Litigation funding is the process of providing external resources to cover the cost of a lawsuit and assists claimants who do not have access to financial resources to seek justice. Litigation finance companies or investors can provide financial resources to the litigant by assessing the potential return from litigation. Funds are then provided for litigation costs such as court costs, expert fees, witness fees and attorneys’ fees. Litigation finance is usually established on the basis of an agreement between the plaintiff and funding company to receive a benefit, usually depending on the outcome of the litigation, and when a benefit is obtained at the end of the litigation, the litigation finance company is reimbursed a certain percentage of that benefit. Please note that the financing provided is not a debt, it is seen as capital invested in a claim.

Litigation funding is not specifically addressed in Turkish law and there are no regulations prohibiting it. In this context, third-party funding agreements will be valid as long as their general terms are valid under Turkish law and in particular do not conflict with public order.

In addition, Article 164 of the Turkish Attorneys Act No 1136 stipulates that the value of the lawsuit or judgment or a certain percentage of the money, not exceeding 25%, may be agreed as an attorney’s fee.

Article 334 of the Turkish Code of Civil Procedure No 6100 provides for a legal aid procedure for persons who lack the means to pay the costs of litigation. A similar practice exists in criminal law matters, where a lawyer must be assigned to a suspect or defendant under certain conditions, regardless of whether the suspect or defendant requests one or not.

In the Turkish Code of Obligations, the freedom of contract is accepted as the basis for all contracts formed with the appropriate declaration of the express will of the parties over and against each other. Contracts that are not in a form or structured contrary to the contractual regulations established by law are valid unless they are contrary to the mandatory provisions of the law relating to general morality, personal rights or public order.

In this context, a non-party to the litigation may finance the litigation proceedings in accordance with the principle of freedom of contract and the general provisions of the Code of Obligations, and a litigation funding agreement may be signed between the parties. If the litigation funding agreements concluded within the framework of freedom of contract contain provisions contrary to mandatory provisions, general morality, personal rights or public order, these agreements or the offending terms may be declared null and void.

Litigation funding is not a regulated concept in Turkish dispute resolution and the Turkish Court of Appeal has not issued any opinion on this mechanism to date. Therefore, non-legal rules that have been established in the system and shaped by judicial decisions do not exist for this field of application.

Turkish law does not contain specific regulations on litigation funding agreements within the scope of consumer credit rules. However, Article 17 of the Decree No 32 on the Protection of the Value of the Turkish Currency stipulates that if Turkish residents obtain loans from abroad, it is obligatory for such loans to be utilised through banks. Within the scope of this regulation, it can be argued that if funds are being provided to the claimant in Turkey then the financing companies should deliver such payments through an arrangement with a bank located in Turkey.

However, the authors understand that it is usually the case that funding arrangements are set up so that the costs and the fees for the litigation or arbitration cases are agreed to be paid to the legal counsel who is representing the claimant/plaintiff. In this case the funds do not actually come into Turkey or into the possession of the claimant/plaintiff and so the issue of localising funds does not arise.

Before third-party financiers finance a case or arbitration, they will need to be informed about its existence during the due diligence phase. In this context, the financier requests extensive information and documents from the claimant and its counsel. However, during the course of the proceedings, third-party financiers will be keen to keep abreast of the latest developments in the proceedings, and complying with third-party financiers’ requests for information may be claimed to be in breach of attorney-client privilege, a breach of confidentiality by the parties to the proceedings. Moreover, providing information to a third-party financier may lead to the third-party financier’s unlawful use of this sensitive information for its own benefit.

However, in practice, the authors believe that this risk is minimal since the funding agreement structure usually has an agreement involving the counsel of record and there are terms agreed to by both parties and counsel that client privilege extends to the lender and is covered by specific confidentiality provisions.

There is no general obligation to disclose in Turkey. The general principles of legal privilege tend to apply such that lawyers are prohibited from disclosing matters learned in connection with work entrusted to them. Lawyers have a duty to protect privileged information in the course of their communications for litigation finance, and on behalf of the client, the lawyer has a continuing obligation to make independent assessments and provide guidance to the client on the potential advantages and disadvantages of any proposed litigation finance transaction.

However, the Bar associations to which lawyers belong may also request the submission of an agreement with the parties, and there is a remote risk this would include the funding agreement, in order to assess whether the statutory retainer fee has been collected.

Litigation funding arrangements may be the subject of a request from the other party to have it declared whether or not there is third-party funding. This will not usually include a requirement to provide the funding agreement. In arbitration proceedings requiring the deposit of the contract with the institution, or in cases where the existence of the contract must be confirmed to the court, such deposit or disclosure of the existence of the contract will be in question. In this case, the entire contract may need to be submitted.

Since third-party financing is not regulated in Turkish law, there is no direct regulation regarding the funder’s obligation to disclose the source of funds.

However, Article 3/B of the Tax Procedure Law No 213 stipulates that “in taxation, the taxable event and the true nature of the transactions related to this event shall be taken as the basis”.

Within the scope of this provision, precedent decisions indicate that money transfers received into commercial accounts are presumed to be related to commercial activities. It is further established that the burden of proof lies with the taxpayer who alleges that such funds are not connected to a commercial transaction, requiring the taxpayer to substantiate the source of the funds.

In cases where the business owner fails to explain or substantiate the source of the funds, the amounts credited to the account are deemed to be related to the taxpayer’s commercial activity. Funds whose source cannot be explained or documented are treated as company revenue and are therefore subject to taxation.

Please note that instead of transferring a specific amount of cash through international fund transfer mechanisms, the funders may prefer to pay the litigation expenses directly themselves. For instance, law firms may issue monthly invoices to the funders, and the funders may then make regular payments to the law firms in accordance with such invoices. In this manner, the issue of transferring a significant amount of money in a single transaction – which could potentially give rise to complications under tax law – is avoided, since it is backed with an invoice.

Under Turkish law, the provision of financing by foreign investors to Turkish natural or legal persons is governed by the Foreign Direct Investment Law No 4875 (the “FDI Law”). With the enactment of the FDI Law, the former permission and approval regime set out under the repealed Law No 6224 on the Encouragement of Foreign Capital was largely replaced by a notification-based system.

Pursuant to Article 3(a) of the FDI Law, unless otherwise stipulated by international agreements or special legislation, foreign investors are free to make direct investments in Turkey and are subject to equal treatment with domestic investors. Furthermore, Article 3(c) of the FDI Law provides that foreign investors may freely transfer abroad, through banks or special financial institutions, the net profits, dividends, proceeds from sale or liquidation, indemnities, amounts payable under licence, management or similar agreements, as well as the principal and interest payments of foreign loans arising from their activities and transactions in Turkey.

In light of the foregoing, it is legally permissible for a Turkish company to establish a partnership with a foreign financing company for the purpose of funding a dispute to be resolved through international arbitration. Where such financing company qualifies as a foreign investor within the scope of the FDI Law, it may benefit from the rights and protections afforded thereunder within the framework of the relevant partnership relationship.

Additionally, pursuant to Law No 3628 on Declarations of Property, the Fight Against Bribery, and the Fight Against Corruption, public officials are under a statutory obligation to explain the source of funds credited to their accounts.

Portfolio funding enables law firms to secure financing for multiple cases simultaneously, rather than seeking funding on a case-by-case basis. In other words, the financing of more than one case is defined as “portfolio funding”. This approach allows third-party funders to treat a bundle of cases as a single investment opportunity. Under portfolio funding arrangements, the funder’s return is linked not to the outcome of each individual case, but to the overall financial performance of the portfolio as a whole. Accordingly, funders assess the potential returns of the portfolio in general rather than evaluating each case separately.

Under Turkish law, there are currently no specific regulations that directly govern or restrict portfolio litigation funding. Article 26 of the Turkish Code of Obligations (TCO) regulates the principle of freedom of contract, pursuant to which “the parties may freely determine the content of a contract within the limits prescribed by law”. Article 27 of the same Code sets out the limits of contractual freedom by providing that “contracts that are contrary to mandatory provisions of law, morality, public order, personal rights, or whose subject matter is impossible, shall be absolutely null and void”. Accordingly, provided that the limitations set forth under Article 27 of the TCO are respected, the parties are free to determine the content of the financing agreement, including its essential elements and principal obligations.

Moreover, the term “monetisation arrangements” as used in English law is of a similar nature to the assignment of receivables (Alacağın Devri) regulated under Turkish law. Article 183 of the TCO provides that “unless otherwise provided by law, contract, or the nature of the obligation, the creditor may assign its claim to a third party without seeking the consent of the debtor”.

As a rule, the assignment of a receivable constitutes a dispositive legal transaction that may be affected without the debtor’s consent. Such assignment gives rise to a partial and limited succession, rather than a universal succession. In this context, it is the creditor that changes. As a rule, all receivables are assignable. Accordingly, not only receivables that have already been acquired (vested), but also receivables to be acquired in the future may be assigned; likewise, receivables that are due as well as those subject to a term or a condition may be assigned. It is of no importance whether the receivable arises from a legal transaction, a tort, unjust enrichment, or directly from the law. In the voluntary assignment of a receivable (assignment based on contract), for such assignment to be valid, it is required that the parties to the agreement have legal capacity to act and to dispose, that there exists a valid agreement, that a written assignment agreement is concluded between the creditor and the third party pursuant to Article 184 of the TCO, that the assigned receivable exists, and that there is no legal impediment to the assignment.

In Turkish proceedings, adverse costs are the costs awarded by a reasoned judgment in proportion to the loss and the win, and imposed on the losing party in proportion to its loss. Since the funder is not party to the court case, it would not be likely for the funder to be held liable, unless they were to agree to put up security for costs as part of the funding arrangement. Apart from that, the funder would not be liable.

Typical Litigation Costs

These costs are divided into two: the costs requested by the courts and the costs incurred by the parties themselves. Under the jurisdiction of Turkey, the adverse costs that may be the subject of litigation funding and for which a third-party funder may be liable are set out below.

Court fees

Court fees are one of the most important items to be spent on a lawsuit together with attorney’s fees. Fees are determined by the state in return for the justice-related services provided by the judicial bodies under the state. These fees, the most important of which are listed below, are regulated by Law No 492 on Fees.

• Filing fee – this is a fixed fee to be paid by the claimant at the time of filing the claim, in accordance with Article 27 of the Fees Act. It is a fixed amount and is updated every year. As of 2025, the amount of this fee will vary between TRY281.80 and TRY615.40 for courts of first instance, depending on the type of court.
• Judgment and writ fee – this is a type of fee that is fixed in cases where the subject matter cannot be valued in money, and proportional in cases where the subject matter can be valued in money.

The fixed judgment and writ fee is a fixed amount and is updated every year. As of 2025, the amount of this fee will vary between TRY615.40 and TRY1,013.90 before the courts of first instance, depending on the type of court.

The proportional judgment and decision fee is calculated as 68.31 per thousand of the value in dispute in the case of a decision on the merits in cases whose subject matter is related to a certain value.

At the end of the hearings, the court fees are divided between the losing and winning parties according to the ratio between the losing and winning parties. As a rule, the winning party is not liable for costs and fees in proportion to the amount it has won. If the claimant has paid the costs in advance at the time of filing the claim, the losing defendant is entitled to recover these costs from the losing defendant.

If a litigation funding agreement is entered into, the claimant will undoubtedly stipulate in the agreement that the third-party funder will also fund the legal fees. In such a case, the third-party funder will pay the legal fees on behalf of the claimant or provide the claimant with funding to pay them.

In practice, although it is accepted to pay the fees on behalf of third parties, these payments are generally made by the attorneys involved in the case through the UYAP online system (National Judicial Network Platform). In the case of litigation funding, the authors believe that the most appropriate method would be for the funding to be paid by the funder to the attorney on behalf of the claimant, within the framework of the provisions to be determined in the litigation funding agreement, and for the attorney to pay them on behalf of the claimant with the funding from the funder.

Court expenses

The expenses of the proceedings are determined by Article 323 of the Code of Civil Procedure (CCP). Some of the most frequently encountered and most important judgment expenses in practice, not all of which consist of the following, are as follows:

• notification and postal expenses incurred due to the lawsuit;
• file and other document expenses;
• on-site examination expenses;
• fees and expenses paid to witnesses and experts;
• fees, taxes, charges and other expenses paid for documents obtained from official offices;
• attorney fee to be assessed in accordance with the law in cases pursued by proxy; and
• other expenses incurred during the proceedings.

Unlike court fees, there is no tariff for court expenses and they are determined according to the general costs in practice in the country at that time. To give an example for 2025, notification fees vary between TRY500–1,000 and expert fees vary between TRY5,000–10,000.

At the end of the hearings, the expenses are divided between the losing and winning parties according to the ratio between them. As a rule, the winning party is not liable for costs in proportion to the amount it has won. If the claimant has paid the costs in advance at the time of filing the claim, the losing defendant is entitled to recover these costs from the losing defendant.

Attorney fees

According to Article 323 of the CCP, in cases pursued by an attorney, “the attorney’s fee to be determined in accordance with the law” is considered a litigation cost, and the attorney’s fee agreed between the parties under the Attorney’s Act, and other applicable laws are not considered a litigation cost. The attorney’s fee, which is determined as court costs, is determined on the basis of the amount that is decided as a result of the lawsuit.

The calculation of the attorney’s fee is explained in the minimum fee tariff. The minimum fee tariff is published every year in October. When calculating the attorney’s fee, it is first necessary to determine whether the case is a monetary case or a non-monetary case. Then the attorney’s fee is calculated according to these two situations.

• If it is a monetary case and the claim is more than TRY30,000 (as of 2025), a proportional attorney fee is calculated. For example, in a case of TRY1.2 million, the attorney’s fee is calculated as 16% for the first TRY400,000, 15% for the next TRY400,000 and 14.00% for the next TRY400,000. In other words, a total of TRY180,000 in attorney’s fees.
• If it is not a monetary case, or the claim is less than TRY30,000 (as of 2025), the attorney fee is fixed. This fixed fee is regulated in the law for the cases within the jurisdiction of each court. For example; TRY7,000 for works followed in the Execution Courts, TRY30,000 for criminal investigations, cases followed in the courts of first instance, and TRY48.000 for the cases followed in the High Criminal Courts.

The attorney’s fee thus determined shall also be divided between the losing and winning parties in proportion to their respective losses and gains. As a rule, the winning party is not liable for costs in proportion to the amount of the claim. If the claimant has paid the costs in advance at the time of filing the claim, the claimant is entitled to recover these costs from the losing defendant.

The attorney’s fee, which is not considered to be a legal expense and is determined in accordance with the attorney’s agreement between the parties, should be subject to the litigation funding agreement separately from this item.

Expert opinion

In principle, the dispute is resolved by the judge. However, in cases requiring special and technical knowledge, the judge decides on complex and specialised matters with the help of experts and the opinions to be obtained from them.

The expert opinion referred to under this heading is an expert opinion prepared by the expert at the request of the party, not by the court, and differs in this respect from an appointed expert opinion. It is an opinion submitted to the file by the parties on their own initiative and at their own request. In addition, the judge may consult an expert upon request or ex officio, and the selection of such an expert is entirely up to the judge, also known as a court-appointed expert.

However, it is at the discretion of the parties to request an expert opinion and to choose the expert. Furthermore, although the costs of the appointed expert are considered to be a cost of the proceedings, the costs of the expert’s opinion (submitted by the parties) are not a cost of the proceedings, but a cost incurred by the parties themselves.

In this context, the payment to be made to the expert appointed by the court will be covered by the funder from the costs of the proceedings in the event of litigation funding, but the payment of the expenses related to the expert opinion submitted by the parties will only be possible with the agreement of the party and the funder.

Please note that some of the above costs and expenses (such as court fees and expenses) may be repeated before the higher courts (Regional Court and Court of Appeal), which are the appellate courts.

Litigation

Since the term “security for costs” is a legal concept commonly used in Anglo-Saxon legal systems, Turkish courts are somewhat unfamiliar with this concept. This security means that a claimant is required by the court to provide a security or collateral to ensure that the defendant can cover the costs of the proceedings in the event that the claimant loses the case.

In Turkey, the closest practice to this guarantee is the term “foreign guarantee” or “foreign security”. Where the claimant is resident/established in a country other than Turkey, the court may require the claimant to deposit a certain amount of cash or to submit a bank letter of guarantee for the same amount. This security amount is usually around 20–30% of the amount of the claim.

The obligation to lodge a security deposit depending on the grounds of foreignness is regulated by the Law on Private International Law and Procedural Law of 12.12.2007, No 5718.

Pursuant to paragraph 1 of Article 48 of the Law, “foreign real and legal persons who file a lawsuit, participate in a lawsuit or pursue an enforcement proceeding before a Turkish court shall be obliged to deposit the security to be determined by the court in order to cover the costs of the lawsuit and proceedings as well as the damages and losses of the other party”.

Paragraph 2 of Article 48, which regulates the exemption of security, provides that the court shall exempt the claimant from the security on the basis of contractual, statutory or de facto reciprocity.

Turkey is a party to the Exemption of Legal Persons From Security for Costs Under The Hague Convention on Civil Procedure dated 1954, which constitutes a contractual reciprocity. Therefore, claimants from countries that are party to this Convention are also exempt from this type of security for costs.

In the case of a country that is not a party to the Convention, it cannot be said that a security obligation arises definitively. In this case, the court will assess the statutory or de facto reciprocity.

Another security in Turkish courts is the amount of security required by the court when applying for an interim attachment or an interim injunction. This amount is usually between 10% and 20% of the amount requested for the interim attachment.

Arbitration

With respect to arbitration proceedings there are provisions in some of the institutional rules to allow for an order for security for costs. It is most commonly requested in investment arbitration where claimants have lost assets by government action and are being funded. However, tribunals are often reluctant to make such orders unless there is a clear basis for doing so.

Under the name of Legal Protection Insurance, there is a type of insurance in Turkey that covers the expenses related to civil lawsuits brought by the insured against third parties or by third parties against the insured.

Accordingly, the expenses covered by Legal Protection Insurance can be listed as follows:

• expenses, court fees and attorney’s fees that may arise as a result of litigation, execution and settlement of the dispute;
• costs of appeals, correction of decisions;
• attorney’s fees specified in the policy, provided that they are not less than the minimum tariff for attorneys; and
• consultant’s and arbitrator’s fees specified in the policy, provided that they are not less than the minimum fee tariff for consultants.

The points that are subject to this guide are explained in detail below.

Attorney Fees

If the insured needs to hire an attorney, the attorney’s fee is covered. It is usually paid within the limits specified in the policy.

Court Expenses

Fees, expert fees and court costs incurred in the process of filing or defending a lawsuit are covered by insurance.

Adverse Costs

If the insured loses the case and the court orders the other party to pay the costs, these expenses may be covered under the policy.

Mediation and Conciliation Expenses

If alternative remedies (mediation or conciliation) are used before or during litigation, the costs incurred in this process are covered.

The Union of Turkish Bar Associations publishes the minimum fee tariff for lawyers in January each year, and lawyers are prohibited from agreeing on an attorney fee below this fee tariff. In the fee agreement to be made between the parties and lawyer, the attorney fee can be determined hourly or in the form of a success fee. However, in any case, this fee should not be below the tariff published by the Bar Association.

Article 164(5) of the Attorneyship Law governs the issue of attorney fees. An attorney’s fee is the amount or value of the legal assistance rendered by the attorney.

The value of the action or judgment or a certain percentage of the money, not exceeding 25%, may be agreed as the attorney’s fee.

The agreements to be made pursuant to the second paragraph may not stipulate that a part of the property and rights other than the money subject to the lawsuit shall belong to the attorney in kind.

No attorney fee may be agreed below the minimum fee tariff for attorneys (Amended third and fourth sentences: 13/1/2004 – 5043/5 Art).Please note that this Article prohibits lawyers from doing unpaid work or work on a “no win, no fee” structure.

In cases where the attorney’s fee has not been agreed upon, or there is no written fee agreement between the parties, or the fee agreement is unclear or disputed, or the provision of the fee agreement regarding the fee is deemed invalid, an amount between 10% and 20% of the value of the claim on the date of finalisation of the judgment shall be determined as the attorney’s fee by the authority authorised to examine the fee objections, provided that it is not below the minimum fee tariffs in cases and works whose value can be measured in money. In cases and affairs whose value cannot be measured in money, the minimum attorney’s fee tariff shall be applied.

At the end of the case, the attorney’s fee to be charged to the other party based on the tariff shall belong to the attorney. This fee may not be set off or garnished due to the debt of the business owner.

There are attorneys’ fees set by the courts in the course of the litigation. This is what the court awards in its judgment. These are the only fees recognised and awarded by the Turkish courts. Separate to that, the parties may also agree on attorneys’ fees set by attorneys’ agreements between the parties subject to private law. Attorney contracts are unique contracts that impose obligations on two parties and are subject to freedom of contract. It is not possible for a lawyer who attempts to finance attorneys’ fees to follow up the case pro bono. In addition, a no-fee agreement in the event of failure (losing a case) may give the client the perception that the lawyer “guarantees the outcome”. However, the lawyer cannot guarantee the outcome of the work, and such an agreement may be deemed invalid.

Within the framework of the explanations above, in the guise of litigation funding, the charging of an attorney’s fee or making a similar fee subject to litigation funding will only be valid if it is done in accordance with the Attorneyship Law. According to the Law on Attorneys, “in cases where the attorney’s fee has not been agreed upon, or there is no written fee agreement between the parties, or the fee agreement is unclear or controversial, or the provision of the fee agreement regarding the fee is deemed invalid; in cases and affairs whose value can be measured in money, ten percent to twenty percent of the value of the claim on the date of finalization of the judgment according to the labor of the lawyer for the part of the case won by the authority authorized to examine the fee objections, provided that it is not below the minimum fee tariffs between the amount of the fee shall be determined as attorney’s fee”.

As explained above, a “success fee”, which states that the fee will be charged only when the case is won, suggests that the lawyer may engage in unethical behaviour in order to be entitled to his/her fee rather than in an effort to provide justice. It is possible to conclude success fee agreements, provided that they are not contrary to the general provisions.

Providing that attorneys’ fees alone cannot be claimed (or, if claimed, will be refunded), agreements are not classified as “success-related” remuneration. This is because “even in the event of failure in “tied” agreements, a certain fee would be entitled to be paid”. Therefore, such contracts are not considered to contravene the law’s provision of no free legal aid. The important point in the law is that legal assistance can only be provided if it can be done for a fee.

There is only a very narrow category of participation by non-Turkish lawyers or firms allowed in the Turkish legal market. Non-lawyer ownership is not permitted. The narrow options are set out below.

In the regulations on attorney partnership, foreign attorney partnerships wishing to operate in Turkey within the framework of the foreign capital incentive legislation may only provide consultancy services on foreign and international law, provided that they are established in accordance with this Law and the attorney partnership regulation. This restriction shall also apply to Turkish citizens or foreign lawyers working in the foreign law partnership. For this type of law partnership, it is not required for the partners to be registered with the Bar association. The application of this rule is based on reciprocity. 

Partnership shares and ratios are freely determined. Partners’ shares may only be transferred to partners or third parties who are lawyers. In the event that the transfer of the share of the partners is prohibited by contract or the partners do not approve the transfer of the share, the heir is not a lawyer or does not accept the partnership, the partner leaves the practice of law due to retirement or health reasons, is removed from the Bar register, is dismissed or dismissed from the profession, or their share in the partnership is seized, the partnership share is taken by the other partners in proportion to their shares over its real value.

A law partnership may not acquire rights and property other than for its purpose, may not establish partnerships with third parties, and may not acquire shares of legal entities. Partners may not be a partner of more than one law partnership, may not have an office other than the office of the partnership, and may not pursue lawsuits and business independently.

The type of articles of association of a law partnership should include: The principles, forms and conditions of the matters such as the identity information of the partners, the title and address of the partnership, partnership shares, relations between the partners, division of labour related to the business and cases, powers of the managing partners, management and representation of the partnership, the board of partners, the duties and powers of the board, sharing of income and expenses, audit, exit from the partnership, expulsion, transfer of shares, termination of the partnership, dissolution and liquidation, shall be regulated in the regulation prepared by the Board of Directors of the Union of Turkish Bar Associations, approved by the Ministry of Justice and announced in the Official Gazette.

Third-party financing of law firms is not recognised as a regulated concept under Turkish law. The Turkish legal framework is structured to prioritise the professional independence of attorneys and restrict non-lawyer involvement in legal practice. Accordingly, direct financing arrangements whereby a funder provides capital to a law firm in exchange for a financial return would likely raise significant regulatory and ethical concerns.

Under the Attorneyship Law No 1136 and the applicable professional rules, attorneys must exercise independent professional judgment and avoid relationships that could compromise their duty of loyalty to the client. Any funding structure that enables a third party to influence litigation strategy, settlement decisions, or the conduct of proceedings may therefore be viewed as incompatible with these principles.

Furthermore, non-lawyer ownership or investment in law firms is not permitted in Turkey. Law partnerships may only be formed between licensed attorneys, and partnership shares cannot be transferred to non-lawyers. This restriction further limits the feasibility of law firm financing models seen in certain other jurisdictions.

That said, third-party funding of a claimant’s legal costs is not prohibited. In practice, funding arrangements are structured so that the funder finances the litigant rather than the law firm, with the funded party using those resources to meet its legal expenses in accordance with its fee agreement with counsel.

Although the funding agreement is generally executed between the claimant and the funder, counsel often plays a meaningful role in facilitating the funding process. Funders typically conduct extensive due diligence not only on the merits of the claim but also on the experience, reputation and resources of the legal team handling the dispute. Market observations suggest that funders are highly selective and may proceed with only a limited proportion of reviewed opportunities.

Such arrangements must remain compliant with the rules governing attorney remuneration. Pursuant to Article 164 of the Attorneyship Law, contingency fees are permitted provided that they do not exceed 25% of the amount recovered, and lawyers are prohibited from operating on a purely “no win, no fee” basis. These safeguards help ensure that funding structures do not undermine professional ethics or the integrity of the legal profession.

To date, no court decision in Turkey has directly addressed the permissibility of law firm financing. Should the market evolve in this direction, any assessment would likely be guided by core principles such as attorney independence, professional ethics and public policy.

The tax treatment of funders’ recoveries under third-party litigation funding arrangements is not expressly regulated under Turkish law. Accordingly, the applicable tax regime will primarily depend on the legal characterisation of the funder’s return and the structure of the funding arrangement.

In practice, funder recoveries may be treated differently depending on whether the payment is characterised as interest, profit participation, service income, or a return on capital. This classification is typically assessed on a case-by-case basis by reference to the contractual framework and the economic substance of the transaction.

Where the return is structured in a manner similar to interest or financing income, it may be subject to the tax rules applicable to financial proceeds. Conversely, if the funder’s entitlement is linked to a share of the litigation proceeds, the payment could be evaluated as profit participation. In some structures, particularly where the arrangement resembles an investment rather than a loan, the return may be treated as capital income.

Cross-border considerations may also become relevant where the funder is located outside Turkey. In such cases, the potential application of withholding tax and the availability of relief under double taxation treaties should be considered when structuring the funding arrangement.

Given the absence of specific statutory guidance and established judicial practice in this area, parties commonly seek specialised tax advice when implementing litigation funding structures in order to mitigate classification risks and ensure compliance with Turkish tax legislation.

The taxes that may be applied to attorney fees are (i) VAT, (ii) income tax, (iii) withholding tax and (iv) stamp duty.

Withholding Tax

According to the Income Tax Law, legal fees paid to self-employed lawyers should be taxed in accordance with the provisions on income from self-employment. Accordingly, a withholding tax of 20% is levied on the payments made by the clients to the lawyers on the basis of their self-employed activities.

In addition, a 20% withholding tax is required not only on payments made by clients to attorneys for legal services but also in the following cases:

• by the debtor (the loser of the case), if it is paid directly to the lawyer by the debtor (the loser of the case);
• by the debtor (loser of the case) in cases where it is deposited with the Enforcement and Bankruptcy Office to be paid to the lawyer by the debtor (loser of the case); and
• in cases where the debtor (loser of the case) pays the creditor (winner of the case), when the creditor (winner of the case) pays the lawyer.

VAT

In Turkey, law firms and self-employed lawyers must charge VAT on their services and declare it in their periodic VAT filings. According to the regulation of the Value Added Tax General Implementation Communiqué on “Attorney Fees”, “The payment of attorney fees ruled by the courts to the winners of the lawsuit is not subject to VAT. The VAT is added to the fee charged and invoiced by lawyers for the legal services they provide for their clients. The VAT is 20%”.

If the client is a VAT-registered business and the legal fees are incurred for business-related purposes, the VAT paid on the legal fees can be reclaimed as input VAT on their VAT return, subject to the general VAT deduction rules.

Income Tax

If the attorney is self-employed, they pay income tax under the Income Tax Law on all income earned during the year. The attorney calculates and pays this tax in the annual income declaration. The income tax brackets change from year to year.

Stamp Duty

If an attorney-client agreement is concluded between the lawyer and their client, stamp duty is payable. This tax is 9.48 per thousand of the amount specified in the contract. In Turkey, all contracts involving a sum of money are subject to stamp duty. Therefore, a litigation funding agreement to be signed between the parties will also be subject to stamp duty.

Resident companies in Turkey are obliged to apply withholding tax upon certain types of payments made to non-residents.

This issue will be the subject of a cross-border payment. When a third-party funder – acting out of a body corporate registered in that jurisdiction – is subject to any portion of returns paid to it under a third-party funding agreement, withholding tax (WHT) on payments made to non-residents should be considered for the Turkish fund receiver. Whether fund repayments from Turkey to foreign entities are subject to WHT depends on the legal nature of the payment and whether there is a Double Taxation Treaty (DTT) between Turkey and the recipient’s country.

In Turkey, WHT obligations on returns paid to non-resident third-party funders under a third-party funding agreement depend on the nature of the payment and the existence of DTTs between Turkey and the jurisdiction where the funder is registered.

Some types of payments and their local WHT rates are the following.

Loan Repayment

If the payment is a loan repayment (principal amount), no WHT applies.

However, if interest is paid on the loan, it is subject to 10% WHT (this rate may be reduced under a DTT).

Dividend (Profit Distribution) Payments

If the repayment is considered a profit distribution (dividend payment) to investors, it is subject to 15% WHT (which may be reduced under a DTT).

Professional Service Fees

If the payment is made as a service fee (eg, to fund managers or advisers), it is subject to 20% WHT (which may be reduced under a DTT).

Capital Repayment

If the repayment is considered a return of capital to investors, it is not classified as income and no WHT applies.

If Turkey has a DTT with the recipient’s country, the WHT rate may be reduced or eliminated depending on the treaty provisions. If no DTT exists, Turkey’s domestic WHT rates apply.

Turkey has DTTs with the following jurisdictions from the list:

• Ireland – there is a DTT between Turkey and Ireland, which may reduce withholding tax rates on dividends, interest and royalties;
• Luxembourg – Turkey and Luxembourg have a DTT in place, allowing for potential tax reductions on certain income types; and
• United States (Delaware) – while Delaware is a US state, Turkey has a DTT with the United States, which applies to entities registered in Delaware.

Turkey does not have a DTT with:

• Cayman Islands;
• Guernsey – no DTT, but there is a Tax Information Exchange Agreement (TIEA) between Turkey and Guernsey; and
• Jersey – no DTT, but a TIEA is in place between Turkey and Jersey.

Without a DTT, standard Turkish WHT rates (eg, 15% on dividends, 10% on interest, 20% on royalties and professional services) typically apply.

Ireland

The Turkey-Ireland DTT generally allocates taxation rights to the recipient’s country if the income is not derived from a permanent establishment (PE) in Turkey.

If the Irish entity has no PE in Turkey, no Turkish WHT should apply.

If there is a PE in Turkey, WHT may apply under Turkish domestic law (typically 20%).

Luxembourg

The Turkey-Luxembourg DTT follows a similar principle.

If the Luxembourg entity does not have a PE in Turkey, no Turkish WHT applies on professional service fees.

If there is a PE in Turkey, then Turkish domestic WHT (20%) may apply.

Delaware (USA)

Under the Turkey-US DTT, professional service income is generally taxable only in the US unless the recipient has a PE in Turkey.

No Turkish WHT applies if there is no PE in Turkey.

If a PE exists in Turkey, standard Turkish WHT (20%) applies.

Jurisdictions Without a DTT (Standard Turkish WHT Applies)

Cayman Islands

There is no DTT with Turkey, and standard Turkish WHT (20%) applies to professional service payments.

Guernsey

There is no DTT with Turkey, and professional services payments are subject to 20% WHT.

Jersey

There is no DTT with Turkey, and 20% WHT applies to professional service payments.