Turkey: Using loans in foreign currency from a group company as an alternative source of financing
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Data from the Central Bank of the Republic of Turkey show that private sector loans from abroad and short-term loans in general, with the exception of commercial loans, have reached a level that will cause economic concern.
Due to economic fluctuations and the ensuing pandemic, companies’ funding needs are increasing day by day. Companies may need to increase their capital to meet these financial needs, assess unused resources, and effectively manage their funds, if any. However, in cases where this is not possible due to economic conditions, companies can temporarily meet their financing needs through loans provided within the group, subject to the conditions stipulated by law.
The rules for the use of loans in foreign currency actually came into force with the Decree No. 32 on the protection of the value of the Turkish currency (“DecisionThe procedures and principles of implementation were defined in the framework of the Communication No. 32 on the protection of the value of the Turkish currency (Communication No. 2008-32 / 34) and the Circular on the movement of capital from 02.05. 2018 published by the Central Bank of the Republic of Turkey in accordance with this communiqué (“Circular“).
Although joint stock companies residing in Turkey are free to use Turkish Lira loans from abroad through banks; these joint stock companies can obtain loans in foreign currency from abroad only through banks and within the framework of the principles set out in article 17 of the Decision.
In accordance with this, with the increase in loans from foreign sources used by the private sector, in accordance with the amendment introduced to the Decree in 2018, a condition was introduced to receive income in foreign currency for the use of loans in foreign currency from the country and abroad. Based on the needs, the exceptions provided for this rule have been expanded with new rules from 2018.
In fact, according to article 21/15-d of the Circular, legal entities incorporated in Turkey, 100% of which are owned by foreign shareholders residing outside Turkey, will be able to use foreign currency loans from group companies with foreign capital, exempted from the foreign currency income criteria …
On the other hand, it is not possible for companies with foreign capital ratios below 100% and companies with domestic capital to benefit from the exemption from borrowing in foreign currency. However, in accordance with article 38/2 of the Circular, provided that the transaction is carried out within the same holding or within a group, and the debiting of funds and subsequent actions are made in Turkish lira, a transfer of foreign currency is possible. the equivalent of debiting the respective internal accounts based on a written application from the company.
This provision does not mean that loans in foreign currency can be provided within the group in the country. There are no new rules in the above article, the legislation reflects only the practice according to which payments on loan transactions in Turkish lira, made within the group, can be made in foreign currency.
As explained above, companies that want to meet their funding needs but do not increase their capital can assess whether they meet the above exemptions and use intra-group loans as a temporary alternative. However, it is extremely important to plan in advance the legal and tax aspects of these temporary funding sources in order to prevent inconsistencies and possible penalties in the future.
The content of this article is intended to provide general guidance on the subject. You should seek professional advice regarding your specific circumstances.
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