Att. Cemil Şaar, PhD(c)
The information in this article is current as of its publication date; however, legislation is subject to ongoing development and change. It is important to verify applicable law and seek legal advice before taking any action. Additionally, this article does not address all aspects of the subject matter. After setting out the essential background, attention is drawn to issues I consider significant for personal or professional reasons, and accordingly this article does not constitute comprehensive legal advice.
I. INTRODUCTION
Foreign nationals may hold one hundred percent of the shares in Turkish companies, provided they satisfy the conditions set out under work permit legislation and other applicable requirements. In most cases, company formation can be completed remotely by way of a power of attorney, without any physical presence in Turkey. In practice, the incorporation process typically concludes within one to two weeks depending on the workload of the relevant trade registry directorate and the level of prior preparation, and the core procedure is relatively straightforward.
Obtaining a potential tax number, what is in fact a minor and straightforward procedural step, conceals a potential hidden problem for individuals holding more than one foreign nationality. In my assessment, this problem was neither intended nor anticipated by the legislature, as the scenario in which it arises is an uncommon one. I have personally encountered it only once, in the course of assisting a client with multiple foreign nationalities through the tax number application process.
Accordingly, this article, the purpose of which is to draw attention to a small but consequential problem, is kept short and focused. No detailed treatment of company formation or commercial law more broadly, nor any extended systemic analysis, is offered here.
II. THE POTENTIAL TAX NUMBER: A FUNDAMENTAL REQUIREMENT
A. The Function of the Potential Tax Number
Foreign nationals who intend to engage in any commercial activity, open a bank account, acquire real estate, or establish a company in Turkey are required to first obtain a potential tax number.
The Tax Identification Number constitutes the primary reference point for all tax-related transactions under Article 8 of Tax Procedure Law No. 213 ("TPL") and serves in practice as a universal identifier required in almost every official transaction. While the potential tax number does not derive directly from that provision, it serves an analogous function as an identifier for persons who do not have tax residence in Turkey.
B. Obtaining a Potential Tax Number as a Foreign National
Foreign nationals may obtain a potential tax number either by applying in person at a competent tax office or online through the Digital Tax Office (dijital.gib.gov.tr) of the Revenue Administration ("GIB"). The online system operates by cross-referencing the passport details entered by the applicant against Turkey entry records, that is, against the immigration authority's database. Where the passport details correspond to an existing entry record, the tax number is generated; otherwise, the system is unable to complete the process.
III. THE HIDDEN PROBLEM FACED BY DUAL AND MULTIPLE NATIONALS
A. The Problem
Holding more than one nationality has become increasingly common over approximately the past fifty years, and more specifically over the past two decades, making it in historical terms, a very recent phenomenon. In my view, the concept of citizenship will continue to shed the meaning it acquired with the emergence of the nation-state, and this will further accelerate the prevalence of multiple nationalities.
A foreign investor with multiple nationalities entering Turkey will necessarily do so on one of the passports they hold. The GIB system matches the tax identification number to the passport details used at the point of entry into Turkey. Accordingly, a multiple national who enters on passport A can only obtain a tax identification number linked to that passport number. If the details submitted in the tax number application do not correspond to the entry record held by the police or immigration authorities, the number cannot be obtained.
The matter may appear at first glance to be a technical detail; however, in practice, it can give rise to a significant problem in a narrow set of circumstances. Multiple nationals travel using different passports for various reasons. The passport used to enter Turkey may not therefore always be the passport the individual intends to use as the basis for their commercial or investment activities. In such a scenario, a person who has entered Turkey on a passport issued by country A will be unable to pass through the system when attempting to obtain a potential tax identification number on the basis of a passport issued by country B. They will need to have that other passport recorded in the system, for instance by re-entering Turkey on it, or will be required to conduct their investment on the basis of the passport used at entry.
B. The Cause
To the best of my knowledge, the linking mechanism in question is not the product of an explicit legislative provision but rather of the technical integration between the GIB database and immigration authority records. In other words, I have not been able to identify any statutory provision or regulatory rule that expressly restricts multiple nationals to obtaining a tax identification number only on the basis of the passport used at entry.
This state of affairs raises several questions: Is this outcome the product of a deliberate policy choice, or of a failure to think the matter through? If it is a policy choice, what is its legal basis, and to what extent is it consistent with the general policy objective of encouraging foreign investment? Why has no mechanism been put in place to allow multiple nationals to administratively reconcile their different passports?
In my view, as is almost invariably the case with questions of this kind, the answer here too will be found through Occam's razor. As with all systems built by people, simple oversight is what is most likely at play, the administration simply did not account for this. That is the most probable answer.
IV. CONCLUSION
Establishing a company in Turkey as a foreign investor is, from a procedural standpoint, a relatively accessible process. The legal framework expressly permits foreign investment, and the increasingly digital infrastructure allows transactions to be conducted remotely.
Systemic problems of this kind, which emerge in the course of digitalization and can only be discovered through practice rather than through research— may only be resolved once they come to the attention of the relevant authorities. I hope this article helps that process.
As noted above, the systemic solution to this small but potentially consequential problem is straightforward. It could be resolved by allowing individuals who hold more than one passport to use any of those passports for the purpose of obtaining a tax identification number, or by introducing a form of “retrospective registration” through the digital system. Going one step further, and subject to effective enforcement, individuals could also be required to declare all passports in their possession upon entry into Turkey.
In order to avoid unexpected outcomes of this kind, those planning to invest in Turkey would do well to seek competent and local legal advice before taking any steps, this will protect them from these and similar “hidden” risks.
Att. Cemil Şaar, PhD(c)
This article was originally published at https://cemilsaar.com/tpost/dual-nationality-potential-tax-number-turkey
cemilsaar@kstlawfirm.com | +90 535 416 9476 | linkedin.com/in/cemilsaar
The information in this article is current as of its publication date; however, legislation is subject to ongoing development and change. It is important to verify applicable law and seek legal advice before taking any action. Additionally, this article does not address all aspects of the subject matter. After setting out the essential background, attention is drawn to issues I consider significant for personal or professional reasons, and accordingly this article does not constitute comprehensive legal advice.
I. INTRODUCTION
Foreign nationals may hold one hundred percent of the shares in Turkish companies, provided they satisfy the conditions set out under work permit legislation and other applicable requirements. In most cases, company formation can be completed remotely by way of a power of attorney, without any physical presence in Turkey. In practice, the incorporation process typically concludes within one to two weeks depending on the workload of the relevant trade registry directorate and the level of prior preparation, and the core procedure is relatively straightforward.
Obtaining a potential tax number, what is in fact a minor and straightforward procedural step, conceals a potential hidden problem for individuals holding more than one foreign nationality. In my assessment, this problem was neither intended nor anticipated by the legislature, as the scenario in which it arises is an uncommon one. I have personally encountered it only once, in the course of assisting a client with multiple foreign nationalities through the tax number application process.
Accordingly, this article, the purpose of which is to draw attention to a small but consequential problem, is kept short and focused. No detailed treatment of company formation or commercial law more broadly, nor any extended systemic analysis, is offered here.
II. THE POTENTIAL TAX NUMBER: A FUNDAMENTAL REQUIREMENT
A. The Function of the Potential Tax Number
Foreign nationals who intend to engage in any commercial activity, open a bank account, acquire real estate, or establish a company in Turkey are required to first obtain a potential tax number.
The Tax Identification Number constitutes the primary reference point for all tax-related transactions under Article 8 of Tax Procedure Law No. 213 ("TPL") and serves in practice as a universal identifier required in almost every official transaction. While the potential tax number does not derive directly from that provision, it serves an analogous function as an identifier for persons who do not have tax residence in Turkey.
B. Obtaining a Potential Tax Number as a Foreign National
Foreign nationals may obtain a potential tax number either by applying in person at a competent tax office or online through the Digital Tax Office (dijital.gib.gov.tr) of the Revenue Administration ("GIB"). The online system operates by cross-referencing the passport details entered by the applicant against Turkey entry records, that is, against the immigration authority's database. Where the passport details correspond to an existing entry record, the tax number is generated; otherwise, the system is unable to complete the process.
III. THE HIDDEN PROBLEM FACED BY DUAL AND MULTIPLE NATIONALS
A. The Problem
Holding more than one nationality has become increasingly common over approximately the past fifty years, and more specifically over the past two decades, making it in historical terms, a very recent phenomenon. In my view, the concept of citizenship will continue to shed the meaning it acquired with the emergence of the nation-state, and this will further accelerate the prevalence of multiple nationalities.
A foreign investor with multiple nationalities entering Turkey will necessarily do so on one of the passports they hold. The GIB system matches the tax identification number to the passport details used at the point of entry into Turkey. Accordingly, a multiple national who enters on passport A can only obtain a tax identification number linked to that passport number. If the details submitted in the tax number application do not correspond to the entry record held by the police or immigration authorities, the number cannot be obtained.
The matter may appear at first glance to be a technical detail; however, in practice, it can give rise to a significant problem in a narrow set of circumstances. Multiple nationals travel using different passports for various reasons. The passport used to enter Turkey may not therefore always be the passport the individual intends to use as the basis for their commercial or investment activities. In such a scenario, a person who has entered Turkey on a passport issued by country A will be unable to pass through the system when attempting to obtain a potential tax identification number on the basis of a passport issued by country B. They will need to have that other passport recorded in the system, for instance by re-entering Turkey on it, or will be required to conduct their investment on the basis of the passport used at entry.
B. The Cause
To the best of my knowledge, the linking mechanism in question is not the product of an explicit legislative provision but rather of the technical integration between the GIB database and immigration authority records. In other words, I have not been able to identify any statutory provision or regulatory rule that expressly restricts multiple nationals to obtaining a tax identification number only on the basis of the passport used at entry.
This state of affairs raises several questions: Is this outcome the product of a deliberate policy choice, or of a failure to think the matter through? If it is a policy choice, what is its legal basis, and to what extent is it consistent with the general policy objective of encouraging foreign investment? Why has no mechanism been put in place to allow multiple nationals to administratively reconcile their different passports?
In my view, as is almost invariably the case with questions of this kind, the answer here too will be found through Occam's razor. As with all systems built by people, simple oversight is what is most likely at play, the administration simply did not account for this. That is the most probable answer.
IV. CONCLUSION
Establishing a company in Turkey as a foreign investor is, from a procedural standpoint, a relatively accessible process. The legal framework expressly permits foreign investment, and the increasingly digital infrastructure allows transactions to be conducted remotely.
Systemic problems of this kind, which emerge in the course of digitalization and can only be discovered through practice rather than through research— may only be resolved once they come to the attention of the relevant authorities. I hope this article helps that process.
As noted above, the systemic solution to this small but potentially consequential problem is straightforward. It could be resolved by allowing individuals who hold more than one passport to use any of those passports for the purpose of obtaining a tax identification number, or by introducing a form of “retrospective registration” through the digital system. Going one step further, and subject to effective enforcement, individuals could also be required to declare all passports in their possession upon entry into Turkey.
In order to avoid unexpected outcomes of this kind, those planning to invest in Turkey would do well to seek competent and local legal advice before taking any steps, this will protect them from these and similar “hidden” risks.
Att. Cemil Şaar, PhD(c)
This article was originally published at https://cemilsaar.com/tpost/dual-nationality-potential-tax-number-turkey
cemilsaar@kstlawfirm.com | +90 535 416 9476 | linkedin.com/in/cemilsaar