Tax residence

In a globalized world, many individuals may find themselves working in another country for a period of time. This can involve maintaining a residence in Denmark while working in another country. It can also mean relocating to another country while still maintaining their previous home in Denmark with the intention of returning. Lastly, it can be that one has obtained a job abroad but cannot meet the requirements for either permanent relocation or secondment. There can be numerous examples.

Tax residency is something determined for individuals who are fully taxable in two countries, a situation known as “dual domicile.”

If an individual is fully liable to pay taxes in two states, it is important to clarify which of the two countries has the right to tax global income. The country determined as the main tax domicile has the right to tax all income the individual has worldwide. The country that is not considered main domicile on the other hand, can only tax income derived from within that country.

An example could be a person who lives with their family in Denmark but gets a job in the Netherlands and resides there on weekdays. This person will become fully liable to pay taxes in the Netherlands, as they work and have accommodation available there. However, they will also retain their full tax liability to Denmark, as they do not meet the conditions for formal emigration.

In that situation, it would need to be clarified which state can tax the global income – including whether Denmark can tax the income in the Netherlands.

The tax residency will then need to be determined based on the criterion of the center of vital interests, which is a concept in international tax law. Secondly, the number of days of presence is considered, and thirdly, citizenship is examined.

It is often margins that determine tax residency in cases of dual domicile. However, the tax consequences can be significant.

Considerations regarding tax residency should be compared with considerations regarding relocation and/or secondment as possible alternatives. It can be straightforward for some, while for others, it can involve highly complex deliberations concerning stays, the retention of housing, or the exit taxation of assets.

Please do not hesitate to contact us for guidance regarding – ax residency – and whether there are other options.