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Legal Alerts

FX Payment Ban in Employment Agreements

Legal Alerts

Recent Development

The amendments to the Decree No. 32 Regarding the Protection of the Value of the Turkish Currency (“Decree No. 32“) published in the Official Gazette on September 13, 2018 introduced a ban on FX and FX-indexed payments for employment agreements executed between Turkish residents. Following the entry into force of these restrictions, the Ministry of Treasury and Economy amended the Communiqué No. 2008-32/34 on the Decree No. 32 and introduced certain exemptions to the respective restrictions. The exemptions were published in the Official Gazette dated October 6, 2018.

What Do the Amendments Say?

The amendments to the Decree No. 32 no longer legally allow contract prices and other payment obligations in employment agreements executed between Turkish residents to be denominated in or indexed to foreign currencies.

In principle, the following entities will be subject to the FX payment ban with respect to the employment agreements they execute with Turkish residents:

  • Branch offices, representative offices, offices, and liaison offices located abroad that belong to Turkish residents;
  • Foreign funds operated or managed by Turkish residents; and
  • Foreign companies in which Turkish residents hold 50% or more of the share capital or foreign companies that are held directly or indirectly by Turkish residents.

Exemptions from the FX Payment Ban with respect to Employment Agreements

Pursuant to the amendments in the Communiqué No. 2008-32/34 on the Decree No. 32, the following employment agreements are exempt from the FX payment ban, even though they are executed between persons considered Turkish residents:

  • Employment agreements performed abroad;
  • Employment agreements where the employee is not a Turkish citizen;
  • Employment agreements executed by non-Turkish resident persons’ Turkish branches, representative offices, and liaison offices;
  • Employment agreements executed by Turkish companies in which a non-Turkish resident person directly or indirectly holds 50% or more of the share capital; and
  • Employment agreements executed by free zone companies, only for their activities in the free zone.

Conversion of FX into Turkish Lira

  • Agreements falling under the scope of the FX payment ban and that cannot benefit from an exemption must be executed in line with the restrictions. Accordingly, agreements executed prior to the amendment to the Decree No. 32 must be modified to comply with the restrictions within thirty days of September 13, 2018.
  • If the parties cannot agree on a conversion rate, they should utilize the Central Bank of the Republic of Turkey’s indicative selling rates on January 2, 2018. The converted amount must then be adjusted based on the monthly consumer price index rates changes determined by the Turkish Statistical Institute for the period from January 2, 2018 to the restatement date.
  • The amounts already paid or due under the FX denominated or FX indexed agreements that are now subject to the FX payment ban do not need to be restated as shown above.