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Capital Movements Circular

July 2014 - Corporate & Commercial. Legal Developments by Baspinar & Partners Law Firm.

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The Central Bank of the Turkey announced several amendments to the Capital Movements Circular with the Circular numbered 2013/YB-7 dated 29.03.2013. According to the new legislation, in case a Turkish company with foreign shareholders intends to increase its capital, the money sent by the foreign shareholders shall be recorded in the books as the "capital increase amount" instead of "capital advance" until the registration of the capital increase to the Trade Registry Office.

The most significant amendment is that the Turkish company is not allowed to use the money sent by the foreign shareholder as capital increase amount until the registration of the capital increase anymore. According to the previous legislation, the company was able to use that money before the registration. The new amendment makes it clear that any amount sent by foreign shareholder for capital increase purposes cannot be used before the registration of such capital increase. In fact, the wording of the Circular is not clear about this issue and it is understood that the money cannot be used and is only blocked if the money is sent for the establishing of a new company with foreign shareholders. On the other hand, if the general purpose of the Circular is considered, it is clear that the company cannot use the money sent by the foreign shareholder if such amount is sent for capital increase. We are in the opinion that the enforcement and practice of the amendment will establish a better understanding and remove ambiguities during the time.

 

In case the company does not increase its capital even though the foreign company has sent the money, the company shall apply to the bank where the money is sent to and from that moment the money shall be recorded as loan in the books of the company.