Knowing your tax residence is essential for knowing where you have to take care of your work and labor obligations. To determine your tax residence, you must keep in mind various criteria which are detailed below.
- Physical Residence: better known as the 183-day rule. In other words, where you reside for the majority of the year (the days do not have to be consecutive). For example, if you spend more than six months in Spain, your tax residence would be there.
- Economic activities and interests: in the second case, you attend to tax obligations in the country in which you base your economic activities and interests. This can be, for example, where your spouse or underage children are, but also where your economic activities take place.
- Double taxation agreements: it is possible that the country in which you reside has one law and the country in which you work has another, which could lead to conflict. In this case, you should find out if there is a double taxation agreement. These agreements aim to determine criteria for tax residence as well. Some of the most common determinants are the ones mentioned earlier, but nationality or usual residence are also used. If it is still not possible to determine tax residence, the two countries must solve the issue. If a bilateral agreement does not exist, the laws of each country must be observed.
On occasion a complex situation arises in which the proper authorities of each state are faced with establishing tax residence according to one country’s criteria or another, because these criteria are not always complementary. For example, someone could usually reside in one country but have their tax residence in another because that is where their family lives and where their economic activity takes place.