This article examines the scope of and exceptions to the ban on foreign-currency contracts between Turkish residents, and explains the sanctions and civil-law consequences.
Under Turkish law, freedom of contract in principle extends to the currency in which the price is set. Article 99 of the Turkish Code of Obligations (TCO) expressly provides for debts denominated in foreign currency. For contracts between persons resident in Turkey, however, this freedom has been significantly restricted by foreign exchange regulation since 13 September 2018. Article 4(g) of Decree No. 32 on the Protection of the Value of the Turkish Currency prohibits residents from agreeing, in a wide range of contracts between themselves, on prices and other payment obligations denominated in or indexed to foreign currency. The exceptions are set out in Article 8 of Communiqué No. 2008-32/34. They have been amended many times, most recently in 2025, when they were broadened for sales of movables and for contracts with public-sector parties. This article examines the legal basis and scope of the ban, the concept of a "Turkish resident", the contracts subject to the ban, the exceptions in Article 8, the administrative sanction, the civil-law consequences of a breach and practical points for drafting.
1. Legal Basis and Scope of the Ban
The ban is based on paragraph (g), which Presidential Decision No. 85, published in the Official Gazette of 13 September 2018, added to Article 4 of Decree No. 32. Under this provision, except in cases determined by the Ministry of Treasury and Finance, persons resident in Turkey may not agree on the contract price or any other payment obligation in foreign currency or indexed to foreign currency in contracts between themselves for the sale of movable and immovable property, leases, employment, services and works. The exceptions determined by the Ministry were incorporated into Article 8 of Communiqué No. 2008-32/34 by Communiqué No. 2018-32/51 of 6 October 2018.
The ban is not limited to the main price. Other payment obligations arising from the contract, such as contractual penalties, default interest, security and deposits, are also covered. A clause that states the price in Turkish lira but adjusts it by reference to the exchange rate on the payment date is an "FX-indexed" arrangement. Formulas that link the price indirectly to the exchange rate should be assessed in the same way.
2. The Concept of a "Turkish Resident"
The ban applies only to contracts between persons resident in Turkey. Where one party is resident abroad, the contract as a rule falls outside the ban. Under foreign exchange regulation, residency is determined by legal domicile and place of incorporation, not by nationality. A company incorporated in Turkey is therefore a resident even if it is foreign-owned. For branches and liaison offices of foreign companies in Turkey, and for companies operating in free zones, the specific exceptions in the Communiqué must be assessed separately. The most common mistake in practice is to assume that a Turkish company with foreign shareholders is outside the ban. Such companies are residents, although they may benefit from certain exceptions discussed below.
3. Contracts Subject to the Ban
Read together, Article 4(g) of Decree No. 32 and Article 8 of the Communiqué apply mainly to the following contracts:
- Sales and leases of real estate: sales and leases of real estate between residents, including residential and commercial premises, are where the ban is applied most strictly.
- Vehicle sales: even after the 2025 amendment, vehicle sales contracts remain excluded from the relaxation granted for sales of movables.
- Employment contracts: wages and benefits must, subject to the exceptions, be set in Turkish lira.
- Service contracts: fees for services, in particular consultancy, brokerage and transport, must, subject to the exceptions, be agreed in Turkish lira.
- Works contracts: where the contractor has no foreign-currency cost component, the price must be in Turkish lira.
4. Exceptions Under Article 8 of the Communiqué
The exceptions are regulated separately by type of contract and party, and they are interpreted narrowly. The main exceptions are as follows:
- Sales of movables (other than vehicles): Communiqué No. 2025-32/72 of 6 March 2025 removed the requirement that payment be made in Turkish lira for sales of movables other than vehicles. Prices in these contracts may now be agreed in foreign currency and paid in foreign currency. According to the Ministry's announcement, the change may also be applied to contracts and invoices not yet paid.
- Contracts with public-sector parties: in contracts to which public institutions or companies of the Turkish Armed Forces Foundation are party, the price may be agreed in or indexed to foreign currency. Communiqué No. 2025-32/71 of 24 January 2025 extended this exception to companies holding an (A) or (B) level certificate under the EYDEP programme. Sales and leases of real estate remain outside this exception.
- Parties with a foreign element: exceptions apply to certain employment, service and works contracts to which non-Turkish nationals are party, as well as companies in which non-residents directly or indirectly hold 50% or more of the shares, foreign branches and representative offices, and free zone activities. There are also limited exceptions for leases of real estate involving non-Turkish nationals.
- Exports and foreign-currency-earning activities: contracts relating to exports, transit trade, sales and deliveries deemed exports, and foreign-currency-earning services and activities.
- Foreign-currency costs in works contracts: where the contractor's costs include foreign-currency components, the price may be agreed in or indexed to foreign currency.
- Special cases in employment: employment contracts performed abroad, contracts with seafarers registered under the Turkish International Ship Registry, and contracts with non-Turkish employees.
- Software and IT: contracts for the sale and licensing of software produced abroad and for certain IT services.
- Tourism and other sector-specific exceptions: leases of and accommodation service contracts with licensed accommodation facilities, leases relating to duty-free shops, and the exception for medical devices added in 2024.
Because the exceptions change frequently, each contract should be assessed against the current text of the Communiqué. Where there is doubt, it is advisable to seek the views of the Directorate General of Financial Markets and Foreign Exchange at the Ministry of Treasury and Finance. Commission and price clauses in contracts with resident agents and distributors should also be reviewed from this perspective. We have discussed the issues arising on termination of agency relationships in our article on the agent's goodwill indemnity.
5. Administrative Sanction
Breaches of Decree No. 32 are subject to an administrative fine under Article 3 of Law No. 1567 on the Protection of the Value of the Turkish Currency. The fine is imposed by the public prosecutor and may be applied to both parties to the contract. The amounts are updated every year by the revaluation rate. The risk of administrative sanctions can become a significant compliance issue, particularly for companies that use standard contracts falling within the ban on a large scale.
6. Civil-Law Consequences of a Breach
The legislation does not expressly regulate how a prohibited foreign-currency clause affects the contract, and Turkish Court of Cassation practice reflects different approaches. One view holds that the ban is a public-order rule of an administrative nature: a breach leads to an administrative sanction but does not invalidate the contract, and the debt may be paid in Turkish lira under Article 99 TCO. The other view holds that a foreign-currency clause contrary to a mandatory rule is null and void under Article 27 TCO. That nullity is, as a rule, partial: the contract survives and the price is redetermined in Turkish lira. The prevailing tendency is not to treat the contract as void in its entirety but to resolve the dispute by converting the price into Turkish lira. Which exchange rate and reference date apply may differ depending on the facts.
The transitional rules introduced in 2018, when the ban entered into force, also remain relevant. They required foreign-currency prices in contracts concluded before the ban to be converted into Turkish lira within a set period. For residential and commercial leases, where the parties could not agree, the rent was to be converted into Turkish lira at the Central Bank's selling rate of 2 January 2018 and increased from that date by the consumer price index (CPI). For contracts dating from that period that are still in force, this rule can be decisive in resolving disputes.
7. Practical Recommendations for Drafting
- Determine whether each party is a resident for foreign exchange purposes and document it, in particular the shareholding structure and the direct or indirect foreign shareholding of foreign-owned companies.
- Where a price in foreign currency is to be agreed, identify the Article 8 exception relied on and record it, with reasons, in the contract or on file.
- In works contracts, evidence the foreign-currency cost component through bids and cost estimates.
- In contracts subject to the ban, manage currency risk within Turkish lira. Options include increases linked to indices such as CPI or the domestic producer price index, sector-specific cost indices, or periodic price review mechanisms not linked to the exchange rate. In leases, the limits in Article 344 TCO must also be observed.
- Review standard contract templates and existing contract portfolios in light of the 2025 amendments. Payment in foreign currency, now possible for sales of movables, may create opportunities, but the ban remains in place for vehicle sales and service fees.
- In mixed arrangements combining a sale of movables with services, split the price into items and assess each item separately.
8. Conclusion
The ban on foreign-currency contracts remains one of the core compliance issues in drafting contracts between residents in Turkey. The key points can be summarised as follows:
- The ban covers the price and other payment obligations in sales and leases of real estate, vehicle sales, and employment, service and works contracts between residents; indexing to foreign currency is also prohibited.
- Foreign-owned Turkish companies are residents, although they may benefit from certain exceptions.
- The 2025 amendments permitted payment in foreign currency for sales of movables other than vehicles and broadened the possibility of agreeing prices in foreign currency in contracts with public-sector parties and EYDEP-certified companies, except for sales and leases of real estate.
- A breach exposes both parties to an administrative fine under Article 3 of Law No. 1567.
- In civil law, the contract is generally upheld and the price converted into Turkish lira, although case law is not uniform.
For advice on the compliance of foreign-currency and FX-indexed contracts with Turkish foreign exchange regulation, reviews of contract portfolios and related disputes, please contact us at info@guzeloglu.legal.