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21 November 2018
Presidential Executive Decree 85 was published on 12 September 2018, amending Decree 32 on the Protection of the Vale of Turkish Currency. As a result, private and public residents in Turkey are prohibited – except in circumstances to be determined by the Ministry of Treasury and Finance – from agreeing in the value or monetary obligations in or indexed to foreign currency in:
The decree will have a major effect on the private sector and has resulted in many questions regarding its implementation. In the field of employment law, these questions have been raised primarily by Turkish subsidiaries of international companies and concern whether foreign nationals also fall within the scope of the decree and how their salaries will be paid from now on. Since the decree uses the term 'Turkish residents', the general understanding is that it also applies to foreign employees, as they must have a residential address in Turkey in order to have a work permit. In addition, as per Article 4 of the Income Tax Law, persons who have a residential address in Turkey or have lived in Turkey continuously for six months or longer are considered to be resident in Turkey.
The awaited secondary legislation (Communique 2018-32/51) was finally published on 6 October 2018 and clarified a number of questions, including whether the decree applies to the employment contracts of foreign employees.
Pursuant to the communique, Turkish residents who are not Turkish citizens can determine the value and financial obligations in their employment contracts in foreign currency or indexed to foreign currency. In other words, the employment contracts of foreign employees do not need to be amended in terms of re-determining their salaries under the new secondary legislation.
In addition, the branches, offices, agencies and liaison offices of companies residing outside Turkey and companies with at least 50% of shares owned directly or indirectly by a party that is not resident in Turkey, can determine the value of and financial obligations in their employment and service contracts in foreign currency or indexed to foreign currency.
The decree became fully effective (following its 30-day transition period) as of 13 October 2018.
Presidential Executive Decree 85 appears to be inconsistent with the general principles of Turkish law, but also with the universal principles of law, as it interferes with freedom of contract and is applied retrospectively. Therefore, its legality could be challenged and it may be altered accordingly in the near future.
For further information on this topic please contact Beril Yayla Sapan, Asena Aytuğ Keser or Pınar Ece Bişkin at Gün + Partners by telephone (+90 212 354 00 00) or email (firstname.lastname@example.org, email@example.com or firstname.lastname@example.org). The Gün + Partners website can be accessed at www.gun.av.tr.
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