Tax residency
Which country am I tax resident in?
A Double Taxation Agreement (DTA) allows for a decision making process to determine if the expat has a tax liability on a single or dual tax residency basis in one or more jurisdiction.
This can also determine income or gains that may be exempt under the expat tax status.
DTA’s are drafted under international rules laid down by the OECD with a new standard DTA coming into force around five years ago.
A DTA includes tiebreaker rules to determine whether an income or gain is taxed in one jurisdiction or on a dual residency basis or whether it’s exempt.
The tiebreaker decision making tree is a series of steps to consider the principles of essence in determining an expat’s tax resident or non-resident status.
These tiebreakers can also determine whether your tax residency applies to the any year or period of a tax year or for any specific income or gains types.
These 4 key factors are looked at in sequence to determine an expats tax residency.
a) Permanent Home
Where is the expats permanent home and continuous residence.
If it is unclear which is a main home or holiday home because of travel and movement then the decision making process moves on to point B
b) Vital Interest
What is the Expats centre of vital interests for family & business.
Where are the family based, where is the business based, where is the economic activity and income and wealth generated?
This decision step allows for Expats to consider nomad working or retaining a tax residence in another jurisdiction to where they spend time living in residence - as long as care is taken to follow the non residence rules.
If vital interests are unable to determine tax residency then point C is considered.
c) Habits & lifestyle
Where is the Expat habitually resident, what is the habit of travel and movement.
An Expat travelling frequently to undertake work in a another jurisdiction could be interpreted with an intention to be tax resident in the country where work activity is done, rather than a claimed place of residence.
Similarly it could also be true that a UK expat living and working abroad but returning home to the UK regularly could be deemed to be UK tax dual resident despite spending large chunks of the year abroad.
If tax residency is still not clear then d applies.
d. Nationality
If the permanent home, centre of family and business, and habits and lifestyle still leave doubt as to tax residency the next step is nationality.
A definition by nationality if made can easily lead to dual residency taxation and assessment.
This means that UK expats spending any time in the UK are always open to potential UK tax assessment on part or all of their worldwide income.
ProACT Sam. Founder & Tax Advisor.