How can foreign investors use escrow agreements in Turkey? 2026 guide to secure high-value acquisitions, commercial payments, share transfers, machinery purchases, real estate deals, release conditions, bank escrow arrangements and cross-border transactions.

High-value commercial transactions in Turkey often create a fundamental problem: which party should perform first?

A foreign buyer acquiring a Turkish company may not want to transfer EUR 10 million before the shares are validly transferred. A Turkish seller, on the other hand, may refuse to transfer control before knowing that the purchase price is securely available.

The same problem arises in machinery purchases, commercial real estate transactions, construction projects, investment transactions and cross-border acquisitions.

An appropriately structured escrow arrangement can help solve this problem.

Instead of transferring the purchase price directly to the seller, the funds are placed with an agreed third party and released only when clearly defined contractual conditions have been satisfied.

However, an escrow arrangement is only as secure as its drafting, the institution holding the funds and the release mechanism.

What Is an Escrow Agreement?

An escrow arrangement generally involves three parties:

Buyer → Escrow Agent → Seller

The buyer deposits the agreed amount with an independent third party.

The escrow agent holds or controls the funds according to agreed instructions.

When specified conditions are satisfied, the money is released to the seller.

If the transaction fails under circumstances specified in the agreement, the funds may instead be returned to the buyer.

Why Use Escrow in Turkey?

Escrow can reduce simultaneous-performance risk.

Imagine a foreign investor purchasing 100% of a Turkish manufacturing company for EUR 15 million.

The seller says:

“Transfer the money first, then we will complete the share transfer.”

The buyer says:

“Transfer the shares first, then we will pay.”

Neither side wants to assume the other’s performance risk.

An escrow mechanism can bridge this gap.

Escrow Is Not a Substitute for Due Diligence

This is extremely important.

Escrow can protect the mechanics of payment.

It does not automatically protect the buyer against:

hidden company debts,

tax liabilities,

undisclosed litigation,

regulatory violations,

defective title,

fraud,

environmental liabilities,

or inaccurate financial statements.

Escrow should therefore complement legal and financial due diligence rather than replace it.

Is Escrow Recognized in Turkish Commercial Practice?

Contractual escrow-type structures can be used in commercial transactions, but the exact legal and regulatory structure must be examined carefully.

There is no reason to assume that every foreign escrow template can simply be copied into a Turkish transaction.

The parties must consider contract law, banking arrangements, payment-services regulation, tax consequences, anti-money-laundering requirements and the nature of the underlying transaction.

Where the arrangement involves regulated payment services, Law No. 6493 and the regulatory framework administered by the Central Bank of the Republic of Turkey can become relevant. The Central Bank states that banks, authorized payment institutions, electronic money institutions and the postal administration fall within the statutory payment-services framework, depending on the relevant service. (Türkiye Cumhuriyet Merkez Bankası)

Who Should Hold the Escrow Funds?

This is one of the most important decisions.

For a substantial commercial transaction, the parties should evaluate whether the funds will be held or administered through:

a bank,

an appropriately authorized financial institution,

or another legally suitable structure.

Do not transfer millions of euros to an unknown intermediary simply because its website describes the service as “escrow.”

Verify Regulatory Status

If a payment institution or electronic money institution is involved, its authorization should be verified.

The Central Bank publishes information concerning authorized payment institutions and the payment services they are permitted to provide. (Türkiye Cumhuriyet Merkez Bankası)

Authorization should be checked before transferring funds.

Escrow Agent Independence

The escrow agent should not effectively operate as one party’s uncontrolled representative.

The agreement should establish neutral and objective instructions.

For example, the seller should not be able to unilaterally instruct:

“Release the EUR 5 million to us.”

Likewise, the buyer should not be able to prevent release indefinitely after all agreed conditions have been satisfied.

Define the Escrow Property

The agreement should clearly identify what is being held.

Usually this is money.

But sophisticated transactions can involve:

purchase-price portions,

security deposits,

documents,

share certificates where relevant,

or other agreed transaction materials.

The structure must fit the asset concerned.

Currency Matters

For international transactions, specify:

currency,

deposit account,

exchange-rate mechanism,

bank charges,

conversion costs,

and responsibility for currency fluctuations.

A EUR 10 million transaction should not contain ambiguous wording concerning whether the escrow agent may convert the funds.

Foreign Currency Regulations

Turkey has rules concerning the use of foreign currency in certain contracts and transactions.

Whether a particular commercial transaction can be denominated or settled in foreign currency should therefore be checked separately.

Do not assume that the use of an escrow account overrides applicable currency regulations.

The Most Important Clause: Release Conditions

An escrow agreement succeeds or fails largely because of its release conditions.

The conditions should be objective.

For example:

Release EUR 8 million to Seller when:

1. the share transfer has been completed;
2. agreed corporate resolutions have been delivered;
3. specified regulatory approvals have been obtained;
4. agreed resignations have been delivered;
5. identified security interests have been released; and
6. the closing certificate has been signed.

The escrow agent should not be expected to decide complicated legal disputes.

Avoid Subjective Conditions

A dangerous provision might say:

“Funds shall be released when Buyer is satisfied with the transaction.”

Satisfied according to what standard?

A stronger agreement uses objectively verifiable conditions.

Documentary Release Conditions

Where possible, release should depend on specified documents.

For example:

signed closing certificate,

trade registry documentation,

bank confirmation,

title documentation,

regulatory approval,

delivery certificate,

or jointly signed release instruction.

This reduces uncertainty.

Joint Release Instructions

One common structure requires both buyer and seller to provide matching instructions.

This can work well where the parties cooperate.

But what happens if one party refuses to sign despite proper completion?

The agreement needs a deadlock mechanism.

Automatic Release

Another possibility is automatic release after specified conditions are objectively demonstrated.

This can reduce hold-up risk.

However, the escrow agent must know exactly what evidence establishes satisfaction of the conditions.

Long-Stop Date

Every escrow agreement should consider what happens if closing never occurs.

For example:

If closing has not occurred by 30 November 2026, the funds shall be returned to Buyer unless the parties jointly instruct otherwise.

Without a long-stop mechanism, substantial funds can become trapped.

Failed Transaction

The agreement should identify what happens if the underlying transaction terminates.

Does the buyer automatically receive the money back?

Is a termination notice sufficient?

Must both parties agree?

What happens if they disagree about whether termination was valid?

These questions should be answered before the money is deposited.

Escrow in Company Acquisitions

Escrow is particularly useful in Turkish mergers and acquisitions.

It can serve two separate purposes.

First, it can coordinate closing payment.

Second, part of the purchase price can remain in escrow after closing to secure seller warranty or indemnity obligations.

These functions should not be confused.

Closing Escrow

Suppose a British company buys a Turkish business for EUR 20 million.

The buyer deposits EUR 20 million before closing.

Once all agreed closing documents are delivered and share-transfer steps are completed, the funds are released.

This reduces the seller’s payment risk and the buyer’s premature-payment risk.

Post-Closing Escrow

Assume the same acquisition has a EUR 20 million purchase price.

The parties might agree:

EUR 18 million paid at closing.

EUR 2 million retained in escrow for 18 months.

The EUR 2 million may secure specified warranty and indemnity claims.

This provides the buyer with an identifiable source of recovery.

Why Buyers Like Holdback Escrow

Without escrow, the buyer may discover a tax liability after closing and then need to pursue the seller.

If the seller has moved assets abroad or distributed the purchase proceeds, recovery can become difficult.

A holdback creates a dedicated recovery source.

Why Sellers Should Limit Holdbacks

Sellers should resist unlimited escrow arrangements.

The agreement should specify:

maximum amount,

covered claims,

claim procedure,

expiry date,

partial release dates,

and final release.

A seller should not leave 20% of the purchase price frozen indefinitely.

Escrow and Hidden Company Debts

Suppose due diligence identifies a pending tax inspection.

The parties cannot determine whether the exposure will be zero or EUR 3 million.

They may place an agreed portion of the purchase price in escrow until the issue is resolved.

This can allow the acquisition to close without forcing either party to accept the entire uncertainty.

Escrow for Litigation Risks

The same structure can be used where a target company faces major litigation.

The escrow agreement can specify how funds will be released depending on the outcome.

Drafting must clearly address settlements, appeals and legal costs.

Escrow in Commercial Real Estate

High-value property transactions can also involve escrow-type mechanisms.

A foreign investor may hesitate to transfer the full purchase price before the agreed title-transfer steps occur.

The seller may similarly refuse to complete the transfer without secure payment arrangements.

Payment and title-transfer mechanics should therefore be coordinated carefully.

Escrow Does Not Cure Defective Property Title

A secure payment mechanism does not establish that the seller owns clean title.

Before payment, the buyer should investigate:

ownership,

mortgages,

attachments,

annotations,

rights of third parties,

pending litigation,

zoning issues,

and other relevant property risks.

Escrow protects payment sequencing, not defective due diligence.

Escrow for Machinery Purchases

Consider a foreign buyer purchasing EUR 4 million of industrial machinery from a Turkish manufacturer.

The parties might agree:

20% advance,

30% after factory testing,

30% after shipment,

20% after commissioning.

An escrow arrangement can be used for one or more installments.

Payment can be linked to clearly documented milestones.

Factory Acceptance Tests

Where release depends on testing, define:

who performs the test,

applicable technical standards,

acceptable tolerances,

testing location,

documentation,

and dispute procedure.

Otherwise, the escrow agent may be caught between conflicting engineering opinions.

Construction Projects

Escrow arrangements can also support high-value construction and infrastructure payments.

Release may be linked to:

completion milestones,

engineer’s certificates,

delivery records,

acceptance certificates,

or other objectively measurable events.

However, escrow should be coordinated with performance guarantees and retention arrangements.

Advance Payments

Advance payments create significant buyer risk.

If the supplier receives EUR 2 million before beginning production and then becomes insolvent, ordinary recovery can be difficult.

Escrow can potentially prevent the supplier from receiving the funds until agreed conditions are satisfied.

Alternatively, an advance-payment guarantee may be appropriate.

Escrow Versus Bank Guarantee

These mechanisms solve different problems.

With escrow, funds are actually segregated or controlled according to agreed release instructions.

With a bank guarantee, a bank undertakes a payment obligation under the terms of the guarantee.

Which mechanism is better depends on the transaction.

Escrow Versus Letter of Credit

Letters of credit are particularly important in international trade.

They generally operate through documentary payment mechanisms.

Escrow can provide greater contractual flexibility for transactions involving complex closing conditions.

The parties should select the mechanism based on the commercial risk rather than familiarity.

Escrow Versus Retention of Title

Retention of title seeks to protect a seller’s proprietary position concerning goods.

Escrow protects payment sequencing.

For high-value machinery transactions, the parties may consider both mechanisms together with other appropriate security.

Escrow Versus Purchase Price Holdback

A holdback can simply mean that the buyer retains part of the price.

Escrow is different because the amount is placed with an agreed third party.

Sellers may prefer escrow because the buyer no longer has unilateral control of the withheld money.

Who Earns Interest?

For large amounts held for long periods, this matters.

The agreement should specify:

whether funds may earn interest,

who receives that interest,

how fees are deducted,

and how tax consequences are handled.

Do not leave this issue unresolved in a 24-month escrow.

Bank Charges

Specify responsibility for:

account-opening costs,

transfer fees,

currency conversion,

escrow-agent fees,

international transfer costs,

and intermediary-bank deductions.

Minor percentage differences can become substantial in very large transactions.

Anti-Money-Laundering Checks

High-value international transfers can trigger extensive customer and transaction verification.

The parties should prepare corporate ownership information, source-of-funds documentation and transaction documents before closing.

Do not schedule a EUR 50 million closing assuming the bank will process the transfer instantly without compliance review.

Beneficial Ownership

The institution handling the transaction may require information concerning ultimate beneficial owners.

Complex multinational structures can therefore require additional preparation.

Build compliance time into the closing timetable.

Sanctions Screening

Cross-border transactions may involve sanctions screening by banks and other financial institutions.

This can delay transfers even where neither commercial party has breached the agreement.

The escrow agreement should consider regulatory delays outside the parties’ control.

Escrow Agent Liability

The agreement should define the agent’s duties carefully.

Is the agent required merely to check whether specified documents have been delivered?

Or must it determine whether legal conditions have substantively been satisfied?

The latter can create unacceptable uncertainty.

Escrow Agent Should Not Become the Judge

Suppose the buyer claims the seller breached a warranty.

The seller denies it.

The escrow agent should not ordinarily be forced to conduct a miniature trial.

The agreement needs a dispute mechanism.

Disputed Funds

A sensible structure can distinguish between:

undisputed funds and disputed funds.

For example, if EUR 2 million remains in escrow and the buyer asserts a documented EUR 300,000 claim, the undisputed EUR 1.7 million might be released while EUR 300,000 remains pending resolution.

This prevents disproportionate withholding.

Claim Notice

For post-closing escrow, define what constitutes a valid claim notice.

It may need to state:

nature of the claim,

contractual provision relied upon,

estimated amount,

supporting facts,

and available documents.

Vague notices should not automatically freeze the entire escrow.

Claims Before Expiry

The agreement should explain what happens to claims submitted immediately before the escrow expires.

Typically, the undisputed balance can be released while the amount genuinely subject to a pending claim remains reserved.

Dispute Resolution

Escrow agreements should contain clear dispute-resolution provisions.

Options can include:

Turkish courts,

foreign courts,

or arbitration.

The escrow agreement should also be coordinated with the dispute-resolution clause in the underlying commercial agreement.

Avoid Different Forums

Imagine:

Share Purchase Agreement → arbitration.

Escrow Agreement → Turkish courts.

Bank documentation → another jurisdiction.

This can produce procedural complexity.

Where appropriate, the parties should align dispute mechanisms.

Arbitration

Arbitration may be particularly useful for cross-border commercial transactions involving foreign investors.

The agreement should specify the seat, institution or rules, language and governing law where appropriate.

Emergency relief should also be considered for disputes involving substantial frozen funds.

Governing Law

The escrow agreement should contain a clear governing-law provision.

The underlying commercial agreement and escrow agreement do not necessarily have to use identical governing law, but differences should be intentional.

The consequences of local mandatory banking and payment regulations must also be considered.

Payment-Service Regulation

Turkey’s payment-services regime is primarily based on Law No. 6493. The Central Bank explains that regulation and supervision of payment services, payment service providers and electronic money issuance have been under its responsibility since 2020. (Türkiye Cumhuriyet Merkez Bankası)

This is particularly important when selecting an institution to receive, hold or transfer funds as part of a commercial escrow structure.

Do Not Use an Unlicensed Payment Intermediary

For high-value transactions, the parties should verify that the proposed institution is legally authorized to provide the relevant service.

The Central Bank maintains current information concerning authorized payment and electronic money institutions and their permitted activities. (Türkiye Cumhuriyet Merkez Bankası)

A contractual label cannot transform an unauthorized financial service into a lawful one.

Insolvency Risk of the Escrow Holder

The parties often focus exclusively on buyer and seller risk.

But what happens if the institution holding the funds experiences financial distress?

The legal status and segregation of the funds should be understood.

This is one reason institutional selection matters enormously.

Segregation of Funds

For a genuine transaction-security structure, the parties should determine whether the escrow funds are appropriately separated or identifiable under the chosen arrangement.

Do not assume that transferring money to an intermediary’s ordinary operating account creates the desired protection.

Account Control

The agreement should identify who can instruct the financial institution.

Ideally, neither commercial party should have unilateral ability to withdraw the funds contrary to the agreed mechanism.

Operational controls should match contractual controls.

Cyber Fraud

High-value transactions create substantial fraud risk.

One common scenario involves fraudulent emails claiming:

“Our bank details have changed. Please send the purchase price to this new account.”

For multimillion-euro transactions, bank-detail changes should be independently verified using a previously authenticated communication channel.

Never Change Escrow Instructions by Informal Email Alone

The agreement should contain strict procedures for changing payment instructions.

Possible protections include:

dual authorization,

signed amendments,

verified corporate contacts,

and bank confirmation.

A single compromised email account should not be capable of redirecting EUR 10 million.

Closing Checklist

Before transferring funds, confirm:

Underlying Contract → Escrow Agreement → Escrow Agent → Regulatory Status → Account Details → Currency → Amount → Release Conditions → Closing Documents → Long-Stop Date → Refund Mechanism → Dispute Procedure → Compliance Approval.

Example: EUR 25 Million Company Acquisition

A foreign investor agrees to acquire a Turkish company for EUR 25 million.

The parties agree that:

EUR 22 million will be released at closing.

EUR 3 million will remain in escrow for 18 months.

The closing amount is released only after the agreed share-transfer and corporate closing documents have been completed.

The EUR 3 million holdback secures specified tax and warranty claims.

At the end of 18 months, the balance is released except for amounts properly subject to unresolved claims.

This structure protects both parties more effectively than simply allowing the buyer to withhold EUR 3 million indefinitely.

Example: EUR 5 Million Machinery Transaction

A foreign buyer orders a customized production line from Turkey.

Instead of paying the entire EUR 5 million directly, payment is divided into milestones linked to factory acceptance, shipment and commissioning.

The escrow documentation identifies exactly which certificate triggers each payment.

This gives the manufacturer confidence that money is available while reducing the buyer’s premature-payment exposure.

Example: Transaction Does Not Close

A buyer deposits EUR 8 million.

Regulatory approval is not obtained before the long-stop date.

The escrow agreement should already determine whether the funds automatically return to the buyer or whether another procedure applies.

Without clear drafting, the money could become trapped while the parties dispute responsibility for failed closing.

Common Escrow Mistakes

The most dangerous mistakes include using an unsuitable intermediary, failing to verify regulatory status, drafting subjective release conditions, omitting a long-stop date, failing to regulate disputed claims, ignoring compliance requirements, using insecure bank-detail-change procedures and failing to coordinate the escrow agreement with the main transaction documents.

These mistakes become increasingly expensive as transaction value increases.

Escrow Agreement Checklist for Foreign Investors

Before signing, verify:

Identity of parties

Identity and status of escrow agent

Escrow amount

Currency

Account details

Permitted investments, if any

Release conditions

Required documents

Partial releases

Long-stop date

Refund conditions

Claims procedure

Disputed funds

Interest

Fees

Taxes

AML compliance

Sanctions

Agent liability

Cybersecurity procedures

Governing law

Jurisdiction or arbitration

Termination

Final release

This checklist should be adapted to the specific transaction.

Frequently Asked Questions

1. Can foreign investors use escrow arrangements for transactions in Turkey?

Yes, escrow-type contractual structures can be used for commercial transactions, but the particular banking, payment, contractual and regulatory structure should be reviewed carefully.

2. Is escrow useful when buying a Turkish company?

Yes. It can coordinate closing payment and can also secure post-closing warranty, indemnity or identified liability claims.

3. Can the entire purchase price be placed in escrow?

Potentially, depending on the transaction and institution involved. Large transactions require advance coordination with the relevant financial institution and compliance teams.

4. Can part of the acquisition price remain in escrow after closing?

Yes. This is a common commercial risk-allocation mechanism for identified claims, warranties and indemnities.

5. Who should act as escrow agent?

The answer depends on the transaction. For substantial monetary transactions, the parties should carefully evaluate regulated banks or other legally appropriate and properly authorized structures.

6. Can the seller withdraw escrow funds whenever it wants?

Not under a properly structured arrangement. Release should occur only according to the agreed instructions and conditions.

7. What happens if buyer and seller disagree?

The escrow agreement should provide a dispute mechanism and determine what happens to disputed and undisputed funds while the disagreement continues.

8. Can escrow protect against hidden company debts?

Escrow can secure certain contractual claims, but it does not replace legal, financial and tax due diligence.

9. Is escrow better than a bank guarantee?

Not universally. Escrow places or controls actual funds, while a bank guarantee provides a separate payment undertaking. The appropriate mechanism depends on the transaction.

10. What is the biggest escrow drafting risk?

Unclear release conditions. If nobody can determine objectively when money should be released or returned, the escrow itself can become the subject of litigation.

Legal Assistance for Escrow Agreements and High-Value Transactions in Turkey

For foreign investors, escrow can be one of the most effective tools for reducing payment and closing risk in company acquisitions, high-value supply agreements, machinery purchases, construction projects, investment transactions and other major commercial deals in Turkey.

But simply transferring money to a third party does not automatically create a safe escrow structure.

The parties should establish who holds the funds, whether the proposed institution is legally suitable, exactly when money can be released, what happens if closing fails, how disputed claims are handled and how the funds are protected during the escrow period.

Turkey’s payment-services framework is governed principally by Law No. 6493, and the Central Bank publishes information concerning authorized payment institutions and electronic money institutions together with the scope of their permissions. (Türkiye Cumhuriyet Merkez Bankası)

Fırat Fesih Kaya Law Office provides legal assistance to foreign investors, multinational companies, buyers, sellers and international corporate groups concerning escrow agreements in Turkey, high-value commercial transactions, company acquisitions, purchase-price security, M&A holdbacks, commercial real estate transactions, machinery purchases, cross-border payments and transaction due diligence.

Legal assistance may include drafting and reviewing escrow agreements, structuring release conditions, coordinating escrow provisions with share purchase and commercial agreements, reviewing payment-security mechanisms, protecting purchase-price holdbacks and representing foreign companies in escrow-related disputes.

Phone: +90 312 434 22 22
Mobile / WhatsApp: +90 532 769 22 22
Email: info@firatfesihkaya.av.tr
Office: Mevlana Boulevard No:221, Yildirim Tower, Balgat, Cankaya, Ankara, Turkey

For high-value transactions, the core principle is simple: the purchase price should not move merely because one party promises to perform later. Payment mechanics, documentary conditions and release procedures should be legally structured before the funds leave the buyer’s control.