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Country of residence for tax purposes

The importance of determining the country of residence

Determining the country of residence is key to determine in which country or countries a person needs to pay tax. In most countries a person is liable for taxation on his or her worldwide income, if that country is the country of residence. This usually means that tax is levied not only on local sources of income, but on all foreign sources of income as well.

How is the country of residence determined?

A person’s country of residence determined by local tax law. Some countries look at the number of days present in that country (in a tax year) to determine whether a person is a resident taxpayer. Other countries determine residency by looking at a set of circumstances. In the latter case, all facts and circumstances of a person’s social and professional life are looked at to determine with which place a person has the strongest ties. The factors that can play a role in this process include, among others:

  • Habitual abode of the individual
  • Habitual abode of his or her spouse / partner / family
  • Social ties
  • Professional ties
  • Availability of an owned or rented house
  • Memberships
  • Where is mail received

Typically the place of abode of the spouse / family plays an important role in determining the country of residency, however, a decision needs to be based on an assessment of all the relevant factors. For instance, a potential needed registration at a town hall is usually not decisive on its own.

Please note that these are two ways of determining residency, but that local rules can differ.

International aspects of the country of residence

Because countries can have different rules for determining residency, it is possible that two countries claim that one person has his or her residency in their country. In that case, if a tax treaty is concluded between these two countries, the tax treaty will provide rules that ultimately decide in which country that person has his or her residency and on which income components tax can be levied. The aim of a tax treaty is to establish that a person qualifies only as a resident taxpayer of one country and does not pay tax in two countries on the same income.

Points of attention when the residency position is not crystal clear:

  • Document facts and circumstances that can be used to decide on the residency position.
  • Keep documents like (rental) agreements, utilities bills, etc., that can help to prove residency in a certain country.
  • Keep local legislation and different tax treaties between different countries in mind, articles may differ per country and/or treaty.
  • Be aware of the formal aspects and obligations one has when it comes to determining the country of residence and tax paying obligations.

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