08October2018

AMENDMENT ON THE PROTECTION OF THE VALUE OF TURKISH CURRENCY LAW AND ITS IMPACT ON EMPLOYMENT CONTRACTS

AMENDMENT ON THE PROTECTION OF THE VALUE OF TURKISH CURRENCY LAW AND ITS IMPACT ON EMPLOYMENT CONTRACTS

On September 17, 2018 the Treasury had made a press release which was expected to be clarified with further explanations. The alteration to the recently announced regulations and the press release has been announced on Saturday, Oct. 6, 2018 through a Communique. As per to the newly published Communique; workplaces (employers) are obligated to have employment contracts which are based on foreign currency converted to Turkish Lira (TRY) based contracts in certain cases. The deadline to have the employment contracts amended to TRY is October 12, 2018.

The sections relevant to employment contracts announced with the COMMUNIQUE (NO:2018-32/51) REGARDING THE AMENDMENT ON THE DECREE LAW NO.32 ON PROTECTION OF THE VALUE OF TURKISH CURRENCY (NO: 2008-32/34), which has been released on the Official Gazette numbered 30557 are outlined below.

1. Can employment contracts between an employer and a non-Turkish citizen employee be in foreign currency and/or indexed to foreign currency?

Article 11 of the Communique (related to the Presidential Decree Numbered 32) states that employment contracts between parties that are located in Turkey, signed between the employer and the employee who is a non-Turkish citizen can have contractual terms and monetary obligations in foreign currencies or can have the contract indexed to foreign currencies.

Within the scope of this Article; it is not mandatory. for employment contracts that are signed with the foreign employees / expats to be converted to Turkish Lira agreements. Within this scope, the workplace’s share type is not a consideration. (The shares are not required to be 50% or more owned by a foreign, non-Turkish based party) On the other hand, it is optional to have the employment contract fixed on foreign currency or have it based on foreign currency.

2. Can the employment contracts between the employer and Turkish citizens be in foreign currency / indexed to foreign currency ?

  • A. Turkish Companies (Workplaces with Turkish shareholders)

Turkish citizen employees who have employment contracts with companies that have 50% or more shares belonging to a Turkish real person or to a company based in Turkey (a Turkish company) : Article 3 of the Communique (related to the Presidential Decree Numbered 32) defines that, real / corporate residents of Turkey, except the services rendered outside of Turkey are not to have foreign currency based contracts among the parties. The contractual terms related to payment of the service fees, wages, etc. are also prohibited to be based on foreign currencies.

Residents of Turkey: The Decree Law 32 defines; the employees working outside of Turkey, independent businesses of Turkish citizens and the real / corporate persons as the legal residents of Turkey. Therefore, as per to the interpretation of the definitions, excluding the earnings from the services which are to be rendered outside of Turkey, Turkish citizen employees are prohibited to sign foreign currency based employment contracts. In case such contract is applicable, it is mandatory to be adjusted to Turkish Lira within the legal period (October 12, 2018 is the deadline). The new contractual clauses on wages shall be mentioned either in an additional protocol to the currency employment contract or a new employment contract shall be put in place.

  • B. Workplaces with foreign shareholders, Subsidiaries, Representative and Liaison Offices

Turkish citizen employees who have employment contracts with; companies that have 50% or more shares belonging to a non-Turkish real person or to a company based abroad Turkey (a Turkish company), companies incorporated in free-zones, companies that have headquarters outside of Turkey which operate in Turkey under the legal entity of subsidiary, representative / liaison office, and similar : Article 3 of the Communique (related to the Presidential Decree Numbered 32) defines that employment contract of Turkish national employees who work for entities as mentioned herein can have foreign currency wages and/or can have employment contracts where wages are based to foreign currencies. It is not required to take any action for the employees who are already working in such workplaces with foreign currency-based wages.

This Article has put to rest the hesitations regarding the wages of the employees that are employed by liaison offices which are incorporated with the provisions of the 4875 Numbered Foreign Direct Investment Law.

Considering the clauses explained hereinabove, in case employment contracts need to be converted to Turkish Lira, the relevant amendments to the employment contracts must be finalized between the parties no later than October 13, 2018. It is therefore imperative that the relevant revisions to the employment terms are finalized as quickly as possible considering the short deadline.

If the parties can reach a consensus on the foreign currency exchange rate, it is possible to adjust the employment contract currency using the agreed rates.

In case the parties cannot reach a consensus regarding the exchange rates; the employment contract will be converted to TRY using the Turkish Central Banks’ effective selling rate from January 2, 2018 which must then be adjusted by the monthly rates of the Consumer Price Index (CPI) announced by the Turkish Statistical Institute (TUIK).

The effective Central Bank USD selling rates from January 2, 2018 are as follows:

1 USD = ₺ 3,7776

1 EUR = ₺ 4,5525

You can access these and other rates through from the website of the Turkish Central Bank using the following link: http://www.tcmb.gov.tr/kurlar/kurlar_tr.html

The Consumer Price Index (CPI) rates during the period of January 2018 – October 2018 are as shown below. You can access the applicable rates by visiting the Turkish Statistical Institutions’ (TUIK) website using the following links: http://www.tuik.gov.tr/PreIstatistikTablo.do?istab_id=650 and/or http://www.tuik.gov.tr/Start.do

2018 CPI Rates:

Month 

Jan 

Feb 

Mar 

Apr 

May 

Jun 

Jul 

Aug 

Sep 

Rate 

1,02 

0,73 

0,99 

1,87 

1,62 

2,61 

0,55 

2,30 

6,30 

Difference to

December 2017 (%)

1,02 

1,76 

2,77 

4,69 

6,39 

9,17 

9,77 

12,29 

19,37 

SAMPLE CALCULATION:

Let’s assume a Turkish employee is earning $ 1.000,00 / month and a consensus on the currency rate is not reached for the conversion of the salary. In this case, the salary will be converted to TRY from the selling rate of 02.01.2018 and the CPI rates declared until October (or the amendment date of the wage) will be used to adjust the final amount. Considering the amendment of the employment contract is signed on 10.10.2018 with an addendum to the current employment contract; the TRY converted salary figure shall be increased with the monthly CPI rates. As we have the September values at the moment the September rate; 19,37% can be taken into account for the increase to be applied. (Once the October CPI rates are announced, since the agreement is signed on Oct. 10, 2018 a 10- day increase can be calculated later on.)

To summarize;

$ 1.000,00 USD x 3,7776 = ₺ 3.777,60 "Contractual Value calculated from the FX rate of 02.01.2018"

₺ 3.777,60 x 1,1937 =  ₺ 4.509,32 " Contractual Value calculated with the CPI rate of September 2018”

You can access the relevant Communique in Turkish using the link below

Communique related to the decree law 32 on protection of Turkish monetary currency has been announced

Please be advised that this announcement is prepared and shared for informative reasons only. CottGroup® and group companies ( https://www.cottgroup.com/en/cottgroup-members.html ) shall not be held legally liable of the consequences that might arise from the scope, purpose, interpretation of this reference.

Written by Selim Tankut Akdağ, Posted in Exchange Legislation, Protection of the Value of Turkish Currency Regulations

About the Author

Selim Tankut Akdağ


CPA, Managing Partner
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