How to determine whose tax resident are you if the criteria for determining it in your countries of residence are different

Individuals who are the residents of several countries are facing the issue of determining and obtaining the status of tax resident of a certain state in order to avoid double taxation.

At the same time, in the national legislations of countries, different basis can be used as a core criterion for determining tax residency: primary residence in the territory of the state and the presence of a center of life interests.

In this article, we will look at how to determine tax residency if the main criteria for determining it differ in different jurisdictions.

To conduct a comparative analysis, we chose the provisions of the national legislation of Belarus and Germany.

In Belarus, the main criterion for determining tax residency is the number of days of actual stay on the territory of Belarus (more than 183 days) in a calendar year (Article 17 of the Tax Code of Belarus).

In Germany, for personal income tax purposes, preference is given to permanent or habitual residence in Germany (§ 1 German Income Tax Act (Einkommensteuergesetz, EStG).

Permanent residence means that an individual has an apartment (housing) in Germany, which he will maintain and use for living (§ 8 of the German Tax Code (Abgabenordnung, AO).

Habitual residence means that an individual is present in Germany under circumstances that make it clear that he is not only temporarily in that place or territory. A permanent stay should be considered as such if it lasts more than six months. Short-term breaks are not taken into account (§ 9Abgabenordnung).

In practice, there may be cases when the marks in the passport of an individual on crossing the borders of the territory of Belarus are poorly printed, so it may be difficult to determine the number of days of actual stay on the territory of Belarus. Consequently, the determination of the tax residence status of an individual will be determined based on the provisions of the Double Taxation Agreement concluded between Belarus and Germany.

Determination order:

1. Availability of permanent housing, which generally refers to affordable permanent housing that an individual arranges and maintains for permanent use.

That means that this housing is available to an individual at any time continuously (for example, an apartment, house, room on the right of private ownership; rental residential premises). The use of such property should not be short-term (for example, for the purpose of a business trip, travel, etc.) and it should not be subleased.

2. If there is permanent housing in two states, residence is determined on the basis of the second important criterion - the center of life interests.

The criterion for the center of life interests can be divided into two components:

  • a close personal connection with the state, which can be confirmed, for example, by having a family in the state (permanently residing), visiting children in kindergarten/school, visiting doctors or other specialists, paying for utilities, having relatives, membership in clubs/charitable foundations, visiting health centers, fitness clubs, etc.
  • close economic connection with the state, which can be confirmed, for example, by employment, entrepreneurial activity, etc.

3. If it is impossible to determine the center of life interests or the absence of permanent housing, the individual is recognized as a tax resident of the state in which he usually stays. This criterion may include which state the individual visits most often.

That is, if an individual does not stay in the territory of any state for the number of days required to determine tax residence and it is impossible to apply the above paragraphs 1 and 2, then a criterion is applied that takes into account where the individual stays more often.

4. If it is not possible to determine where an individual usually resides, then tax residence is determined based on the individual's citizenship.

Thus, in order to avoid difficult situations with determining tax residence, including center of life interests, we recommend that you consult with a specialist, and also keep marks in your passport about crossing the border and documents confirming your presence on the territory of the state, for example, a bank statement about payment by card in stores, receipts for payment of utilities, contracts for the provision of medical services and etc.

If you have any questions about confirming tax residency, you can ask for help from the head of the Private Clients REVERA law group - Yaroslavna Zadesenskaya (y.zadesenskaya@revera.legal).