Escrow accounts are becoming a cornerstone of trust in Turkish commercial transactions. These accounts are structured to protect both buyer and seller by placing the transaction amount under the control of a neutral third party—usually a bank or licensed financial institution—until all contractual conditions are met. A professionally drafted escrow agreement can prevent litigation, reduce fraud risk, and facilitate cross-border operations.
At ER&GUN&ER Law Firm, our English Speaking Turkish Lawyers advise clients on setting up escrow mechanisms for real estate deals, company share transfers, M&A transactions, high-value exports, and even crypto-based arrangements. We ensure all parties are contractually secured in accordance with Turkish commercial and banking regulations.
What Is an Escrow Account?
An escrow account is a temporary holding account controlled by a neutral third party. In Turkey, escrow systems are often governed by the Turkish Code of Obligations and relevant banking laws. The funds or assets placed in escrow are released only when the specified contractual conditions are fulfilled. This model is commonly used in transactions that involve:
- Deferred payment and conditional delivery
- Third-party approval of documentation
- Cross-border risk mitigation
- Dispute-sensitive transactions (e.g., IP transfer)
Legal Basis of Escrow in Turkish Law
There is no single “Escrow Law” in Turkey, but the legal framework is derived from:
- Turkish Code of Obligations (Art. 1-48, 106-125): General contract law applies to escrow agreements.
- Banking Law No. 5411: Regulates the use of bank accounts and fiduciary responsibilities.
- Consumer Protection Law: When individuals are party to the escrow (e.g., property buyers).
- Customary Commercial Practices: Applied through private law and doctrine.
Our Turkish Law Firm drafts escrow agreements that incorporate binding obligations, payment milestones, and dispute resolution mechanisms that are enforceable in Turkish courts.
Escrow Use Cases in Commercial Practice
Escrow is increasingly used in high-value, multi-party, and cross-border deals where trust and verification are paramount. Common use cases include:
- Real Estate Sales: Protecting foreign buyers in off-plan and title-deed pending projects.
- Share Purchase Agreements: Used in private equity and startup acquisitions.
- Export Contracts: Releasing payment only upon verified shipment and delivery.
- Construction and Engineering Contracts: Used for milestone-based payments and performance bonds.
- Crypto and Digital Asset Transfers: Regulated escrow protects both developers and buyers.
How a Turkish Law Firm Structures the Escrow Process
We provide end-to-end legal advisory for establishing escrow frameworks. Our services include:
- Drafting and negotiating a tripartite escrow agreement (buyer, seller, escrow agent)
- Selecting a licensed financial institution as escrow agent
- Defining release conditions (e.g., delivery confirmation, contract signature)
- Drafting annexes (payment plans, delivery documents, risk matrix)
- Ensuring enforceability under Turkish and international law
All agreements are bilingual and customized to the deal structure, ensuring that clients operating internationally are fully protected.
Tax and Compliance Considerations
While escrow accounts primarily function as security mechanisms, they also have tax and reporting consequences. Our Turkish Law Firm assists clients in handling the following:
- VAT implications upon fund release
- Stamp tax on escrow agreements (if signed physically)
- Foreign currency transaction declarations for international deals
- Income recognition timing and documentation
- Declaration of escrow income for service providers and developers
Failure to account for these can result in financial penalties or audit risks.
Escrow in Real Estate and Foreign Investment
Escrow accounts are heavily used in Turkish real estate transactions involving foreign buyers. Examples include:
- Payment held until TAPU (title deed) transfer is completed
- Escrow terms tied to construction progress for off-plan sales
- Holding funds until municipal occupancy permits (iskan) are obtained
Our English Speaking Turkish Lawyers ensure that escrow agreements reflect local land registry timelines, banking processes, and title formalities.
Escrow in International Trade and Export Contracts
In cross-border trade, escrow offers a secure alternative to risky advance payments or unsecured open account methods. Turkish exporters or importers often use escrow for:
- Milestone payments tied to bill of lading verification
- Release only upon customs clearance or delivery proof
- Split escrow systems for dual risk coverage (buyer/seller protection)
Our firm structures these agreements with international arbitration fallback clauses and Incoterms 2020 compatibility.
Internal Resources and Related Services
- Real Estate Due Diligence for Foreign Investors
- Buying Property in Turkey
- Debt Collection in Turkey
- International Trade Consultancy
- Legal Risk in Joint Ventures
Frequently Asked Questions (FAQs)
- Is escrow legal in Turkey? Yes. Escrow agreements are legally valid under Turkish contract and banking law.
- Who can act as escrow agent? Typically a Turkish licensed bank or payment institution, but law firms and notaries can structure tripartite agreements.
- Can foreigners use escrow accounts? Absolutely. Foreign buyers and sellers frequently rely on escrow for added security in Turkish transactions.
- Is a notarized contract required? Not always, but escrow agreements involving real estate or share transfers benefit from notarization for evidentiary strength.
- Does escrow protect against fraud? Yes. Funds are only released when contractually agreed conditions are met, reducing fraud and dispute risks.
- Can escrow be used for crypto transactions? Yes, though it requires contractual clarity and special escrow institutions that accept digital assets.
- Is there stamp duty on escrow contracts? If executed physically, stamp tax may apply. We structure agreements digitally where possible.
- How long does it take to set up an escrow? Typically 2–5 business days, depending on bank onboarding procedures and document readiness.
Consult a Turkish Law Firm for Escrow Structuring
Whether you're buying property, executing a high-value export, investing in a Turkish startup, or closing a share transfer deal, using a properly structured escrow agreement minimizes risk, builds trust, and ensures legal security.
At ER&GUN&ER Law Firm, our English Speaking Turkish Lawyers assist international clients in negotiating, drafting, and managing escrow accounts that comply with Turkish commercial, financial, and regulatory laws. As a trusted Turkish Law Firm, we secure your transaction from first signature to final release.