How to Determine Your Tax Residency

How to Determine Your Tax Residency

Understanding the Importance of Tax Residency

Determining your tax residency (also known as fiscal domicile) is a key factor that greatly influences your tax obligations to a country, whether for income tax, capital gains tax, or inheritance and gift taxes.

Each country has its own rules for defining when an individual is considered a tax resident, and this has significant financial consequences.

For instance, a taxpayer who is fiscally domiciled in France is generally subject to taxation on their worldwide income, with some exceptions. Similarly, French inheritance tax applies to the entire estate of someone whose tax domicile was in France at the time of their death.

In contrast, a non-resident is typically taxed only on their French-source income. Furthermore, French inheritance tax generally applies only to French assets when the deceased was domiciled abroad, though there are notable exceptions, such as when the heir is a French tax resident.

Many people now divide their lives between two or more countries, balancing professional opportunities and family responsibilities. This often raises questions about where their tax residency lies.

French Tax Law Rules

The "183-Day Rule"

Many individuals believe that spending more than six months (183 days) in a country determines their tax residency. While this rule is important, it is not the only criterion. Determining tax residency involves considering other factors.

Other Criteria

According to Article 4B of the French General Tax Code, a person is considered a French tax resident if they meet one of the following criteria:

a. They have their main home or primary residence in France;

b. They engage in a professional activity in France, unless this is secondary to activities elsewhere;

c. They have the center of their economic interests in France.

Meeting any one of these criteria is sufficient to establish tax residency in France.

Tax Treaties and Conflict Resolution

It's possible for someone to be considered a tax resident of both France and another country, depending on each country's rules. In cases of dual residency, conflicts are resolved through the application of tax treaties between the countries.

Bilateral tax treaties define which country a person is ultimately considered a resident of, ensuring they are only taxed as a resident in one state.

Secure Your Tax Position by Determining Your Residency

Determining your tax residency is complex and requires a thorough analysis of economic, professional, familial, and social factors, as well as your nationality.

CM-Tax, a law firm specializing in French tax law, with a team of English-speaking tax lawyers based in Lyon, Marseille, and Toulon, advises on all matters related to French tax law, including both tax advisory services and tax disputes. We also assist international clients in the sale and acquisition of French real estate.