Data from the Central Bank of the Republic of Turkey indicates that private sector lending debt abroad and short-term lending debt in general, excluding commercial lending, have reached a level that will cause a economic malaise.
Due to economic fluctuations and the ensuing pandemic, the financing needs of businesses are increasing day by day. Businesses may need to increase their capital in order to meet these financing needs, assess their unused resources, and effectively manage their funds, if needed. However, in cases where this is not possible due to economic conditions, companies can temporarily meet their financing needs through loans made within the group, provided that the conditions prescribed by law are met.
The regulations on the use of foreign currency loans came into effect with Decision No. 32 on Protection of the Value of Turkish Currency (“Decision”). The procedures and principles regarding the implementation were determined within the framework of Communiqué No. 32 on the Protection of the Value of Turkish Currency (Communiqué No.: 2008-32 / 34) and the Circular on Capital Movements of 02.05.2018 published by the Central Bank of the Republic of Turkey in accordance with this press release (“Circular”).
Although joint stock companies resident in Turkey are free to use Turkish Lira denominated loans from abroad through banks; these capital companies can only obtain foreign currency loans through banks and within the framework of the principles set out in Article 17 of the Decision.
With this in mind, with the increase in foreign source loans used by the private sector, the condition of obtaining foreign currency income for the use of domestic and foreign currency loans has been introduced in accordance with the amendment made to the decree in 2018. Taking into account the needs, the exceptions provided for to this rule have been extended with new regulations since 2018.
Indeed, in accordance with article 21/15-d of the Circular, legal persons established in Turkey, 100% owned by foreign shareholders residing outside Turkey, may resort to foreign currency loans from group companies with interests foreigners capital by being exempt from foreign currency income criteria.
On the other hand, for companies with a foreign capital ratio below 100% and companies with national capital, it does not seem possible to benefit from the exemption concerning the use of foreign currency loans. However, in accordance with article 38/2 of the Circular, provided that the transaction is carried out within the same holding company or within the group, and that the debit and monitoring are carried out in Turkish lira, it is possible to transfer the foreign currency the equivalent of debit transactions to the relevant national accounts on the basis of the written declaration of the company.
This regulation does not mean that foreign currency loans can be extended within the group in the country. There is no new regulation in the aforementioned article, only the practice whereby payments regarding Turkish lira loan transactions carried out within the group can be made in foreign currencies is reflected in the legislation.
As explained above, companies that want to cover their financing needs but do not increase their capital can assess whether they meet the above exceptions and use intragroup loans as a temporary alternative. However, it is extremely important to plan in advance the legal and fiscal aspects of these temporary funding sources in order to avoid later incompatibilities and possible sanctions.