LEGAL GUIDE FOR FOREIGNERS : CONTRACTS IN TURKEY

International Contracts with Turkey: Complete Legal Guide 2025

Inlawco Law Firm | Expertise in International Contract Law in Istanbul

Introduction

Are you an international company looking to negotiate, draft, or secure a commercial contract with a Turkish partner? Are you wondering about the applicable law, essential clauses to include, pitfalls to avoid, or potential dispute resolution mechanisms?

Turkey represents a strategic market of over 85 million inhabitants, at the crossroads of Europe, Asia, and the Middle East. Turkish companies are major players in construction, energy, textiles, agribusiness, automotive, and logistics sectors. Establishing solid contractual relationships with Turkish partners requires an in-depth understanding of Turkish contract law, local business practices, and available legal protection mechanisms.

This comprehensive guide, written by the international business law attorneys at Inlawco law firm in Istanbul, accompanies you through all aspects of negotiating and securing your international contracts with Turkey.

Reading time: 10 minutes

Turkish Contract Law: Fundamental Principles
Types of International Contracts with Turkey
Negotiation and Drafting of International Contracts
Choice of Applicable Law and Competent Jurisdiction
Essential Clauses in International Contracts
Incoterms and International Trade with Turkey
Bank Guarantees and Securities
Dispute Resolution: Arbitration and Mediation
Debt Recovery in Turkey
Compliance and Specific Regulations
Practical Cases and Common Mistakes

1. Turkish Contract Law: Fundamental Principles

The Turkish Legal Framework

Turkish law of obligations is primarily governed by:

The Turkish Code of Obligations (Türk Borçlar Kanunu - TBK), entered into force in 2012
The Turkish Commercial Code (Türk Ticaret Kanunu - TTK), reformed in 2012
The Turkish Civil Code (Türk Medeni Kanunu)
International conventions ratified by Turkey

The Turkish Code of Obligations is largely inspired by Swiss law, making it closer to European legal systems than other Eastern systems.

General Principles of Contract Law in Turkey

Principle of Freedom of Contract (Sözleşme Özgürlüğü)

Parties are free to:

Enter or not enter into a contract
Choose their contracting party
Determine the content of the contract
Choose the form of the contract (except legal exceptions)

Limitations: Public order, morality, fundamental rights, mandatory laws.

Principle of Consensualism

Under Turkish law, contracts are in principle valid by the mere exchange of consents, without particular formality.

Exceptions requiring a written form:

Real estate contracts (notarial deed required)
Guarantee/suretyship (written form required)
Exclusive distribution contracts
Assignment of significant receivables
Certain commercial contracts (franchising, agency)

⚠️ Recommended Practice: Even though an oral contract is valid, always formalize international contracts in writing to:

Facilitate evidence
Clarify obligations
Legally secure the relationship
Allow forced execution if necessary

Principle of Good Faith (Dürüstlük Kuralı)

Fundamental article of Turkish law: parties must act in good faith both during negotiation and contract execution.

Practical Consequences:

Obligation of loyalty in negotiations
Prohibition of abuse of rights
Obligation of cooperation in execution
Judge's ability to adapt the contract in case of manifest imbalance
Pre-contractual duty to inform

Example: If a party deliberately conceals essential information during negotiation, the contract may be annulled for fraud.

Binding Force of Contracts (Pacta Sunt Servanda)

"A contract is law between the parties"

Once validly concluded, the contract binds the parties who must execute it in good faith. Unilateral modification or termination is impossible, except:

By agreement of the parties
Contractual clause providing for it
Legal grounds (force majeure, serious breach by the other party)
Court decision

Validity Conditions of a Contract Under Turkish Law

For a contract to be valid in Turkey, the following are required:

1. Consent of the Parties (Rıza)

Consent must be:

Free: Absence of violence, coercion, state of necessity
Informed: Absence of fraud, substantial error
Expressed: Clear manifestation of will

Vices of Consent:

Error (Yanılma): Error on an essential element (identity, quality, quantity)
Fraud (Hile): Fraudulent maneuvers to deceive the other party
Duress (İkrah): Physical or moral constraint
Unconscionability (Gabin): Exploitation of a position of weakness (rare)

Sanctions: Annulment of the contract within one year from discovery of the vice.

2. Subject Matter of the Contract (Edim)

The subject matter must be:

Possible: Physically and legally achievable
Lawful: In accordance with public order and morality
Determined or Determinable: Precise or with determination criteria

Examples of unlawful subject matter:

Trade in prohibited products (weapons, drugs)
Contracts contrary to competition
Abusive clauses in adhesion contracts

3. Legal Capacity (Ehliyet)

Parties must have the capacity to contract:

Natural persons: Adults (18 years old) and enjoying their mental faculties
Legal entities: Represented by their authorized bodies
Foreign companies: Can contract in Turkey (verify signatory's powers)

4. Lawful Cause (Sebep - less central than in French law)

The cause of the contract must be lawful and moral.

Specificities of Turkish Commercial Law

Commercial Solidarity

In commercial matters, solidarity is presumed unlike civil law where it must be expressly provided.

Consequence: If several commercial debtors exist, the creditor can pursue one of them for the entire debt.

Legal Commercial Interest Rate

In case of payment delay, the commercial default interest rate applies automatically (approximately 30-40% per annum in 2025, indexed to inflation).

⚠️ Warning: These rates can be extremely high during inflationary periods. Consider contractually capping late payment interest.

Commercial Prescription

Commercial claims are subject to limitation periods of:

10 years: General principle
5 years: Periodic claims (rent, royalties)
1 year: Certain specific claims (transport, etc.)

Major Differences with French Law

Aspect	Turkish Law	French Law
Origin	Inspired by Swiss law	French civil tradition
Solidarity	Presumed in commercial law	Must be stipulated
Good Faith	Binding central principle	Important principle
Formalism	Limited (except real estate)	More important
Judge's Power	Significant (can adapt contract)	More restricted
Default Rates	Very high (30-40%)	Moderate (legal rate ~5-8%)
Penalty Clause	Reducible by judge	Reducible by judge

2. Types of International Contracts with Turkey

International Sale of Goods Contracts

Vienna Convention (CISG)

Turkey ratified the Vienna Convention on Contracts for the International Sale of Goods (1988).

Application: The CISG automatically applies to sales contracts between parties located in contracting states (France and Turkey), unless expressly excluded.

Advantages of CISG:

Uniform rules recognized internationally
Balance between buyer and seller
Abundant international case law
Flexibility

Key Points of CISG:

Simplified contract formation
Seller's obligations: conforming delivery
Buyer's obligations: pay the price, take delivery
Warranty for defects: mandatory notice within a "reasonable time"
Termination for fundamental breach
Damages

⚠️ Warning: The CISG does not cover:

Contract validity (capacity, vices of consent)
Effects on ownership of goods
Product liability

Essential Elements of an International Sales Contract

Mandatory Clauses:

Identification of parties: Complete corporate name, registered office, registration numbers
Subject of sale: Detailed description of goods (nature, quality, technical specifications, quantity)
Price: Amount, currency, payment terms
Delivery: Incoterm, place, deadline
Transfer of ownership and risks: Precise moment
Warranties: Conformity, hidden defects, duration
Liability: Caps, exclusions
Applicable law and dispute resolution

Recommended Clauses:

Late payment penalties
Hardship clause
Force majeure clause
Confidentiality
Price revision clause
Insurance
Intellectual property

International Distribution Contracts

Commercial Agency Agreement (Acente Sözleşmesi)

Definition: The commercial agent is an independent intermediary responsible for negotiating or concluding contracts on behalf of the principal, on a permanent basis.

Regulation: Turkish Commercial Code (articles 102-123)

Characteristics:

The agent acts in the name and on behalf of the principal
Contracts concluded directly bind the principal
Long-term relationship
Agent's independence
Commission-based remuneration

Agent's Obligations:

Promote sales
Provide market information
Act in the principal's interest
Loyalty (no competition)
Regular reporting

Principal's Obligations:

Pay agreed commissions
Provide necessary documentation
Inform agent of acceptances/refusals of orders
Respect exclusive territory (if provided)

⚠️ Agent Protection Under Turkish Law:

Upon termination, the agent may be entitled to:

Compensatory indemnity: Up to 1 year of average commissions
Goodwill indemnity: If the agent developed clientele profitable to the principal
Notice period: According to seniority (1 to 6 months)

Conditions for Indemnity:

Contract is terminated by principal (or by agent for principal's fault)
Agent brought new customers or developed clientele
Principal continues to benefit from these customers

Our Recommendation: Contractually provide precise termination and compensation conditions to avoid costly disputes.

Distribution Agreement (Distribütörlük Sözleşmesi)

Definition: The distributor purchases products in their own name and resells them in a given territory.

Difference from Agency:

Distributor buys and resells in their own name
Bears commercial risk
No representation relationship
More autonomy, but less legal protection

Key Points to Negotiate:

Territorial Exclusivity: Exclusive or non-exclusive, precise territory
Sales Targets: Annual minimums, sanctions for non-achievement
Pricing Policy: Recommended selling prices (beware of competition law)
Supply: Minimum quantities, delivery times
Marketing and Advertising: Cost sharing, brand usage
Training: Technical, commercial
After-sales and Warranties: Who handles?
Inventory: Minimum levels, buyback at contract end
Duration and Termination: Fixed or indefinite term, termination conditions, notice

Recommended Duration: 3-5 years with renewal, to allow distributor to invest

Non-compete Clause: Possible during and after contract (limited in time and space)

Franchise Agreement (Franchising Sözleşmesi)

Definition: The franchisor grants the franchisee the right to operate their concept, brand and know-how in exchange for royalties.

Regulation: Turkish Commercial Code (articles 180 bis and following) since 2012

Franchisor's Obligations:

Transfer know-how
Train franchisee
Provide technical and commercial assistance
Protect trademark
Guarantee territorial exclusivity (if provided)

Franchisee's Obligations:

Pay royalties (entry fee + royalties)
Respect concept and standards
Maintain quality
Confidentiality of know-how
Non-competition

Pre-contractual Information Document (DIP): Mandatory in Turkey

The franchisor must provide the potential franchisee with a complete document at least 1 month before signing, containing:

Network presentation
Audited accounts of franchisor
Market status
List of existing franchisees
Necessary investment
Financial forecasts

⚠️ Sanction: Lack of DIP = possible contract nullity

Sensitive Points:

Royalties (generally 5-15% of turnover)
Exclusive supply (legal if justified)
Post-contractual non-compete clause (max 2 years)
Stock buyback at contract end

International Service Contracts

Subcontracting and Engineering Contracts

Sectors Concerned: Construction, industry, energy, IT

Specific Clauses:

Technical Specifications: Precise specifications, applicable standards
Deadlines: Detailed schedule, milestones, late penalties
Work Acceptance: Procedures, reservations, warranty
Cascade Subcontracting: Authorized or not
Intellectual Property: Who owns the rights to creations?
Warranties: Completion warranty, ten-year warranty
Insurance: Professional liability, all-risk construction

Specific Case of Construction in Turkey:

The Turkish construction sector is highly developed. Points of attention:

Verify licenses and qualifications (Yapı Ruhsatı)
Mandatory bank guarantees (performance, advance payment)
Retention money (5-10% until final acceptance)
Mandatory earthquake insurance (DASK)
Ten-year liability

Consulting and Technical Assistance Contracts

Key Elements:

Mission: Precise definition, deliverables, methodology
Duration: Fixed or indefinite term, renewal
Remuneration: Fixed fee, time-based, success fee
Obligation of Means vs. Results: Clearly distinguish
Confidentiality: Essential
Ownership of Deliverables: Transfer or license?
Liability: Limitation and capping

⚠️ Withholding Tax: Fees paid to a foreign service provider may be subject to withholding tax in Turkey (generally 20%), unless a tax treaty provides for an exemption or reduced rate.

Franco-Turkish Tax Treaty: Often allows reduction or elimination of this withholding for technical and consulting services.

Joint Venture and Strategic Partnership Contracts

Contractual Joint Venture

Definition: Cooperation agreement between companies for a common project, without creating a company.

Advantages:

Flexibility
No creation of legal entity
Quick implementation
Risk limitation

Disadvantages:

No separate legal personality
Possible joint liability
Management complexity

Essential Clauses:

Cooperation Purpose: Specific project
Contributions of Each Party: Financial, technical, human
Role Distribution: Who does what
Governance: Decision-making, steering committee
Profit and Loss Sharing
Intellectual Property: Co-ownership or license?
Confidentiality and Non-competition
Duration and Exit: Dissolution conditions, asset allocation

Corporate Joint Venture (Creation of Joint Subsidiary)

Creation of a Turkish company owned by partners (usually a Limited Şirket).

Advantages:

Separate legal personality
Limited liability
Clear legal framework
Credibility vis-à-vis third parties

Points to Negotiate in Shareholders' Agreement:

Capital Distribution: 50/50 or majority/minority
Governance: Board composition, veto rights
Financing: Initial contributions, future capital increases
Profit Distribution
Share Transfer: Right of first refusal, tag along, drag along
Exit: Buy-back, sale to third parties, dissolution
Conflict Resolution: Deadlock, independent expert, arbitration

⚠️ Deadlock Problem: In case of insurmountable disagreement between 50/50 partners, provide exit mechanisms:

Russian Roulette: One shareholder proposes a price, the other chooses to buy or sell at that price
Texas Shoot-out: Sealed bids, highest bidder buys out the other
Expert Arbitration: Valuation by independent third party

Technology Transfer and License Agreements

Patent, Trademark or Know-how License

Regulation: Turkish Industrial Property Law + Code of Obligations

Key Elements:

License Object: Patents, trademarks, know-how, software
Territory: Turkey only or broader
Exclusivity: Exclusive or non-exclusive
Duration: Fixed term, renewal
Royalties: Amount, calculation, payment
Improvements: Who owns the rights?
Quality Control: Audits, standards to respect
Confidentiality: Know-how protection
Warranties: Validity of rights, non-infringement
Termination: Causes, consequences

⚠️ Taxation: Royalties paid by a Turkish company to a foreign beneficiary are subject to withholding tax (10% under the Franco-Turkish tax treaty for patents and know-how, 10-15% for trademarks).

Registration: Some license agreements must be registered with the Turkish Patent Institute (Türk Patent ve Marka Kurumu) to be enforceable against third parties.

3. Negotiation and Drafting of International Contracts

Pre-contractual Phase: Letter of Intent (LOI) and Memorandum of Understanding (MOU)

Purpose of LOI/MOU

Before signing a final contract, parties can formalize their willingness to negotiate through:

Letter of Intent (LOI)
Memorandum of Understanding (MOU)
Heads of Terms / Term Sheet

Objectives:

Formalize points of agreement in principle
Structure negotiation
Create climate of trust
Incur costs (due diligence, studies) in relative security

Legal Nature: Binding Commitment or Simple Intention?

⚠️ Crucial Question: Is the LOI/MOU legally binding?

This depends on the wording and intention of the parties:

Non-binding LOI:

Expresses simple intention to negotiate
No obligation to conclude final contract
But obligation to negotiate in good faith
Possible binding clauses: confidentiality, exclusivity

Binding LOI:

Can commit parties on certain elements
Risk of pre-contract if essential elements are fixed
Sanctions in case of abusive termination of negotiations

Recommended Wording:

"This Memorandum of Understanding constitutes a non-binding document expressing the Parties' intention to negotiate in good faith with a view to concluding a final contract. It creates no legally binding obligation except for clauses relating to confidentiality (Article X), exclusivity (Article Y) and cost allocation (Article Z)."

Typical LOI Clauses

Context and Objectives
General Principles of Contemplated Transaction
Conditions Precedent (obtaining financing, regulatory approvals, satisfactory due diligence)
Provisional Timeline
Negotiation Exclusivity (lock-up period): 30-90 days
Confidentiality: Binding clause
Costs: Each party bears its own negotiation costs
Applicable Law and Jurisdiction
Non-binding Nature (except specified clauses)

Legal and Commercial Due Diligence

Before concluding an important contract (acquisition, joint venture, distribution), thorough due diligence is essential.

Legal Due Diligence on Turkish Company

Objectives: Verify actual legal situation of Turkish partner

Points to Verify:

1. Corporate Status:

Turkish trade register extract (Ticaret Sicil Gazetesi)
Up-to-date bylaws
Shareholders register
Corporate body minutes
Signatory powers

2. Regulatory Compliance:

Licenses and authorizations necessary for activity
Tax compliance (non-debt certificates)
Social compliance (SGK - social security)
Environmental compliance

3. Ongoing Contracts:

Major customer and supplier contracts
Distribution/agency contracts
Commercial leases
Financing contracts

4. Intellectual Property:

Trademark registrations in Turkey
Filed patents
Domain names
Use licenses

5. Litigation:

Ongoing or potential disputes
Litigation history
Guarantees given

6. Assets and Liabilities:

Asset ownership (real estate, equipment)
Debts and commitments
Granted securities

7. Human Resources:

Key employment contracts
Labor disputes
Labor law compliance

Commercial and Financial Due Diligence

Analysis of financial statements (last 3-5 years)
Market position
Main customers (risk concentration?)
Key suppliers
Production capacities
Quality and certifications

Duration and Cost

Duration: 2 to 8 weeks depending on complexity Cost: €5,000 to €50,000 depending on scope

Our Support: Inlawco performs complete due diligence with detailed report in English identifying legal risks and recommendations.