Moving abroad is an exciting time. You have new cultures to become accustomed to and a new way of life to prepare for. One tricky classification, however, is your tax status. Each country has its own individual way to classify residency for tax purposes. A stay abroad could have a different tax status in one country versus another. Keep reading to find out the fine details on whether you are classified as a fiscal resident in your country.
START WITH THE 183 DAY RULE
A good rule to understand for residency purposes is the 183 day rule. This rule is used by many countries when determining tax residency so it’s good to understand the ins and outs as it relates to your country. A key point to the 183 day rule is that it can be different from country to country. Essentially, countries will count you as a fiscal resident if you’ve spent 183 consecutive days or more in that country.
However, discrepancies arise on a country to country basis in defining key terms of the regulation. Let’s take the US version of the 183 day rule as an example. The US classifies residents as fiscal residents if they are in the US for 31 days during the current year and 183 days during a 3-year period including the current year and the 2 years before. Sound straightforward? Not so fast. “183 days” is actually all of the days present in the current year, ⅓ of the days present in the year before, and 1/6th of the days present in the second year before. The US is just an example of how complicated the 183 day rule can be. In most cases, you’ll ask, “What constitutes a day?” and “What counts as continuous occupancy?”. These are a few of the many questions that relate to fiscal residency qualifications. Speak with your financial advisor about your specific tax qualifications to find out your status.
TAX TREATIES CAN SAVE YOU A LOT OF MONEY
In many instances, expatriates may spend an extended stay in a few countries. Furthermore, they may have domiciles or own properties in both of those countries. A major revenue killer is double taxation on In many instances, expatriates may spend an extended stay in a few countries. Furthermore, they may have domiciles or own properties
in both of those countries. A major revenue killer is double taxation on income from both countries. This is where Double Taxation Avoidance Agreements (or DTAAs) come in. DTAAs prevent expatriates’ income from getting double taxed. While there are many countries which have double taxation avoidance agreements, not every country as an agreement with another so speak with your financial advisor about your country’s DTAAs.
One thing to understand about fiscal residency is that it is not simple. Residency in a country does not mean fiscal residency and at the same time, being a nonresident does not exempt you from fiscal residency. This article is a good place to start; understand your country’s respective 183 day rule (if it has one) and keep an eye out for money saving DTAAs. However, each country has unique tax codes which classify fiscal residency designations. So in this case, you’ll need to take fiscal residency on a case-by-case basis. Set up some time with your financial advisor to verify your fiscal residency so your trip abroad will be smooth sailing.