What Law Applies When Foreigners Enter into Contracts in Türkiye and When Turkish Citizens Enter into Contracts with Foreigners? Are Turkish Courts Competent to Hear Contractual Disputes?

Contracts involving a foreign element are among the most common areas of international private law. The fact that one of the parties is a foreign national, that the contract is concluded in another country, that its performance is to take place in a different country, or that the parties have their habitual residences in different countries may cause a contractual relationship to have an international character.

In such cases, it is not sufficient to apply Turkish substantive law directly.

First, it must be determined which country’s law governs the contract.

At the same time, a separate question must be answered:

Are Turkish courts internationally competent to hear a dispute arising from the contract?

These two questions are distinct.

A Turkish court may have international jurisdiction even where the applicable law is the law of a foreign country. Conversely, the fact that Turkish law is applicable does not automatically mean that Turkish courts have jurisdiction.

The principal legislation governing contracts with a foreign element is Law No. 5718 on Private International Law and International Civil Procedure (“MÖHUK”).

In particular, Articles 24, 25, 26, 27, 28, 29 and 30 of MÖHUK contain important rules concerning contractual obligations, while Articles 40 et seq. regulate the international jurisdiction of Turkish courts.

1. What Is a Contract with a Foreign Element?

A contract is considered to contain a foreign element when the contractual relationship has a connection with more than one legal system.

For example:

• one party is a Turkish citizen and the other is a foreign national;
• both parties are foreign nationals but conclude the contract in Türkiye;
• the parties reside in different countries;
• the contract is signed in one country but performed in another;
• the subject matter of the contract is located in another country;
• payment is to be made through a bank located in another country;
• the contract contains a choice-of-law clause referring to a foreign law;
• the dispute is connected with more than one country.

In such circumstances, the question of applicable law becomes relevant under MÖHUK.

2. The Parties May Choose the Applicable Law

The most important principle concerning contracts with a foreign element is the principle of party autonomy.

Under Article 24 of MÖHUK, contractual obligations are generally governed by the law chosen by the parties.

This means that the parties may agree that their contract will be governed by:

• Turkish law,
• German law,
• French law,
• English law,
• Swiss law,
• or another legal system,

provided that the choice is legally valid under the applicable rules.

For example, a Turkish company and a German company may conclude a commercial agreement in Türkiye and expressly provide:

“This Agreement shall be governed by Turkish law.”

In such a case, Turkish law will generally be applicable to the contractual relationship.

The parties may also choose a foreign law.

For example:

“This Agreement shall be governed by Swiss law.”

In principle, the fact that the contract is signed in Türkiye does not prevent the parties from choosing Swiss law.

3. Does the Choice of Law Have to Be Express?

The parties may expressly designate the applicable law in the contract.

A contractual provision such as:

“This Agreement shall be governed by the laws of the Republic of Türkiye.”

is an express choice-of-law clause.

However, the applicable law may also be determined through an implied choice where the circumstances clearly demonstrate the parties’ intention.

For this reason, the contractual documents should be examined as a whole.

The governing-law clause should preferably be drafted clearly and expressly in order to avoid uncertainty and future disputes.

4. Can the Parties Choose the Applicable Law After Concluding the Contract?

Yes.

Under the system established by MÖHUK, the parties may agree on the applicable law not only when concluding the contract but also subsequently.

They may also change their previous choice of law, subject to the legal limits applicable to such a change.

For example, the parties may initially conclude a contract without a governing-law clause and later agree that the contract shall be governed by Turkish law.

However, changing the applicable law cannot be used to prejudice rights acquired by third parties.

Therefore, a subsequent choice of law must also be evaluated in light of the legal position of third parties.

5. What Happens If the Parties Do Not Choose the Applicable Law?

This is one of the most important issues in international contractual disputes.

If the parties have not chosen the applicable law, Article 24 of MÖHUK provides objective connecting factors for determining the applicable law.

As a general principle, the contract is governed by the law that has the closest connection with the contractual relationship.

MÖHUK establishes certain presumptions to identify this law.

Depending on the nature of the contract, the applicable law may be connected to the habitual residence, place of business, or professional activity of the party performing the characteristic obligation.

6. What Is the “Characteristic Performance” of a Contract?

The concept of characteristic performance is particularly important in determining the applicable law where the parties have not chosen a governing law.

The characteristic performance is generally the performance that gives the contract its essential character.

For example:

• in a sales contract, the seller’s performance is generally considered characteristic;
• in a service contract, the service provider’s performance is generally characteristic;
• in a distribution agreement, the distributor’s activities may be relevant;
• in an agency agreement, the agent’s activities may be relevant.

The circumstances of the particular contract must nevertheless be considered.

7. Contracts for the Sale of Goods

International sales contracts are among the most common contracts involving foreign elements.

If the parties have chosen the applicable law, the chosen law will generally govern the contractual relationship.

If they have not made such a choice, the applicable law must be determined according to MÖHUK’s objective connecting rules.

In addition, international sales may be subject to the United Nations Convention on Contracts for the International Sale of Goods (CISG) where its conditions of application are satisfied.

Therefore, an international sales contract involving Türkiye should not be examined solely under Turkish domestic contract law.

The applicable international conventions must also be checked.

8. Employment Contracts

Employment contracts are subject to special rules under MÖHUK.

The fact that an employee is a foreign national does not automatically mean that the law of the employee’s nationality applies.

Likewise, the fact that the employer is a Turkish company does not necessarily mean that Turkish law will govern every aspect of the employment relationship.

MÖHUK contains special protective rules concerning employment contracts, taking into account the employee’s position as the weaker party.

Therefore, an international employment relationship should be analysed separately from an ordinary commercial contract.

9. Consumer Contracts

Consumer contracts involving a foreign element are also subject to special rules.

The purpose of these rules is to prevent a consumer from losing mandatory protections merely because the contract contains an international element or because the parties have chosen a foreign law.

For this reason, the applicable law must be determined by taking into account the special provisions concerning consumer contracts under MÖHUK.

A choice-of-law clause should therefore not be interpreted as automatically eliminating all mandatory consumer protections.

10. Real Estate Contracts

Real estate contracts require particular attention.

Where a contract concerns rights in rem over immovable property, the law of the place where the immovable property is located generally plays a decisive role.

This principle is commonly referred to as lex rei sitae.

For example, if a foreign national purchases real estate located in Türkiye, the legal rules governing ownership and other rights in rem over that property are principally connected with Turkish law.

A contractual choice of foreign law cannot simply override mandatory Turkish rules concerning rights in rem over immovable property located in Türkiye.

Accordingly, a distinction should be made between:

the contractual obligations arising from the agreement

and

the real rights relating to the immovable property.

These may be subject to different legal rules.

11. Does a Contract Signed in Türkiye Automatically Become Subject to Turkish Law?

No.

The mere fact that a contract is signed in Türkiye does not automatically make Turkish law applicable to the entire contractual relationship.

The following factors may be relevant:

• the law chosen by the parties;
• the habitual residence or place of business of the parties;
• the place of performance;
• the characteristic performance;
• the subject matter of the contract;
• the location of property;
• the existence of mandatory rules;
• applicable international conventions.

Therefore, the place where the contract is signed is only one possible connecting factor and does not, by itself, determine the applicable law in every case.

12. Can a Foreigner Enter into a Contract Under Turkish Law?

Yes.

A foreign national may enter into contracts in Türkiye, subject to the applicable legal requirements.

The fact that a person is not a Turkish citizen does not, by itself, prevent that person from entering into a contract governed by Turkish law.

However, the person’s legal capacity to enter into the contract may raise a separate private international law issue.

Under Article 9 of MÖHUK, legal capacity is generally governed by the person’s national law.

Therefore, two separate questions should be distinguished:

1. Does the person have the capacity to enter into the contract?
2. Which law governs the contractual obligations?

The first question may be governed by the person’s national law, while the second may be governed by Turkish law or another law chosen by the parties.

13. Turkish Citizens Can Also Enter into Contracts Governed by Foreign Law

The principle of party autonomy operates in both directions.

A Turkish citizen or Turkish company may enter into a contract with a foreign party and agree that the contract will be governed by a foreign law, subject to the mandatory rules and limitations applicable under Turkish law.

For example, a Turkish company and a French company may agree:

“This Agreement shall be governed by French law.”

Such a clause may be valid even though the contract is signed in Istanbul.

The validity and scope of the choice-of-law clause must nevertheless be assessed under the relevant rules of private international law.

14. What Happens If the Contract Does Not Contain a Choice-of-Law Clause?

Where there is no choice-of-law clause, the court must determine the applicable law under the objective rules of MÖHUK.

The court will examine the contractual relationship and determine which legal system has the closest connection with it.

This assessment may take into consideration:

• the parties’ habitual residences;
• their places of business;
• the place of performance;
• the characteristic obligation;
• the subject matter of the contract;
• the commercial nature of the transaction;
• the circumstances surrounding the conclusion of the contract.

Therefore, leaving the governing law unspecified may create uncertainty and increase the risk of litigation.

15. Why Is a Governing-Law Clause Important?

A well-drafted governing-law clause provides greater predictability.

For example:

“This Agreement shall be governed by and construed in accordance with the laws of the Republic of Türkiye.”

Such a provision helps the parties identify the substantive law that will generally govern their contractual relationship.

However, a governing-law clause should not be confused with a jurisdiction clause.

These are two different contractual provisions.

16. Governing Law and Jurisdiction Are Different

This distinction is fundamental.

A choice-of-law clause determines which country’s law will govern the contractual relationship.

A jurisdiction clause determines which country’s courts will have jurisdiction to hear disputes.

For example, a contract may provide:

“This Agreement shall be governed by Turkish law.”

and separately:

“The courts of Istanbul, Türkiye, shall have exclusive jurisdiction over disputes arising out of or in connection with this Agreement.”

The first clause concerns applicable law.

The second concerns jurisdiction.

The parties may therefore choose Turkish law without necessarily choosing Turkish courts, provided that the relevant jurisdiction rules permit such an arrangement.

17. Are Turkish Courts Competent to Hear Contractual Disputes?

The answer depends on the circumstances.

The international jurisdiction of Turkish courts is principally regulated by MÖHUK Articles 40 et seq.

Under Article 40, the international jurisdiction of Turkish courts is generally determined according to the domestic territorial jurisdiction rules.

In addition, MÖHUK contains special jurisdictional rules for particular types of disputes.

Therefore, the mere fact that one party is Turkish does not automatically mean that Turkish courts have jurisdiction over every international contractual dispute.

The specific connecting factors must be examined.

18. Jurisdiction Based on the Defendant’s Residence

One of the principal jurisdictional connecting factors is the defendant’s residence or place of business.

If the defendant has a relevant residence, domicile, or place of business in Türkiye, Turkish courts may have international jurisdiction depending on the circumstances and the applicable domestic jurisdiction rules.

For companies, the location of the registered office or relevant establishment may become important.

For natural persons, residence and habitual residence may also be relevant depending on the applicable procedural rule.

19. Jurisdiction Based on the Place of Performance

The place where the contractual obligation is to be performed may also be important.

For example, if a foreign company enters into a service agreement with a Turkish company and the services are to be performed in Istanbul, this connection may support the jurisdiction of Turkish courts, depending on the applicable jurisdiction rules.

The precise nature of the obligation and the relevant procedural rules must nevertheless be examined.

20. Jurisdiction Agreement

The parties may, under the conditions provided by law, agree on the courts that will have jurisdiction over disputes arising from their contract.

Such a provision is generally known as a jurisdiction agreement or choice-of-court clause.

For example:

“The courts of Istanbul, Türkiye, shall have exclusive jurisdiction over any dispute arising out of or in connection with this Agreement.”

Such a clause may provide significant certainty for international commercial relationships.

However, jurisdiction agreements are subject to legal requirements and limitations.

Therefore, merely inserting the words “Istanbul courts shall have jurisdiction” into a contract does not automatically guarantee that Turkish courts will hear every possible dispute.

21. Exclusive and Non-Exclusive Jurisdiction Clauses

A jurisdiction clause may be drafted as:

exclusive jurisdiction

or

non-exclusive jurisdiction.

An exclusive jurisdiction clause seeks to establish that disputes must be brought before the specified courts.

A non-exclusive jurisdiction clause, by contrast, may allow the parties to bring proceedings before another competent court as well.

The wording of the clause is therefore extremely important.

For international contracts, the jurisdiction provision should be drafted with particular care.

22. Can the Parties Choose Turkish Courts Even If Both Parties Are Foreigners?

In appropriate circumstances, yes.

The fact that both parties are foreign nationals does not automatically prevent them from agreeing to submit their contractual disputes to Turkish courts.

For example, two foreign companies conducting business in Türkiye may agree that disputes arising from their agreement will be heard by Turkish courts.

The validity of the jurisdiction agreement and the existence of mandatory jurisdiction rules must nevertheless be examined.

23. Can Turkish Courts Apply Foreign Law?

Yes.

This is one of the fundamental principles of private international law.

If Turkish courts have international jurisdiction but the applicable law is determined to be the law of another country, the Turkish court may be required to apply the relevant foreign law.

For example, the parties may choose Swiss law while agreeing that Turkish courts will have jurisdiction.

In such a case:

Turkish courts → jurisdiction

Swiss law → applicable substantive law

There is therefore no contradiction between Turkish jurisdiction and the application of foreign law.

24. Can Turkish Courts Refuse to Apply Foreign Law?

Foreign law may not simply be disregarded merely because it is foreign.

However, issues such as mandatory Turkish rules, public policy, overriding mandatory provisions, and the specific provisions of MÖHUK may affect the application of foreign law.

The court must therefore determine the content and scope of the applicable foreign law within the framework of Turkish private international law.

25. Mandatory Rules

Party autonomy is not unlimited.

Certain provisions are mandatory and cannot simply be excluded by contractual agreement.

For example, provisions concerning:

• public order,
• consumer protection,
• employment protection,
• certain real estate transactions,
• competition law,
• regulatory requirements,
• corporate and administrative rules,

may contain mandatory elements.

Therefore, even where the parties choose foreign law, Turkish mandatory provisions may remain applicable where the conditions for their application are satisfied.

26. Public Policy

Another important limitation is Turkish public policy (ordre public).

A foreign law that is otherwise applicable may be refused to the extent that its application would produce a result that is clearly incompatible with Turkish public policy.

This is an exceptional mechanism and should not be interpreted as meaning that Turkish courts apply Turkish law whenever a foreign law produces a different result.

The public-policy exception is intended for serious incompatibilities with fundamental principles of the Turkish legal order.

27. International Conventions

International contracts may also be governed or affected by international conventions to which Türkiye is a party.

This is particularly important for:

• international sales;
• international transportation;
• arbitration;
• international commercial transactions;
• international trade;
• recognition and enforcement of judgments and arbitral awards.

Therefore, before applying only MÖHUK, it should always be checked whether an applicable international convention exists.

Where an international convention applies, its provisions may take priority over conflicting domestic rules within the scope of the convention.

28. International Commercial Arbitration

The parties may also agree to resolve contractual disputes through arbitration rather than state courts.

An arbitration clause may provide, for example:

“Any dispute arising out of or in connection with this Agreement shall be finally resolved by arbitration.”

In international contracts, the parties may choose:

• the seat of arbitration;
• the arbitral institution;
• the applicable procedural rules;
• the number of arbitrators;
• the language of the arbitration;
• the applicable substantive law.

However, arbitration and court jurisdiction are separate procedural mechanisms.

The existence of an arbitration agreement may affect whether a Turkish court can hear a dispute.

29. Recognition and Enforcement of Foreign Court Judgments

Suppose a contractual dispute between a Turkish company and a foreign company is decided by a foreign court.

If the winning party wishes to enforce that judgment in Türkiye, the foreign judgment may need to satisfy the requirements for recognition or enforcement under MÖHUK.

Similarly, a Turkish court judgment may need to be recognized or enforced in another country if enforcement is sought there.

Therefore:

Obtaining a judgment in one country

and

being able to enforce that judgment in another country

are not necessarily the same thing.

30. What Documents Are Important in International Contract Disputes?

Depending on the nature of the dispute, the following documents may become important:

• the original contract;
• amendments and annexes;
• correspondence between the parties;
• invoices;
• payment records;
• bank statements;
• delivery documents;
• commercial registers;
• powers of attorney;
• company records;
• emails and electronic communications;
• governing-law clauses;
• jurisdiction clauses;
• arbitration clauses;
• foreign court decisions;
• apostilled documents;
• certified translations.

In particular, the exact wording of the choice-of-law and jurisdiction clauses can have a decisive effect on the outcome of an international contractual dispute.

31. What Should Be Checked Before Signing an International Contract?

Before a Turkish citizen or company enters into a contract with a foreign party, or before a foreigner enters into a contract in Türkiye, the following issues should preferably be examined:

1. Who are the parties?
2. Where are the parties habitually resident or established?
3. Where will the contract be performed?
4. Which law governs the contract?
5. Which courts have jurisdiction?
6. Is there an arbitration clause?
7. Are there mandatory provisions that cannot be excluded?
8. Is an international convention applicable?
9. Where are the assets of the parties located?
10. Where would a potential judgment need to be enforced?

These questions can significantly affect the legal and commercial risks associated with the contract.

32. Example: Turkish Company and German Company

Assume that a Turkish company and a German company enter into a distribution agreement in Istanbul.

The contract provides:

“This Agreement shall be governed by Turkish law.”

and:

“The courts of Istanbul shall have exclusive jurisdiction.”

In this case, there are two separate conclusions:

Applicable law: Turkish law.

Jurisdiction: Istanbul courts, subject to the validity and enforceability of the jurisdiction agreement and any mandatory jurisdictional rules.

Now imagine that the parties instead agree:

“This Agreement shall be governed by German law.”

while retaining:

“The courts of Istanbul shall have exclusive jurisdiction.”

In that case:

Applicable law: German law.

Jurisdiction: Turkish courts, assuming the jurisdiction agreement is valid.

This example demonstrates why applicable law and jurisdiction must always be analysed separately.

33. Example: Foreign Individual Purchasing Real Estate in Türkiye

Suppose a foreign national purchases an apartment in Istanbul from a Turkish seller.

The sales agreement may contain a governing-law clause.

However, the acquisition of ownership and other rights in rem over the immovable property cannot be analysed solely on the basis of that contractual choice.

Because the property is located in Türkiye, Turkish rules concerning rights in rem over the property are particularly important.

The contractual obligations between the parties and the property rights themselves must therefore be distinguished.

34. Example: Turkish Citizen and Foreign Freelancer

Suppose a Turkish company hires a freelancer who resides in Spain.

The parties conclude the agreement electronically and the services are performed remotely from Spain.

The contract does not contain a choice-of-law clause.

In such a case, the court would need to examine the nature of the relationship, the characteristic performance, the habitual residence or establishment of the parties, the place of performance, and the other circumstances of the contractual relationship.

It cannot simply be assumed that Turkish law applies merely because one party is Turkish.

Likewise, Spanish law does not automatically apply merely because the service provider resides in Spain.

The applicable law must be determined according to the relevant private international law rules.

35. Summary of the Main Rules

The principal rules can be summarized as follows:

Conclusion

Contracts involving foreign elements require a distinction between applicable law and international jurisdiction.

The fact that a foreign national enters into a contract in Türkiye does not automatically mean that Turkish law will govern the contract.

Likewise, the fact that one party is a Turkish citizen does not automatically mean that Turkish courts or Turkish law will apply.

The first question is:

Which country’s law governs the contractual relationship?

Under MÖHUK Article 24, the parties generally have the right to choose the applicable law. If they do not make such a choice, the applicable law is determined according to the statutory connecting factors and the law having the closest connection with the contractual relationship.

The second question is:

Which country’s courts have international jurisdiction?

The international jurisdiction of Turkish courts is principally determined under MÖHUK Article 40 et seq., together with the relevant domestic territorial jurisdiction rules and any applicable special provisions.

Therefore, a contract may validly provide:

“This Agreement shall be governed by German law, and the courts of Istanbul shall have jurisdiction.”

In such a case, Turkish courts may hear the dispute while applying German substantive law, provided that the jurisdiction agreement is valid and no mandatory rule prevents it.

Similarly, a contract may be governed by Turkish law while disputes are submitted to the courts of another country, depending on the applicable jurisdiction rules.

For this reason, in international contracts, the following provisions should be considered separately:

Choice of law → Which law applies?

Jurisdiction clause → Which court may hear the dispute?

Arbitration clause → Will the dispute be resolved by arbitration rather than state courts?

Mandatory rules → Which provisions must apply regardless of the parties’ choice?

Public policy → Can the application of a foreign law be refused because of incompatibility with fundamental principles of the Turkish legal order?

Recognition and enforcement → Can a judgment or arbitral award obtained in one country be recognized and enforced in another country?

Accordingly, the correct approach in an international contractual dispute is:

First, identify the foreign element → determine whether the parties have chosen the applicable law → if not, determine the applicable law under MÖHUK → separately determine the international jurisdiction of Turkish courts → examine mandatory rules and applicable international conventions → and finally assess where any judgment or arbitral award will need to be recognized and enforced.

In practice, the nationality and habitual residence of the parties, their places of business, the place of conclusion of the contract, the place of performance, the location of the subject matter, the governing-law clause, the jurisdiction clause, any arbitration agreement, and applicable international conventions should all be examined together.

Therefore, neither of the following general assumptions is correct:

“The contract was signed in Türkiye, so Turkish law automatically applies.”

or

“One party is a foreigner, so foreign law must apply.”

The applicable law and the competent court must be determined through the rules of Turkish private international law and, where applicable, the relevant international conventions.

Important Note: This article provides general legal information. The applicable law and jurisdiction may vary depending on the type of contract, the nationality and habitual residence of the parties, the place of performance, mandatory Turkish rules, international conventions, and the precise wording of the contractual provisions. In particular, employment, consumer, insurance, real estate, transportation, corporate and international sales contracts may be subject to special rules and should therefore be assessed separately in each case.