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Dual Tax Residency: Conditions for Obtaining and Consequences

Readers often ask our experts one question: “Can I be a tax resident in two countries?” The answer is yes. Dual tax residency can seem complicated and intimidating at first glance, as nobody wants to pay personal income tax twice. Our guide will allow you to avoid this absolutely legally.

Tax residency of two countries

What should a tax resident of two countries prepare for?

It is possible to have the status of a tax resident in more than one country simultaneously. The term “dual tax residency” is used to describe this situation. If an individual is a resident for fiscal purposes in two different jurisdictions at once, they are theoretically subject to personal income tax in both countries.

To avoid unnecessary expenses and pay exactly what the law requires, you should familiarize yourself with the double taxation treaties between the relevant jurisdictions.

This will allow you to find out exactly where you need to pay taxes. As the name of this document suggests, a double tax treaty is designed to prevent the payment of personal income tax on the same income twice.

For clarity, we will consider an example below.

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How to minimize the amount of income tax payable in practice?

As an example, we will consider the situation of the girl Mary. Mary is Irish. She lived in her homeland with loved ones and worked as a chef. Then the girl leaved Ireland for the UK in search of work. She arrived in a neighboring country on July 1, 2022, and lived with friends.

Mary did not find any work and returned to Ireland for two months on Christmas Eve, taking a part-time job in a Dublin hotel. In February 2023, the girl returned to the UK and started looking for job again.

According to UK fiscal rules, Mary was a UK tax resident at the end of the fiscal year 2022/23, as she spent more than 183 days there. Therefore, the girl is subject to UK income tax on her worldwide income.

Under Irish tax rules, Mary is also a tax resident in this country. This makes her income from her Christmas job potentially taxable in both the UK and Ireland, as she is considered a tax resident in both countries.

To understand how to avoid this double taxation situation, Mary should hire a tax advisor or study the British-Irish double tax treaty on her own.

In situations where living in two countries results in double taxation, most double tax treaties offer a way out. Such documents usually contain several provisions for determining the priority of a particular country of residence. Typically, this status is assigned based on the fulfillment of one of the following conditions (given in order of priority):

  • The presence of housing available for permanent residence (not for rent) in one of the countries.
  • If an individual has livable real estate in both countries, priority is given to jurisdiction where personal/economic ties are more pronounced (this concept is known as a “center of vital interests”).
  • If it is impossible to determine where the center of vital interests is, or if the individual does not have real estate for permanent residence, the country in which the person has a place of usual residence (habitual abode) takes precedence.
  • If it is impossible to determine habitual abode, the country of which the individual is a citizen has priority.
  •  If an individual is a citizen of both countries (or neither), then the respective countries have to resolve the issue by mutual agreement.

Mary’s answer to the first test will be Ireland since that is where her family’s home is. Since the girl passes the first test, there is no need to take a rest. This means that Mary is treated as a fiscal resident, under a double taxation treaty, in Ireland. And accordingly, the girl is not considered a tax resident in the UK.

Sometimes such agreements between the countries may not exist at all. It is often possible in such a situation to set off tax paid in one country against tax due in another.

Experts will help you understand the variety of tax rules

Dual tax residency is by no means a blessing, as it may seem, without understanding the intricacies. From a legal point of view, dual tax residency is an unusual and unpromising situation for both individuals and the countries concerned.

Treaty-prescribed fiscal rules to prevent double taxation are often subject to interpretation, and therefore, their use can lead to lengthy litigation.

There are a considerable number of double tax treaties, as well as jurisdictions where a certain individual can act as a double tax resident. Due to complex domestic tax laws in many countries, the occurrence of dual tax residency requires careful analysis of the relevant treaties as well as domestic legislation itself.

We recommend you seek professional advice if you find yourself a tax resident of two countries simultaneously. Better yet, think ahead. Given the above, it is essential to assess the tax implications of moving to a particular country, starting a business, or buying property abroad before making a decision to relocate or invest funds.

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Our experts will help you understand all the intricacies. We are well aware that each case is individual and deserves special attention. If you are looking for answers to questions on the topic or have doubts about dual tax residency, find out more during a personalized consultation. Applications are accepted through the telephone numbers indicated in the contacts or the completed form.

The information provided above does not, under any circumstances, constitute legal advice but is for informational purposes only. If you need professional immigration and tax planning services, contact our experts and receive a complete list of services.

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