Tax Residency: What It Is and Why It Matters to Every Expatriate

What is tax residency and how does it differ from a residence permit?

Tax residency is a status that determines which country you are a taxpayer in with unlimited tax liability. In simple terms: which country has the right to tax all your income, wherever it is earned. Residence permit and tax residency are different legal categories. A residence permit is issued by a migration authority and grants the right to reside. Tax residency is established by the tax administration according to its own criteria. You can have a Portuguese residence permit and remain a tax resident of Russia - if you spend more than 183 days per year there. You can have no residence permit at all but become a tax resident of a country simply because your family lives there. Residency can be tax residency or corporate residency. Here we are discussing individuals.

The 183-day rule: how presence is counted.

The most common criterion is the number of days spent in the country. If you are present in a country for 183 days or more during a calendar year (or 12-month period), most states automatically recognize you as a tax resident. Days are counted differently. Some countries count the day of entry and day of departure as full days. Others count only full days of stay. Some (for example, the USA) apply a "rolling" method: days of the current year are counted plus a proportion of days from the two previous years. Important point: 183 days is a threshold for recognition as a resident, not a guarantee of its absence. France, Germany, and the United Kingdom have the right to recognize you as a resident even with fewer days - if other criteria are met.

Center of vital interests: when days do not decide everything.

Many countries apply the criterion of center of vital interests (CVI). This is a set of factors: where your family lives, where your business is concentrated, where your main property is located, where you are registered as a doctor or voter. Example: an entrepreneur moved to the UAE, but his wife and children live in Moscow, as does his main business and real estate. Russian tax authorities may recognize him as a resident regardless of actual presence - because his CVI remained in Russia. Germany and France are particularly strict on this issue. They can recognize a person as their tax resident based on CVI even with zero presence in the country in certain years. Therefore, when planning relocation, you need to analyze not only days but the entire set of ties to the country.

Permanent residence as a criterion of residency.

The presence of permanent housing is another independent criterion. In some countries, it is sufficient to own an apartment or house that you have the right to use at any time - regardless of whether you live there or not. Austria, Switzerland, and a number of other European countries apply this approach. If you own property or have a long-term lease in a country - you are a potential tax resident. Common mistake: a person sold an apartment in Russia, bought apartments in Dubai, but left a rented apartment in Moscow "just in case." Russian tax authorities see this as a sign of preserved residency.

When double tax residency arises.

Double tax residency is a situation where two countries simultaneously consider you their tax resident. This is not uncommon when relocating mid-year or with a vague travel schedule. Example: you spent 190 days in Spain and 175 days in Russia in one year. Spain considers you theirs (183+ days), Russia also considers you theirs because in the first half of the year your CVI was in Russia. Both states make claims for worldwide income taxation. Specifically for such cases, tax treaties on avoidance of double taxation (DTAA) exist. They establish "tiebreaker rules": a sequential set of criteria by which your residency status is determined in case of conflict. The order is usually as follows: permanent residence → CVI → habitual place of abode → citizenship → mutual agreement of tax authorities.

Tax Treaties on Avoidance of Double Taxation (DTAA)

A DTAA is an international agreement between two countries that regulates who has the right to collect tax from which income and eliminates double taxation. Russia has concluded DTAAs with approximately 80 countries. After 2022, some agreements were suspended or terminated: Latvia, Estonia, Denmark, and the Netherlands withdrew from agreements with Russia. This means that income flowing between these countries and Russia may be taxed twice without a mechanism to eliminate the double taxation. Even with an active DTAA, protection is not automatic. You must documentally confirm residency, correctly apply the treaty provisions, and in some cases notify the tax authority in advance. Errors in applying DTAAs are one of the most common reasons for tax reassessments during audits.

For Russians: what changes when losing tax residency status in Russia.

A tax resident of Russia pays personal income tax at a rate of 13% (15% on income exceeding 5 million rubles per year) on all income, including foreign. A non-resident of Russia pays 30% - but only on Russian-source income: salary from a Russian employer, dividends from Russian companies, rent from Russian real estate, proceeds from the sale of Russian property. Important nuance: a non-resident loses the right to tax deductions - property, social, investment. The right to tax exemption when selling residential property after 3–5 years of ownership also disappears. Therefore, before "letting go" of Russian tax residency, you need to calculate which assets and income remain in Russia. Sometimes it is more profitable to maintain Russian tax residency - especially if your main asset is an apartment in Moscow that you plan to sell in a year.

How to officially change tax residency.

Changing tax residency is not simply relocating. It is a legal procedure that requires actions in both countries. What you need to do in the new country: - Obtain a tax identification number (TIN, NIE - depending on the country) - File your first tax return as a resident - In some countries - a statement of commencement of residency (Spain, Germany) What you need to do in Russia: - Notify the tax authority of your actual time spent abroad (if requested) - If you have a controlled foreign company (CFC) - notify the FTS of your exit from controlling persons - If you have foreign accounts - file currency control notifications (a separate matter) Actual residency is fixed based on the calendar year. Tax returns are usually filed the following year. Therefore, it is not possible to "become a non-resident of Russia from April 1" - status is determined for the year as a whole.

How tax authorities learn about changes in residency.

Tax authorities in different countries exchange information. Since 2018, most developed countries have joined the automatic exchange system CRS (Common Reporting Standard). Banks are obliged to report on accounts of non-residents to their tax authorities, which transmit the data to the client's country of residence. What this means in practice: if you opened an account in a UAE bank and indicated a Russian address as your residential address - the bank will report to Russian FTS. If you indicated the UAE - FTS will not receive data automatically (the UAE does not exchange data with Russia within the CRS framework for individuals as of 2026). In addition to CRS, bilateral requests between tax authorities operate. Large sums, real estate, corporate structures - all of this leaves traces. An attempt to "live nowhere" without documentary confirmation of new residency is a high-risk strategy.

Common mistakes when changing tax residency.

I regularly see the same mistakes in the practice of clients who relocated but did not properly change their residency. Mistake 1: "I left - so I am a non-resident." No. Status is determined based on the results of the year, on a set of criteria. You need proof: passport stamps, a lease agreement, a registration certificate, a tax residency certificate from the new country. Mistake 2: Ignoring "loose ends" in Russia. Accounts, stakes in LLCs, real estate - all of this creates tax obligations even for non-residents. Mistake 3: Relocating to a tax-free country without closing Russian tax residency. The UAE, Monaco, Qatar have no personal income tax - but Russia continues to consider you its own until it receives proof otherwise. Mistake 4: Opening a foreign account without notifying FTS. For Russian tax residents - it is an obligation. For non-residents - no longer, but the status must be confirmed.

What documents confirm tax residency.

The main document is a certificate of tax residency (Certificate of Tax Residency, Certificado de Residencia Fiscal, etc.). It is issued by the tax authority of the country upon request. As a rule, you need to have resided in the country for some time and filed a tax return. Additional evidence used in practice: - Lease agreement or property documents - Confirmation from the bank of resident status - Registration certificate (registration document, empadronamiento in Spain, Anmeldung in Germany) - Passport stamps, exit-entry system records - Documents on children's school enrollment, employment contract with a local employer Tax authorities and banks in different countries have different document requirements. There is no unified standard - so it is best to have the most complete package possible.

Zero-tax jurisdictions: UAE, Monaco, Qatar.

A popular request: "move to where there are no taxes." The UAE, Monaco, Bahrain, and a number of Caribbean states indeed do not levy personal income tax on individuals. But here it is important to understand two points. First: relocating to a zero-tax jurisdiction does not automatically exempt you from taxes in your country of origin. Russia, Germany, France apply rules under which changing residency to a zero-tax jurisdiction requires special justification and proof of actual severance with your home country. Second: in the UAE, since 2023, a 9% corporate tax has been introduced for companies. For individuals, personal income tax continues to not exist - but tax planning through emirate structures has become more complicated. Zero-tax jurisdictions are a working tool. But it requires actual relocation, severance of ties with the previous country, and proper documentation.

Cost of tax planning for relocation

To be : the cost depends on how complex your situation is. A basic consultation on determining current tax residency and risks costs €200–400 from a professional tax consultant. Complete structuring for relocation (analysis of assets in two countries, jurisdiction selection, documentation preparation, support with your first tax return) costs €1,500–5,000 depending on scope. For comparison: reassessment following a tax audit in Russia over three years for undeclared foreign income means 30% personal income tax on the income amount plus a 20–40% penalty plus interest. For annual income of €100,000, the cost of a mistake easily exceeds €100,000. A consultation is not an expense. It's insurance.

Key points on tax residency

Tax residency is not an abstract legal status. It's a practical tool that determines how much money you pay to which state. Five things you need to know: