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How do they verify tax residency?
- Thread starter niggashit
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- tax tax advise
They can't I believe so they ask you for certificate of tax residency if needed. Otherwise if case is serious tax case they just do a DTA (Double Taxation Request) to other country or cooperate via the numerous bodies to exchange information.
It works the other way around. They ask you to declare and pay taxes, and then you have to demonstrate evidence that you were not a resident for the disputed tax year.
In most cases it's ok if you show soft indicators such as rental contracts in other countries, your flight tickets, or your bank statements that show expenses made in other countries. In most severe cases, you're not let go before showing residency certificate, social security certificate or tax report from another country. Also note that it's your obligation to inform your home country in case of departure by registering as non-resident. New trend since 2014 is that countries are putting in place hefty fees or even exit taxes (% of your net worth as in case of Poland) for anyone registering as non-resident. And another trend is putting in place high penalties , or even declaring it a criminal offense if you do not properly register as non-resident when you leave the country (Romania).
In most cases it's ok if you show soft indicators such as rental contracts in other countries, your flight tickets, or your bank statements that show expenses made in other countries. In most severe cases, you're not let go before showing residency certificate, social security certificate or tax report from another country. Also note that it's your obligation to inform your home country in case of departure by registering as non-resident. New trend since 2014 is that countries are putting in place hefty fees or even exit taxes (% of your net worth as in case of Poland) for anyone registering as non-resident. And another trend is putting in place high penalties , or even declaring it a criminal offense if you do not properly register as non-resident when you leave the country (Romania).
This is very different from country to country. Usually this will be rental contracts, utility bills, grocery bills, flight tickets, tax certificate / id, residency permit to proof the 183+ days or whatever your countries rules are (both sides your dom country and your non-dom country). Non-dom countries are usually a lot less strict since they are at the receiving end of the tax so they dont necessarily give a f**k unless you profit from a very generous non-dom system where they want to make sure you spend some time in the county so that you actually spend some of your money there (especially remittance based countries).
Most developed countries go much further with other checks like do you have free access / keys / similar to a residence in your country of origin, what are your ties to that country? Married? Holding shares in a company? Moving from Germany to Switzerland? How regularly / how often / how repetitive are your visits to your county of origin / what is the nature of those visits (family, health etc usually is not counted), Are you still having contracts in your country of origin, are you still going to the same doctor over and over again, same whatever.
It is called point of interest in life or something like that.
Most developed countries go much further with other checks like do you have free access / keys / similar to a residence in your country of origin, what are your ties to that country? Married? Holding shares in a company? Moving from Germany to Switzerland? How regularly / how often / how repetitive are your visits to your county of origin / what is the nature of those visits (family, health etc usually is not counted), Are you still having contracts in your country of origin, are you still going to the same doctor over and over again, same whatever.
It is called point of interest in life or something like that.
Its called center of your life
. Days in and out of the country means nothing to taxman in reality. Obtaining a tax certificate for another country is meaningless including staying out of the country. You have to prove you have severed all ties with your prior country. For example if you left UK but have owned property in the UK for more than 90 days and spend more than 30 days in a year in that property in the UK then you are automatically UK tax resident 
. This is just the tip of the iceberg. Big subject.Bottom line when you leave a country do not look back ever. The taxman and tax code is waiting right there to trip you up.
Some countries care about this a lot, some less. in general the more powerful the country is (imagine Russia), the more they will care about when exactly you left and entered. Some countries won't allow you to return home without an entry stamp into your passport.
I'm watching the situation in Poland, it's absolutely crazy, I'd consider it maybe even unconstitutional
Yes, it's called center of vital interests and every double taxation treaty defines what exactly is that (usually just a copy&paste from the default template).
Many expats (from Russia, China, middle east) buy properties in UK and then spend a month or two per year in the UK.You have to prove you have severed all ties with your prior country. For example if you left UK but have owned property in the UK for more than 90 days and spend more than 30 days in a year in that property in the UK then you are automatically UK tax resident
Does that apply to them as well? Or does it apply only to UK citizens?
This seems very strict, I checked the laws of some other countries and they seem to be much more benevolent than UK.
Thats a good question and I don't have answer of expats. However they will have to be caught first in any case. HMRC will have a hard job proving you stayed in your own home while in UK unless they are watching you or monitoring your cellphone signal for example.
In worse case you would claim to be a resident non-domicile as an expat and non-UK citizen. The tax would be zero for income in UK.
Its called center of your life
Bottom line when you leave a country do not look back ever. The taxman and tax code is waiting right there to trip you up.
How do they even know that i spend 90 days in UK
they can't know that unless they will ask for payment slips, receipts from hotels, Gas stations, super market's etc.
They dont need to know / proof s**t. They will simply send you the tax bill with a 14 days payment notice, estimate or right away charge you with tax fraud. YOU have to proof it and they are the ones deciding if your proof is plausible enough. Usually that will also mean you have to pay first before that all goes to court.
Tax law is guilty until proven innocent not the other way round.
And no tax law and double tax agreements in most countries do not specifically declare what "center of life" is. This is pretty much at the mercy of the financial court judge / your home countries tax agency and you can only use previous rulings as a guideline.
In general as long as you have severed ties, are out of the country 183+days, no car registration, no real estate, no company shares, no marriage, no apartment, majority of your funds outside of your old country, etc pp and got proper residency + tax residency permits + certificates in our new country, stay there LONGER than you stay in your home country (e.g. 120 days in germany and only 60 days in cyprus, rest scattered around the world is not going to cut it even if fine with the basic law) and can show flights + bills etc you will usually be fine. In some cases however they go much further with things like how is your social life in the new country, doctors, hair dresser, etc pp.
Tax law is guilty until proven innocent not the other way round.
And no tax law and double tax agreements in most countries do not specifically declare what "center of life" is. This is pretty much at the mercy of the financial court judge / your home countries tax agency and you can only use previous rulings as a guideline.
In general as long as you have severed ties, are out of the country 183+days, no car registration, no real estate, no company shares, no marriage, no apartment, majority of your funds outside of your old country, etc pp and got proper residency + tax residency permits + certificates in our new country, stay there LONGER than you stay in your home country (e.g. 120 days in germany and only 60 days in cyprus, rest scattered around the world is not going to cut it even if fine with the basic law) and can show flights + bills etc you will usually be fine. In some cases however they go much further with things like how is your social life in the new country, doctors, hair dresser, etc pp.
This sounds EXTREMELY strict, what country are you referring to, what country enforces this?
How can a country demand you not to own real estate in the country? Owning real estate does not mean you are a resident - you may be renting it to someone else.
It sounds even more absurd with company shares - I'm born in country A and I buy shares in company X based in country A. How would that make me resident?
I probably wouldn't be able to prove my "social life" in my home country, let alone in a new country where I got my residency.
Hair dresser - I go to a hair dresser once per month, I pay in cash and get no receipt, what is that supposed to mean in relation to my residency?
I totally understand it doesn't seem plausible for you to claim to be a non-resident when you have a wife and kids in that country - that definitely is the center of your vital interests.
However, all the other points you mentioned sound like overkill.
Who is going to prove to me that I stayed 120 days in Germany?
As for real estate: of course you can own it but there are very strict rules as to what you can do with it. It needs to be rented out full time etc pp. It is not to be used at your leisure. You are under no circumstances allowed to live in it, regularly use it whatsoever. Also they will tax you for its income.
Same goes for rental apartments or the apartment your mother rents for you and you have the key. Famous examples would be that most famour German tennis player, supermodel, several pilot court rulings that even just shared one apartment between multiple pilots at their home base airport etc.
Shares in a company: Income Tax residency has multiple levels. You can be 100% of the income tax hook, you can be off it after some time, you can be off it for a certain percentage. Depending on where you move that partial taxation goes to extreme levels and is tied to timeframes - most notorious example would be "Ueberdachende Besteuerung" if you move to Switzerland from Germany. Special clauses just for that country. Owning shares in a registered company puts you in that "partial taxation - dont know english wording for this" tax code which will put you in a lot more stricter situation in general, adds another "indicator" and in general puts you back into the income tax system which creates new problems.
As for hair dresser etc, just the hair dresser is not going to trigger tax residency, visiting the same doctor over and over again can (court ruling). Again indicators.
You can have kids just not a wife. Kids need to be registered with the mother and you must not be married or have an equivalent relationship.
Nobody needs to proof your 120 days. You will get a letter from the Finanzamt and will need to proof that you stayed in another / your tax residency country longer than you did in Germany.
All of the above points are flexible (except access to apartment / real estate, married etc) and yes this is very basic and more complicated in general. A knowledgeable tax attorney can explain you in detail. Make sure to ask one that actually deals with this on a daily basis. Regular local tax attorneys usually dont know s**t and will only cite the basic 183+, center of life blah rules without those specific examples, court rulings.
What they do is use them as "indicators". If you have fulfilled multiple indicators or just one hard fact you will be treated as income tax resident, having commited tax fraud etc. It will be up to you to proof otherwise not them. It will be up to the judge to interpret the pretty much non existent concrete wording for all of this and accept prior rulings or not.
This is all Germany but very similar in most developed EU countries. This is not "overakill points" but from court rulings or plain tax law.
Same goes for rental apartments or the apartment your mother rents for you and you have the key. Famous examples would be that most famour German tennis player, supermodel, several pilot court rulings that even just shared one apartment between multiple pilots at their home base airport etc.
Shares in a company: Income Tax residency has multiple levels. You can be 100% of the income tax hook, you can be off it after some time, you can be off it for a certain percentage. Depending on where you move that partial taxation goes to extreme levels and is tied to timeframes - most notorious example would be "Ueberdachende Besteuerung" if you move to Switzerland from Germany. Special clauses just for that country. Owning shares in a registered company puts you in that "partial taxation - dont know english wording for this" tax code which will put you in a lot more stricter situation in general, adds another "indicator" and in general puts you back into the income tax system which creates new problems.
As for hair dresser etc, just the hair dresser is not going to trigger tax residency, visiting the same doctor over and over again can (court ruling). Again indicators.
You can have kids just not a wife. Kids need to be registered with the mother and you must not be married or have an equivalent relationship.
Nobody needs to proof your 120 days. You will get a letter from the Finanzamt and will need to proof that you stayed in another / your tax residency country longer than you did in Germany.
All of the above points are flexible (except access to apartment / real estate, married etc) and yes this is very basic and more complicated in general. A knowledgeable tax attorney can explain you in detail. Make sure to ask one that actually deals with this on a daily basis. Regular local tax attorneys usually dont know s**t and will only cite the basic 183+, center of life blah rules without those specific examples, court rulings.
What they do is use them as "indicators". If you have fulfilled multiple indicators or just one hard fact you will be treated as income tax resident, having commited tax fraud etc. It will be up to you to proof otherwise not them. It will be up to the judge to interpret the pretty much non existent concrete wording for all of this and accept prior rulings or not.
This is all Germany but very similar in most developed EU countries. This is not "overakill points" but from court rulings or plain tax law.
PS: As for apartments etc even just staying in the same hotel / hotelroom over and over again has been used to declare people tax resident. Again also problem here being that this declares you as not having payed / evaded taxes for the time in question.
Even a fuckin closet in an apartment that is just for your stuff has been used. Having a key to an apartment (usually the wording is having access to an apartment, room or something similar at YOUR OWN discretion at any time) is hard game over fact. The explanation used here usually is if you can just fly to Germany and get into an apartment without asking someone at your own will and with that return to Germany you are still considered (tax) resident. Your are supposed to leave and have no immediate plans and capabilities to just come back tomorrow or next year.
It is of course total bollocks since you can just get a hotel room, rent an apartment instantly etc but that doesnt matter. That's the tax law / ruling. Its all about not letting you off the hook not about being logical.
Even a fuckin closet in an apartment that is just for your stuff has been used. Having a key to an apartment (usually the wording is having access to an apartment, room or something similar at YOUR OWN discretion at any time) is hard game over fact. The explanation used here usually is if you can just fly to Germany and get into an apartment without asking someone at your own will and with that return to Germany you are still considered (tax) resident. Your are supposed to leave and have no immediate plans and capabilities to just come back tomorrow or next year.
It is of course total bollocks since you can just get a hotel room, rent an apartment instantly etc but that doesnt matter. That's the tax law / ruling. Its all about not letting you off the hook not about being logical.
They can check when you entered and left the country, cellphone signal, card usage, facial recognition street cameras, atm cameras and online activity to begin with
. I quote:"HMRC may observe, monitor, records and retain internet data which is available to anyone. This is known as 'open source' material and includes news reports, internet sites, Companies House and Land registry records,, blogs and social networking sites where no privacy settings have been applied"
However they will have no reason to check this unless they get a tip off or your under investigation. However as Jackfrost said they don't question you. They send you an estimate of tax due or at least a fine for failing to file a tax return and you have to pay. The clock then starts ticking and unpaid interest starts to build each day. You MUST pay now and dispute later and get your refund as that is normal process....lol. Most people end up settling the bill as the interest builds.
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