Understanding tax residency - beginners guide

You may have heard of tax residency but don’t fully understand it. Let’s start with defining what your tax residency is:

‘Tax residency refers to the status of an individual or company for tax purposes in a particular country or jurisdiction. This status determines which country has the right to tax an individual or a business on their income’.

So in simple terms, it’s the country (or countries) you pay your taxes on your worldwide income to, in that particular year.

Each county has similar but slightly different criteria for determining tax residency. These criteria might include the number of days you spend in the country, where your permanent home is, where your economic interests are located, or where your business is managed and controlled.

Many countries use a "physical presence" rule to determine tax residency. For example, if you spend more than 183 days in a country during a tax year, you are often considered a tax resident of that country.

Some countries consider where your permanent home or domicile is located when determining tax residency. This can be especially relevant if you have ties to more than one country.

It is possible to be a tax resident in more than one country at the same time, which can lead to issues like double taxation (having to pay tax to two different countries). However, many countries have tax treaties that help resolve these issues by determining which country has first pick on taxing you. Whoever said tax was simple?

If you are spending less than 183 days in a country and have never been tax resident there before, it’s quite easy to avoid tax residency, but if you have had ties to a country in the past, it can be difficult to lose your residency unless you spend minimal amount of days there. ‘Tax residency is hard to gain, but hard to lose’.

This can make tax difficult for digital nomads who still wish to visit their home country regularly but want to spend time in their favourite countries overseas. Contact an expert so they can plan your time in each country maximising your tax efficiently!