Tax residence can be a difficult concept, in particular if one has many residences.
Johnny Hallyday is a French rock star, who died at the end of last year. In fact, he was Belgian but became the French rocker of all rockers, made millions and moved to Switzerland for tax reasons. In 2013, he took up residence in Santa Monica, California. When he died, it came to light that he had opted for the law of California in his will. By doing so, he could give his entire estate to his wife and disinherit his children but that is another story.
During his lifetime, questions were asked about where he had his real tax residence. He moved between his properties in Gstaad (in the Swiss Alps), Saint-Barthélemy in the Antilles, Marnes-la-Coquette (to the east of Paris) and Santa Monica. He said he was a US tax resident because he lived there for more than 183 days a year … And when he died in France, his wife returned to Santa Monica to make sure she was there more than 183 days a year.
It is a common misunderstanding that you are a tax resident in a country because you live there for at least 183 days. It is not because you live 183 days or more in one country that you have your tax residence there. And it is not because you live more than 183 days outside Belgium that you do not have your tax residence in Belgium.
There simply is no 183 days’ rule to determine tax residence
It is true that some countries take the position that you are resident for tax purposes if you live there for more than 183 days per year. That is a residence test to catch out taxpayers who say they are not resident. And some countries even go further. E.g. in the UK, the 183 days spent in the country are just the first automatic residence test. Even if you spend 91 days in the UK, you can be deemed to be a UK resident.
Nevertheless, it is not because you pass the residence test that you stop being a resident in the country you are leaving. It is not because the UK considers that you are a tax resident that you stop being a tax resident in Belgium.
Belgium does not have a 183 days’ residence test.
Your residence is where you have your principal place of residence or the centre of your social and/or economic interests. Your principal residence is your home, it’s where you come home to. In the old days, we used to say “it’s where you have your dog, your slippers and where you get your newspaper”. It’s the centre of your interests in life (as opposed to your economic interests) and the seat of your fortune.
The Belgian tax authorities can assume that you are resident in Belgium if you are registered with the commune and have an identity card. This is only a first indication of your residence. You can still prove that you do not have your residence in Belgium.
For married people things are a bit more complicated. The law clearly says that they are living with their family. And there is nothing you can do to contradict that. However long a spouse may be living abroad, if his family stays behind, he remains a Belgian resident.
What this means is that you may try to live somewhere for 183 days or more per year, but that you still have your tax residence in Belgium. And that can be a recipe for disaster; if you have two tax residences, you have to declare your worldwide income in both countries.
Double tax treaties
Fortunately, there are double tax treaties that determine where a person is resident if they are deemed to be resident in two countries.
There are a number of criteria to determine that and 183 days is never one of them.
E.g. in the double tax treaty between Belgium and the United Kingdom, article 4 deals with residence:
ARTICLE 4 Residence
(1) For the purposes of this Convention, the term “resident of a Contracting State” means any person who, under the laws of that State, is liable to tax therein by reason of his domicile, residence, place of management or any other criterion of a similar nature; it also means, in the case of Belgium, companies (other than companies with share capital) which have elected to have their profits subjected to individual income tax. However, this term does not include any person who is liable to tax in a Contracting State in respect only of income from sources in that State.
(2) Where by reason of the provision of paragraph (1) of this Article an individual is a resident of both Contracting States, then his status shall be determined as follows:
(a) he shall be deemed to be a resident of the State in which he has a permanent home available to him; if he has a permanent home available to him in both States, he shall be deemed to be a resident of the State with which his personal and economic relations are closer (centre of vital interests)
(b) if the State in which he has his centre of vital interests cannot be determined, or if he has not a permanent home available to him in either State, he shall be deemed to be a resident of the State in which he has an habitual abode;
(c) if he has an habitual abode in both States or in neither of them, he shall be deemed to be a resident of the State of which he is a national;
(d) if he is a national of both States or of neither of them, the competent authorities of the Contracting States shall settle the question by mutual agreement.
The criteria are – in order of importance – :
- a permanent home in one state;
- a centre of vital interests (i.e. closer personal and economic relations with one state);
- a habitual abode in one state;
- the nationality of one state;
- if all else fails, the tax authorities have to come to an agreement.
Why are people convinced that there is a 183 days’ rule?
In part that is because other countries have a 183 days’ residence test. It is also because there is a 183 days’ rule somewhere else in the double tax treaty. That is the provision that determines where you pay income tax on your remuneration if you live in one country and work in another.
In principle, you pay tax in your country of residence, not in the country where you work, except:
- if you worked there 183 days or more in a year, or
- if you were paid by a local company, or
- if you were paid by the local branch of a company.
It is only if you meet one of these conditions that you pay tax in the country where you work, and then only for the days you work in that country. If you live in Belgium and work in France for a French company, you pay tax in France but only for the days you work in France. If you work at home on Fridays, or if you have to take a business trip to the UK, your income for those days is not taxable in France but in Belgium.
Author: Marc Quaghebeur
Marc Quaghebeur is a Belgian tax lawyer specialising in international tax issues and cross border estate planning. He is a member of the Brussels Bar and the Society of Trust and Estate Practitioners.