Expat Taxation in Europe/Understanding Tax Residency

Understanding Tax Residency Tax residency determines which country has the right to tax your worldwide income. It is distinct from citizenship and from physical presence alone. Most countries use a combination of rules to determine residency, and the interaction between two countries' rules can create dual residency situations - which is why tax treaties exist. The 183-Day Rule The most widely known rule is the 183-day test: if you spend more than 183 days in a country in a calendar year, you are generally considered a tax resident there. Most EU countries use this threshold as a primary test. Examples: Germany: 183 days (§ 9 AO) France: 183 days (Article 4 B, CGI) Spain: 183 days (Article 9, LIRPF) Italy: 183 days (Article 2, TUIR) Sweden: habitual residence test (often interpreted as 183 days) Note that the 183-day rule is a minimum threshold, not the only test. Many countries apply additional criteria. Additional Residency Tests Beyond counting days, countries typically apply one or more of the following tests: Test Description Countries Using It Permanent home You maintain a home available for habitual use France, Germany, Netherlands Center of vital interests Where your family, economic, and social ties are strongest OECD model, most EU states Habitual abode Where you regularly live, regardless of formal domicile UK, Ireland, Belgium Nationality Some countries tax citizens regardless of residence USA, Eritrea Breaking Tax Residency Leaving a country does not automatically end your tax residency there. To formally break residency, you typically need to: Deregister from the municipal or population register Notify the tax authority in writing Demonstrate that you have established a new primary residence abroad Show that your center of vital interests has moved Some countries impose an exit tax on unrealized capital gains when you cease to be a tax resident. Germany, France, and the Netherlands have exit tax regimes that can trigger a tax charge on appreciated assets at the moment of departure. Dual Residency and Tax Treaties If two countries both claim you as a tax resident, a Double Tax Treaty (DTT) between those countries will contain a "tie-breaker" clause. The OECD Model Tax Convention (Article 4) sets out the standard tie-breaker sequence: Permanent home available to you Center of vital interests (closer personal and economic relations) Habitual abode (where you regularly stay) Nationality Mutual agreement between the two tax authorities The country that wins under the tie-breaker has primary taxing rights. The other country must either exempt the income or give a credit for taxes paid. A full list of active EU tax treaties is maintained by the EU Commission. Special Short-Stay Residency Rules Some countries have introduced rules that allow tax residency with fewer than 183 days. These are designed to attract specific types of migrants: Cyprus 60-Day Rule: Residency with just 60 days of presence, provided no other country claims you as a resident and you meet certain conditions. See Chapter 4 for details. Full guidance at Cyprus Tax Life: 60-Day Rule. Portugal NHR (ended for new applicants from 2024): 10 years of preferential rates on foreign-source income. Greece Non-Dom: Flat tax of €100,000 on all foreign income per year. Tax Residency Certificates Once you are a tax resident of a new country, you can request a Tax Residency Certificate (TRC) from the local tax authority. This document proves your residency status to foreign tax authorities and financial institutions. In Cyprus, TRCs are issued by the Cyprus Tax Department.