Tax residence certificate for corporate and for individuals - What does it implies?

[diginomad]

I need to register and offshore and I so far I explored the rules of a some jurisdictions like HK, Singapore, Dubai, etc.

Some of them always mention the concept of "Tax residence certificate", but I don't understand how this actually applies and why not all the jurisdiction can provide it. Here is what they say:

HK agent 1 => In HK for offshore we can't provide a "Tax residence certificate", so be careful cause your country might double tax your income.

HK agent 2 => If you decided to pa HK corporate tax (without claiming the offshore status) your company will automatically get the TRC for the only fact it paid taxes in HK

DUBAI agent 1 => Don't register your company in HK. Do it in UAE instead (free zone). If you register a UAE free-zone company you will automatically get the TRC


I'm not sure how this concept of TRC will apply internationally. Also I assume there is a distinction from "Individual" TRC and "Corporate" TRC ?

Notes:
- I reside in Thailand (foreigner resident) and as far as I know Thailand does not tax offshore companies just because they are owned by foreigners. They will eventually tax just the "income" derived from that offshore but only if you actually remit those earning into Thailand. So I'm not sure why should I need a "Corporate" TRC (that is only offered by UAE). I'm not sure what that TRC would be useful for.

Is there any other country (where you reside) that needs a proof of "Corporate" TRC, in order to avoid a double "Corporate" taxation?
I'm not sure why HK agent 1 has warned me about this... => "be careful because we will not issue any TRC... you can risk a double taxation form your residing country".

 

[Martin Everson]

TRC is only required if taxman asks for it. However a TRC is not respected by taxman. Taxman goes with the reality of your status according to their tax laws and not what a TRC says on it.

 

[JustAnotherNomad]

A corporate tax residency certificate is a written confirmation that the company is ordinarily registered in that country and pays its taxes there, according to the local laws for corporate taxation.
It can be challenged: For example, let's say that you live in Portugal as a non-habitual resident (no tax on foreign dividend income) and you register a company in Malta (5% corporate tax rate).
Malta will confirm "Yes, this company is registered in Malta and pays its taxes here" (corporate tax residency certificate) - but the Portuguese tax authorities could say: "We don't care, he's doing everything in Portugal, for us this is a Portuguese company and it has to pay the reguar Portuguese taxes, this is not foreign income."
So it will not magically save you any taxes, if you fall under their local tax laws.
It would be a different situation if you were the owner (passive investor) of a restaurant in Malta, where everything is done by a local director and you are not involved in the business at all. In that case, it would be clear that dividends received from the Maltese business would be foreign dividend income that wouldn't be taxed under Portugal's NHR regime.

But let's take your case with Thailand: If your company is registered as a US SMLLC or a HK offshore company, that does not mean it is taxed in that country. It is only registered there, you only pay tax if you have local income (permanent establishment, called "ECI" in the case of the US).
So by default, if you don't "do business locally" in either jurisdiction, your company will not pay tax where it is registered. If you don't have permanent establishment anywhere else, your company wouldn't get a tax residency certificate from any other country either.
Consequently, you won't be able to get a corporate tax residency certificate because the tax authorities in the US/HK will say: "Yes, this company is registered here, but it doesn't pay taxes here since there is no local business. We don't know where this company pays its taxes and we don't care, it's just a pass-through entity, the owner should pay the tax as a person, the company is just registered here."

So the question is: Will the Thai tax authorities accept income from such a company as foreign income, even if the company that does not "have a tax home"?
In theory, they could simply not care and say: "Well, whatever, it's not registered in Thailand, so it's foreign income." - but then that company would not be taxed anywhere.
So there might be a higher risk that the Thai authorities could say: "Well, if the company doesn't pay taxes anywhere, it's just a pass-through entity, and the guy who's behind the company lives in Thailand... Then this should be considered a Thai company under Thai tax law." - and then it would no longer be considered foreign income, just as the Portuguese case above.
In fact, if you pay out "dividends" from that company (if that is even possible with a pass-through entity) and Thailand accepts that as foreign dividend income, then that would be a so-called "hybrid mismatch": The US/HK would treat the company as a pass-through entity (the owner should pay the tax), but Thailand would consider it as a foreign corporation (that has already paid its corporate taxes, not a pass-through entity).
There would be no taxes in either country. Fighting hybrid mismatches is a stated goal of the OECD.

Now if your company was regularly registered in the UAE for example (not as an "offshore" passthrough entity, but officially paying 0% corporate income tax), the UAE would confirm: "Yes, this company is registered here and has paid all its corporate taxes." (corporate tax residency certificate)
That would probably make it easier to explain that you have indeed dividend income from that company, and that the income is indeed "foreign-sourced", since the company paid its taxes in another country.
But even then, there is a theoretical risk that the Thai authorities could claim that the company should be taxed in Thailand since you are managing it from Thailand, as I explained above for the Portugal/Malta case.

Only a Thai accountant or tax lawyer can tell you how this is handled in practice in Thailand.
Considering that Thailand seems to be very lax in enforcing tax laws when foreigners are involved, you may even be fine with a "hybrid mismatch" scenario. But it could be wise to check this, at least if you make a decent amount of money.
I wouldn't be surprised if the Thai authorities don't want to see any documents at all and simply seeing a US/HK company address will be enough for them, so that they would never even know the company's tax status in the other country.

Also one general risk with pass-through entities with limited liability (such as a US SMLLC) is that, if local authorities want to tax it as a local entity, they will usually try to find the "corresponding" entity type.
But not many countries have a local equivalent. Companies with limited liability are typically taxed as corporations, while pass-through entities (partnerships) usually don't have limited liability.
So if you live in Austria as the owner of a US SMLLC, the Austrian authorities could decide that the equivalent is an Austrian LLC (GMBH), simply due to the fact that it has limited liability. Then they will say that the company should pay the local Austrian corporate income tax. Even if the country where the entity is registered (USA) explicitly says that it is NOT taxed as a corporation.
But as you're trying to avoid taxation in Thailand anyway, that shouldn't be relevant for your case. I'm just mentioning it.

The same goes for personal tax residency certificates: It is a confirmation that you are living in a country and paying your taxes there as a person.
Once again, this does not magically protect you against some other country saying you should pay taxes there, too.
But it's the bare minimum and some countries may request it. For example, some countries say that to prove that you have actually moved to another country, you must provide a personal tax residency certificate from your new home country, and only then will they confirm that you no longer have to pay taxes in the old country.
It all comes down to the local laws of the countries you're involved with.

 

[diginomad]

@JustAnotherNomad Such a great answer!!! I'm really appreciative
I'll definitely book an appointment with a local tax expert, but I agree with you that Thailand is pretty flexible with "foreign source" income.
There is even a nice rule regarding this type of income:

"The general rule is that a person who is either a resident or non-resident of Thailand is assessable on income derived from sources in Thailand. A resident is also subject to Thai tax on foreign-sourced income, but only if that income is remitted to Thailand in the same year it is received. Extended business travelers are considered non-residents of Thailand for tax purposes unless they are present in Thailand for more than 180 days in the tax year."

Source 1 => Thailand
Source 2 => Personal Income Tax on Thai Vs Foreign Income | Acclime Thailand

I think if I wait the end of the calendar year, I can even remit the money to Thailand without paying taxes on it.

Thanks again!!!

 

[JustAnotherNomad]

You're welcome.
Yes, the rules for foreign income are very clear in Thailand. What isn't as clear is if the income is in fact "foreign-sourced" if you manage the company from Thailand, especially if the company is a pass-through entity.
As I explained above, Portugal doesn't tax (passive) "foreign income" either under its NHR scheme, but if the company is managed from Portugal, it would no longer be considered foreign-sourced.
Thailand probably has much less strict rules, but you should check this with a lawyer.