The Do’s and Don’ts of Fiscal Residency

Buckle your seatbelt, it’s time to move abroad. Get ready for a new way of life and an entirely new culture to become familiar with. One tricky classification, however, is how your new country’s views your tax status. Each country is different when making classifications about tax status. The same situation could have different tax statuses depending on which country you are in. This article goes into the Do’s and Don’ts of finding out your tax status in a new country.

Do Learn the 183 Day Rule

The 183 day rule is a great place to start when determining residency. It is used around the world to determine fiscal residency in a variety of countries. One thing to note, however is the terms of the 183 day rule vary from country to country. Countries look for “183 days” when making a decision on fiscal residency. “Days” is in quotations, however, because countries each have their own view of what constitutes a “day”.

Don’t Take the 183 Day Rule at its Face

Let’s use the US’s version of the “183 day rule” as an example. If an expat is in the US for 31 days in the current year and 183 days during a 3 year period of the current year and 2 years prior, they are considered a resident. It gets tricker. A “day” is constituted as any day in the present, 3 days in the past year, and 6 days from 2 years before. The US’s 183 day rule is an example of how determining fiscal residency can be not-so-straightforward. The questions to ask in this situation is “what constitutes a day?” and “what counts as continuous residency?”. There are many more questions to ask, however, so speak with your financial advisor about your country’s tax rules.

Read here about the tax conventions and the 183 Day rule in the Netherlands, according the Belastingdienst, the Dutch tax authorities.

Do Understand Tax Treaties

It’s quite possible for an expatriate to have an extended stay in multiple countries. And they may even own property in those countries. A big issue among expatriates is getting taxed by both countries. This is double taxation and it has a huge effect on your bottom line. Double Taxation Avoidance Agreements (DTAAs) prevent double taxation. DTAAs are very helpful to expatriates to prevent their income from being taxed by their home country and foreign domicile. A lot of countries hold DTAAs but not everyone does so make sure to speak with your financial advisor about how to ensure fair taxation.

More about tax treaties when living in The Netherlands.

Don’t Misunderstand Tax Codes

Tax codes are not the same on a country to country basis. They can be similar, but even a slight change can have a huge effect on your bottom line. Consciously understand your country’s tax code so you can be ahead of the game.

Do Speak with Your Financial Advisor

Fiscal residency is not simple. There are many fine lines and grey zones. Sometimes, residents of a country are not residents for tax purposes and nonresidents are not entirely exempt from paying taxes. Start by getting to know the 183 day rule and get a report on the DTAAs that your country has. Fiscal residency should be a case by case situation. Getting together with your financial advisor and sorting out your tax status’ among countries is a must. Set up an appointment for a free consultation with an independent financial advisor today.

By Beacon Financial Education, Chris Gitre

Beacon Financial Education does not provide financial, tax or legal advice.

None of this information should be considered financial, tax or legal advice.

You should consult your financial, tax or legal advisers for information concerning your own specific tax/legal situation.