Latest updates and developments from Turkish Jurisdiction

What is Contract Law?

Contract is basically a legally enforceable agreement between two or more parties where each party assumes an obligation that must be completed. Contract law can be described as the area of law that governs making contracts, carrying them out and determining a fair remedy when there’s a breach. Contract law aims to provide a legal framework for parties to regulate their contractual obligations. The law of contract is mostly self-regulatory, as it can be prepared by parties freely.

An individual may unknowingly make hundreds of contracts a year, for example exchanging money in return for goods. This may be an example for a simple contract, on the other hand, contracts can be extremely complex, regarding the principle of freedom of the parties to agree to whatever terms they see appropriate as long as they do not violate the law or imperative provisions of the law, contrary to morality and public order or contrary to individual rights.

Contracts takes a very importing part on every business as well. All types of corporations inherently deal with contracts as with many transactions involve purchase or sale of goods or services. Well-drafted contracts may help businesses dealing with an enormous variety of matters, whether expected or unexpected. Any contract is not just a compilation of its provisions, but the reflection of a number of functional, strategical and business decisions. Contracts usually consists parts subject and the aim of the contract, obligations of the parties, termination provisions, warranties, penal clauses etc. However, it is important to adapt the standard provisions to the circumstances of the subject matter transaction. Contracts can also be the source of legal disputes as well when it did not prepare comprehensively.

What are the requirements of a legally valid contract regarding Turkish Law?

Regarding the principle of “freedom of contract”, the parties are mostly free to agree the terms, the format, and the jurisdiction to apply to their contract. In general, we can say that all contracts must have the following requirements regarding to Turkish Contract Law;

  1. The free, clear and informed consent of the parties to the contract
  2. The parties each having the legal ability (they must be of legal age etc.) to enter a contract
  3. The contract must be to perform an act that is not impossible and unlawful
  4. The contract must not be to do anything immoral or contrary to public order

Also, it must be noted that some types of agreements may require special formats. For example, some might require the contract to be in writing, some might require it to be signed in front of a Notary, or other might require to implement Turkish law and the jurisdiction of the Turkish courts. For example; preliminary sales contracts for property (which should also be produced by the Notary), marriage contracts Vehicle sales (which must be signed in the presence of a Notary), Employment contracts must be in writing under Turkish Law.

Is there any tax liability when singing a contract regarding to Turkish Contract Law?

Stamp tax is kind of a consumption tax levied on papers. Turkish law requires stamp duty to be either applied as a fixed duty or based on a percentage of the total value stated in contract and the amount will vary depending on the type of document. Stamp duty applies at rates ranging from 0.189% to 0.948%. The stamp duty cap has been announced as TL 3,239,556.40 as of January 1, 2020.

Stamp tax applies to a wide range of documents, including, but not limited to, agreements, financial statements, and payrolls. All parties od the contracts are jointly responsible for the payment of the stamp tax of papers signed by more than one person. Also, the parties can determine who will pay the tax among themselves. They can also put this in the contract they signed. However, this agreement between parties does not legally bind the tax office. If the tax office detects that a paper has not been taxed or underpayed, it will collect it from any of the parties of the contract. However, If the party to which the tax office collects tax is not the party to pay according to the contract, this party can request other party to pay according to the provisions of private law.

For some type of contracts/paper stamp duty determined as 0%. This means they are not exemptions but rate for these papers/contracts determined as 0% for now. For example, preliminary sales contracts issued before notary, prepaid property sales contracts, some types of construction contracts, building audit contracts.