through participation of an international syndication and in accordance with their customs.

 

On the effective date of these amendments (i.e. 2 May 2018), save for the exceptions listed above, those foreign currency loans utilized by Turkish residents from Turkey or abroad will not be renewed as foreign currency loans, save for if the loan balance is below USD 15 million.

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#Banking and Finance Law
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