Leasing law

FINANCIAL LEASING LAW
REGULATIONS
1. REGULATIONS FOR INCORPORATION AND BUSINESS OF LEASING COMPANIES
2. REGULATIONS FOR TERMS AND LIMITS FOR LEASING TRANSACTIONS

(Law on Leasing, No.3226-10.6.1985)
Enacted : June,10 1985

1.1 General Provisions

Purpose
Article 1- The purpose of this Law is to regulate leasing.

Scope
Article 2- This Law governs leasing contracts and the rights and obligations of the parties to such contracts.

Definitions
Article 3-For purposes of this Law:
“Contract” is a leasing contract.
“Lessor” is an authorized leasing company.
“Lessee” is a party contracting to lease the goods.
“Good” is a good subject to a leasing contract.
“Rental amount” is a financial rental amount.

Contract
Article 4-The contract gives the Lessee the possession of the Good in order to provide the full benefit for an irrevocable time period against payment of the Rental Amount.The Goods requested or specified by the Lessee shall be purchased from third parties by the Lessor or obtained through any other legal means by the Lessor.

Subject of the Contract
Article 5- Subject of a Contract may be movable or immovable Goods. Intangible and industrial rights such as patents may not be the subject of a Contract.

Financial Rental Amount
Article 6- The Rental Amount to be paid and the payment schedule shall be determined by the parties.The Rental Amount may be fixed or variable.The Rental Amount may be denominated in Turkish Lira or any foreign currency that is traded by the Central Bank.

Regarding cross-border transactions, the annual Rental Amount may not be less than the Turkish Lira equivalent of U.S.$ 25.000.

The Council of Ministers is authorized to increase this amount or decrease it to its original level.

Irrevocable Contract Period
Article 7- Contracts may not be canceled for a minimum period of four years.The Council of Ministers will determine the specific conditions for which this period may be decreased and will issue an administrative order on this subject.

If the Lessor does not have a branch in Turkey, leasing contracts shall be registered with the Ministry responsible for the Undersecreteriat of Treasury and Foreign Trade.

Purchase of the Goods Subject to Leasing
Article 9- Ownership of the Goods subject to leasing shall remain with the Lessor .However parties may agree in the Contract that the Lessee shall have the right to exercise a purchase option at the end of the Contract term.

Legal Status of The Lessor
Article 10- Leasing companies may be formed only as joint stock companies. Establishment of and opening of branches of domestic leasing companies and the opening of branches of foreign companies are subject to the prior approval by the Ministry responsible for the Undersecreteriat of Treasury and Foreign Trade. The provisions of the Law no.6224 on Encouragement of Foreign Investments remain in full force and effect.

Domestic leasing companies and branches of foreign companies are subject to control by the Ministry responsible for the Undersecreteriat of Treasury and Foreign Trade.

The form and conditions of prior approval and control by the Ministry shall be set forth in an administrative order.

Those who carry out leasing activities without prior approval as required by this Law shall be subject to a fine of Turkish Lira 500 thousand to 5 million and imprisonment of 3 months to one year. If the activities are carried out by a legal entity, than the individual(s) responsible for the decisions and implementations shall be subject to the above fines and imprisonment.

The personnel of leasing companies which are not in compliance with this Law shall be fined TL 200 thousand to one million, depending on the degree of their responsibility.

Minimum Capital
Article 11- The paid-up capital of a leasing company shall not be less than one billion Turkish Lira. Branch operations of foreign companies shall have a paid-up capital of not less than the equivalent of U.S.$ 2 million in Turkish Lira. The Council of Ministers is authorized to increase these limits up to fivefold.

Limits of Financial Transactions
Article 12- The Council of Ministers is authorized to set limits of leasing transactions and of the terms and amount of such transaction to shareholders and other group companies.

1.2 Legal Aspects of Leasing Contracts

Rights and Obligations of the Lessee:
Article 13- The Lessee shall be the user of the Goods during the leasing period and shall have all benefits of the Goods, in accordance with the purpose of the Contract.

The Lessee shall use the Goods with care and in accordance with terms and condition as set by the Contract. Unless stated otherwise in the Contract, the Lessee shall be responsible for maintenance and safe keeping of the Goods and shall pay the cost of such.

Loss and Damage of the Goods
Article 14- The Lessee shall be responsible for the loss of or damage to the Goods during the contract period. This responsibility is limited to the amount not met by the insurance payment. However the difference shall be paid by the Lessee together by the rental payments.

Transfer Prohibition
Article 15- The Lessee may not transfer his possession rights to a third party.

Non-delivery of the Goods to the Lessee
Article 16- Article 106 of the Law of Obligations shall apply in case the Goods are not delivered to the Lessee on time, because the Lessor did not complete an agreement with the manufacturer or supplier of the Goods on time or did not make the payment on time, or for any other reasons.

Rights and Obligations of the Lessor
Article 17- The ownership of the Goods leased shall remain with the Lessor. The Lessor is obligated to insure the Goods for the duration of the contract period. The Lessee shall pay the insurance premiums.

Transfer of Ownership to a Third Party
Article 18- Unless otherwise indicated in the Contract, the Lessor can not transfer the ownership of the Goods to a third party. In case the contract provides authority to transfer, the ownership of the Goods may be transferred only to another Lessor. The new owner must comply with the provisions of the existing contract. In order for a transfer to be valid with respect to Lessee , the Lessee must be informed of the transfer.

Bankruptcy or Judicial Prosecution of the Lessee
Article 19- In case of bankruptcy of the Lessee, the official in charge of bankruptcy proceedings shall decide to segregate the Goods subject to leasing before establishing the Bankruptcy Administration in accordance with Article 221, paragraph one of the Bankruptcy Law. This decision may be contested within 7 days. In case the Lessee is subject to judicial prosecution, the judicial prosecutor shall decide to exclude the Goods subject to leasing from the procedure. This decision may be contested within 7 days. Objections contested shall be resolved within one month by the relevant authority.

Bankruptcy or Judicial Prosecution of the Lessor
Article 20- In case of bankruptcy of the Lessor, the Contract shall remain valid until the end of its term with respect to the Bankruptcy Administration. In case of judicial prosecution against the Lessor , Goods subject to leasing may not be attached during the Contract period.

1.3 Termination of the Leasing Contract

Termination of the Contract at the End of the Contract Period
Article 21- The Contract will terminate at the end of the agreed period. However, each party may ask for an extension with existing or new terms and conditions three months before the termination.

Termination Due to Other Reasons
Article 22- The Contract may terminate unless there is a contrary provision in the Contract, due to dissolution of the company, the termination of legal existence , bankruptcy or incomplete judicial prosecution of the Lessee, death or loss of physical capacity by the Lessee or dissolution of operation of the Lessee.

Violation of the Contract
Article 23- The lessor may terminate the Contract if the lessee does not pay the Rental Amount within 30 days from the date the Rental Amount is due. If the Contract provides a purchase option at the end of the Contract period, the lessor may not terminate the contract for a period of not less than 60 days. The contract may also be terminated if one of the parties breaches the contract, and the other party should not be expected to continue the contract.

Results of Termination of the Contract
Article 24- Upon termination of the Contract, the Lessee who does not have a purchase option or does not wish to exercise the purchase option, is obliged to return the Goods to the Lessor immediately.

Results of Cancellation of the Contract
Article 25- If the Contract is canceled by the Lessor , the Lessee is obligated not only to immediately return the Goods to the Lessor but also to pay the Rental Amount of the remaining Contract period and the loss incurred by the Lessor in excess of this amount. If the Lessee cancels the Contract, the Lessee shall return the Goods but may request indemnification.

1.4 Other Laws Governing Leasing Contracts

Applicable Provisions of Other Laws
Article 26- In the absence of a specific provision under this Law, leasing contracts will be governed by the general provisions if appropriate, private provisions as much as applicable, of the Law of Obligations.

Non-Applicable Provisions
Article 27- Articles 688,689,690 of the Civil Code, Articles 222,223,224 and 254 of the Law of Obligations and the provisions of the Law no.6570 governing real estate rentals shall not be applicable to the Contract.

1.5 Articles Governing Incentives and Taxes

Incentives
Article 28- The lessor can benefit form the investment incentive conditions for the investments subject to leasing with the same conditions of the investments realized directly.

Provisions Regarding Customs Duties
Article 29- Goods brought to the country under a Contract between a foreign Lessor and a domestic Lessee shall be subject to the following provisions regarding customs duties.

a) At the importation of Goods into Turkey under Contracts which do not have a purchase option or which have a purchase option but which do not have customs exemption provision on their incentive certificates, regulations for Temporary Exemption Regime shall be applied based upon the Contract term except for the time limitation foreseen by customs legislation. A guarantee in an amount sufficient to cover taxes which may become payable in the future will be collected for the Goods imported to the country pursuant to Article 29.At the end of the Contract period, if the Goods are not being subject to exact importation but are being returned to the Lessor, the guarantee will be released. The form and conditions of the guarantee shall be regulated by an administrative order.

b) At the end of the Contract period, customs duties on imported Goods shall be collected. Such customs duties shall be calculated by applying the exchange rate on the date that the tax liability arises to the fair price.

Exemptions and Determination of Tax Rate
Article 30- The Contract is exempted from all types of taxes, duties and charges. The Council of Ministers is authorized to decrease the withholding tax rates applied to earnings and wages of the foreign companies which have no branch offices in Turkey , to nil or increase to corporate tax rate.

Type of Claims
Article 31- deriving from the Contracts shall be considered commercial.

Administrative Orders
Article 32- Administrative orders referenced in this Law will be issued as follows:

a) Article 7 by the Council of Ministers,

b) Article 10 by the Undersecreteriat of Treasury and Foreign Trade,

c) Article 30 by the Ministry of Finance and Customs, within three months following the publication of this Law.

Validity
Article 33- Law is valid on the day of its publication.

Enforcement
Article 34- The Council of Ministers shall enforce this Law.

2. REGULATIONS

2.1 REGULATIONS FOR INCORPORATION AND BUSINESS OF LEASING COMPANIES

Official Gazete: 21212
dated April, 28 1992

Purpose and Scope
          Article 1 – Leasing Companies, their branches, and branches of foreign Leasing Companies who will make business under the Leasing Law shall obtain consents and be inspected subject to these Regulations.

Legal Grounds
          Article 2 – These Regu1ations have been passed under Article 10 of the Leasing Law no. 3226 enacted June, 1985.

Definitions
          Article 3 –Herein:
          a)"Law" refers to the Leasing Law no. 3226;
          b)"Ministry" refers to the Ministry to which the Undersecretariat of Treasury and Foreign Trade;
          c)"Undersecretariat" refers refers to the Undersecretariat of Treasury and Foreign Trade;
          d)"Lessor" refers to a Financial Leasing Company incorporated in Turkey or abroad or its branch.
          e)"Lessee" refers to the party accepting to lease a Good from a Lessor residing here or abroad.

Rules for Incorporation and Branch
          Article 4 –The following conditions are sought for foundation of leasing companies or branch opening by foreign leasing companies in Turkey :

          a)A Leasing company in Turkey:
          1)Must be formed as a joint stock company,
          2)Must have capital of not less than the amount indicated in the Law,
          3)Must be incorporated through an Article of Association designed in accordance with the Law and explaining the partner, number and value of shares of each partner, numbers of registered shares and bearer certificates.

          a)Foreign Leasing Companies who wish to open branches in Turkey:
          1)Must allocate capital to the Turkish branch not less then the amount indicated in the Law.
          2)Must be authorized to deal with leasing activities in the territory they were incorporated or have been acting.

Application
          Article 5 –In addition to the conditions set forth in the preceding Article 4

          1) Persons or bodies corporate willing to incorporate a leasing company in Turkey must submit the following documents to the Undersecretariat to obtain a preliminary consent:
          a)Forms completed by the original shareholders in accordance with the format designed by the Undersecretariat,
          b)The statutes of the company,
          c)A business plan prepared on the establishment and operation of the company, including types of leasing activities planned and projections for the forthcoming three years,

          d)Detailed biographies of persons to be appointed as board members, the general manager and the deputy general managers,
          e)Balance Sheets and Profit/Loss Tables for the last three years for partners who are bodies corparate.

          2)A Leasing Company incorporated abroad, willing to open a branch in Turkey must submit the following documents to the Undersecretariat to obtain a preliminary consent:
          a)The Statutes of the company as approved by the authorities in the country of incorporation and a Turkish translation thereof, a document obtained from authorities (in the applicant company's country of incorporation) stating that the company is a fully authorized leasing company and that it has no restrictions,
          b)A business plan prepared on the branch operation, including types of leasing activities planned.
c)Balance Sheets and Profit/Loss Tables for the last three years.

Leasing Companies incorporated in Turkey and willing to open a branch will be obliged to obtain a consent from the Ministry After having reviewed these documents, the Undersecretariat shall or shall not issue a preliminary consent at its discretion.

Start-Up
          Article 6 – If the Company fails to complete its incorporation or to open a branch within one year following the relevant preliminary consent's date, its preliminary consent shall be cancelled.

Balance Sheet, Profit/Loss Table, etc.
          Article 7 – Lessor shall send approved copies of its business report, balance sheet, profit/loss table, Board of Directors report and auditors report to the Ministry within one month following the date of its General Assembly meeting.

Notice
          Article 8 – The Lessor obtaining a consent for incorporation or opening a branch shall notify the address of the branch they have opened or closed down to the Undersecretariat, and Lessors beginning to carry out financial activities shall send the approved copies of their incorporation balance sheet, the statutes of the company, list of the members of its Board of Directors and list of their signatories to the Undersecretariat, within one month.

Lessor shall obtain blank forms from the Undersecretariat, fill them, and then return them to the Undersecretariat within 30 days following the end of the relevant period.

Inspection
          Article 9 – Sworn auditors of the Ministry and their deputies, Treasury Controllers and their deputies shall be authorized to inspect transactions by the financialleasing companies or Turkish branches of foreign leasing companies to check whether they are in accordance with the Law, Turkish Commercial Code, other legislation and these Regulations.

No Unrelated Business
          Article 10 –Lessors shall not be authorized to carry out business not directly related with leasing.

Development Banks,Investment Banks, Special Finance Houses
          Article 11 – Development Banks, Investment Banks and Special Finance Houses not authorized to accept deposit accounts shall be entitled to carry out leasing activities subject to prior consent by the Ministry.

Leasing Subject to Consent
          Article 12 – Leasing of second-hand, used, overhauled, faulty, non-standard, low-quality or subject to license Goods from abroad shall be subject to preliminary consent by the Undersecretariat in addition to the registration defined in Article 8 of the Law. Leasing transactions to be carried out under an incentive certificate shall not be subject to the preliminary consent condition.

Cancelled Regulations
          Article 13 –The Establishment and Control of Leasing Companies and Branches of Foreign Companies Regulations, published in the Official Gazette dated September 28, 1985 no. 18882 is hereby cancelled.

Validity
          Article 14 –These Regulations shall be valid when they have been published.

Enforcement
          Article 15 –These Regulations shall be enforced by the Ministry.

2.2 REGULATIONS FOR TERMS AND LIMITS FOR LEASING TRANSACTIONS

Official Gazette no.21278
dated July, 08 1992

          Article 1 – In the following cases, duration of a leasing contract can be shorter than four years :
          a)Goods whose life of utilization is approved to be shorter than four years by the Undersecretariat of Treasury and Foreign Trade in terms of technological characteristics, economic life or operating period.
          b) Goods being continuation to a first leasing contract and being subject to a second contract, for leasing transactions carried out by leasing companies at home or abroad.
          c)Goods, the lessor or the lessee suffering damages due to war, enemy action, sabotage, fire, accident or natural disasters at home or abroad


          Article 2 – Total leasing transactions of the lessor shall not exceed 30 times of its equity; and total leasing transactions with its shareholders or associates in the same group of companies shall not exceed 15 times its equity.

The term “equity” used herein refers to the lessor’s capital paid-up or allocated for Turkey plus its total reserve funds minus its loss as set out in the balance sheet, if any.

The term “group of companies” used herein refers to a companies whose majority shares and management belongs to the same legal entity or individual.

The above mentioned limits shall not be applicable for leasing transactions to be carried out for State-owned enterprises, their affiliates or subsidiaries and to be applied by the Undersecretariat of Treasury and Foreign Trade subject to prior consent by the State Planning Organization.

          Article 3 – The regulation for terms and limits of leasing transactions dated September, 11 1985 no. 85/9866 is hereby cancelled and its supplements and amendments, are hereby repealed.

          Article 4 – This regulation shall be valid upon promulgation.

          Article 5 – The provisions of this regulation shall be enforced by the Ministry to which the Undersecretariat of Treasury and Foreign Trade is subject.

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