Tax resident

On this page, you will find key information about tax residency and will be able to check if you are (and will be, based on your future relocation plans) tax resident and in which country.

Conceptually, there are two approaches to determining the tax residency of individuals:
- by the period of stay of a person in the territory of the jurisdiction (let's call this approach "classic");
- by the presence of a person's center of vital interests in the territory of the jurisdiction (let's call this approach "modern").

With the "classic" approach, classifying a person as a resident or non-resident is quite simple - it is enough to calculate the number of days spent in a particular country. With this approach, only the rules of arithmetic are used and, on the one hand, it is easier for a person to “manage” his residence, and on the other hand, it is more difficult to ensure the fairness of taxation.
In the "modern" approach, classifying a person as a resident or non-resident is more difficult due to the use of several assessment categories. With this approach, managing a residence is much more difficult, however, it provides a fairer taxation.
When they talk about the "fairness" of taxation, they use something like the following logic. Other things being equal, a person seeks to direct his vital interests to jurisdictions with a high standard of living. This standard of living is provided by tax revenues. Therefore, it is considered fair to pay taxes in the jurisdiction where the vital interests of a person rush.

In practice, to determine the state in which a person is recognized as a tax resident, more criteria are taken into account. In particular, the OECD Model Tax Convention, which defines recommended approaches for concluding bilateral treaties (agreements) for the avoidance of double taxation (DTT), recommends a whole algorithm for establishing tax residency (shown schematically below).

Determining tax residency is only part of the task of taxation. Next, you need to decide on the taxes on income from which sources a tax resident / non-resident in a particular jurisdiction should pay.
Conceptually, there are two approaches to determining the geography of sources of income taxed in a particular jurisdiction:

• the "global" approach provides for the collection of tax on income received by a tax resident, regardless of their source - from the state of residence or from abroad. The global approach is the most common;
• the "territorial" approach provides for the collection of tax on income received by a tax resident only from the state where he is a tax resident.

However, reasoning at the level of these concepts is of little use to a particular person in his particular life situation. Firstly, because the logic of determining the jurisdiction - the source of income is different for different types of income (active or passive income, whether the income is physically related to a particular jurisdiction). Secondly, because even for certain types of income, different approaches to determining their source can be established.

In addition, determining the country in which a person is a tax resident is important in a situation where a particular income may be taxed in different countries at the same time. As a rule, it is the country of residence that grants the right to a credit (deduction) of tax paid in another jurisdiction. Such a set-off (deduction) is possible if there is an appropriate international treaty for the avoidance of double taxation (DTT).

If a particular country applies the global principle of taxation, then tax residents of that country pay tax on income received from sources both in that country and outside it. Tax non-residents pay tax only on income from sources in that country. This principle is shown schematically below.

At the same time, the conceptual approach described above has significant features in relation to a specific type of income. In particular, the OECD Model Tax Convention, which defines the recommended approaches for concluding bilateral treaties (agreements) for the avoidance of double taxation (DTT), provides for the division of income into three groups (shown schematically below).
This information helps to give an idea of your tax liability, however, it is important to take into account the terms of a particular DTT based on which country you are a tax resident and/or which country your source of income is located in.

As you can see, the task of determining your tax liabilities is not trivial. That is why the information on our website is detailed in the context of a specific tax jurisdiction and the approaches used in it to determine both tax residency and the source of a particular type of income.

Criteria for tax residency in OECD countries can be found in English here.

Read about the possibilities of the tax authorities to obtain information on tax residency here.