Residency vs. Citizenship and Domiciliation

It is important to investigate an issue of a corporate entity or private person’s country of residence, as it is directly related to the jurisdiction to which an entity is fiscally connected, thus being liable to pay taxes. There are particular rules on income tax, corporate tax, capital gains tax, gift tax, withholding tax, custom duties, VAT and other taxes, each jurisdiction is free to adapt.

Even though criteria for a person’s residency vary in every jurisdiction, in general a person is considered to be a resident when he/she spends at least six months and one day in a country within a year’s time. It is a usual practice that a private person is liable to tax duties on world-wide incomes, but there are various exceptions.

For example, an interesting opportunity is offered to UK residents, but not domiciled there. If a person is resident in UK, but is able to prove the domicile abroad, he/she is liable only to taxes generated within the UK. In order to prove the overseas domicile, the following factors should be satisfied:

• An accommodation abroad;
• Foreign grave plot;
• Family connections;
• Education of children;
• Often visits to the native country.

It may not be possible for one or another reason for an individual to easily change a country of his/her residence with the purpose to achieve tax optimization. There is an alternative to incorporate an offshore company for holding personal assets. The company’s residence is determined by the place of its incorporation and management, that can be ensured by locally appointed directors. It is ineffective to keep the company control by the individual from another country, as in such a way a company may lose its residence in a low-tax or zero-tax jurisdiction.