The Central Bank of the Republic of Turkey (“CBRT”) has introduced the obligation to exchange foreign currency for immovable property acquisitions of which foreign real persons are the buyers by its amendment of the Capital Movements Circular (“Circular”). The CBRT also published the Implementation Instruction on the Sale of Foreign Currencies to the CBRT for Article 13 of the Circular (“Instruction”) to influence the amended Circular’s implications in practice.
What do the Circular and the Instruction state?
By the amendment of the Circular:
- The payment obligations in relation to real estate acquisitions of non-Turkish citizens will need to be made using foreign currencies. However, before a transaction takes place, the foreign currency should be sold to a bank by providing information on the property purchase, and the payment to the seller should be made in Turkish liras.
- In return for the currency exchange, the relevant bank will provide a “currency purchase document.” It is mandatory to provide the currency purchase document to the relevant land registry before the real estate purchase.
- Additionally, the Circular regulates that the currency exchange can be done by the seller and, in such case, the currency purchase document will be provided to the seller to be submitted to the land registry.
- The currency purchase document must at least include the buyer’s name and surname, passport number or foreign ID number, the purchased currency’s US dollar equivalent and a statement that sets out that this exchange is made for the purpose of Article 13 of the Circular.
The Instruction provides additional regulations for the implementation of these provisions, as follows:
- The currencies to be used for this transaction are US dollars, euros and pounds sterling. For other currencies listed by the CBRT, the transaction is made by exchanging these currencies to US dollars, euros or pounds sterling through the cross exchange rates provided on the previous trading day at 3:30 pm.
- As mentioned in the Circular, the foreign currency is purchased by the banks on behalf of the CBRT. Therefore, the currencies purchased by the banks for this purpose will be notified and transferred to the CBRT on the same day. The CBRT will pay back the equivalent value of these currencies to the banks in Turkish liras.
- Finally, following the completion of the foreign currency purchase procedure by the CBRT, the transactions cannot be canceled.
By the publication of the Circular, the use of foreign currency is mandatory for real estate acquisitions of noncitizens. This approach is contrary to the prohibitions on foreign currency transactions set out in Decision No. 32 on the Protection of the Value of Turkish Currency, even though it forms the legal basis of the Circular. The respective parties should comply with the procedure set forth, as it is an absolute requirement for property transactions.