Tax Residency: Paying tax in more than one country
As a frequent business traveler you may be at risk of tax obligations if you spend significant time in any other country or state.
Tax residency and its definitions vary from one country to another. For individuals, physical presence in a jurisdiction is the main factor. Some jurisdictions also determine residency of an individual by reference to a variety of other factors, such as the ownership of a home or availability of accommodation, family, and financial interests.
In the UK, an individual who spends 183 days in the UK in any tax year is a UK resident. Apart from that there are no statutory guidelines. In Germany individuals are deemed to be tax resident if they are physically present in Germany for more than six months in any one calendar year or for a consecutive period of six months over a calendar year-end. However, an individual can also be deemed tax resident if they acquire an abode in Germany. This can include renting, as opposed to purchasing, a property but only if the duration of the lease is deemed to be more than temporary. For this reason, to avoid German tax residency, short-term (such as three months) should be taken out wherever possible.
In the U.S. the laws are more complicated and an individual is considered a tax resident in the U.S. if he has spent more than 31 days in the current year and total of 183 days in the last three years by adding up the numbers from the formula below
Current year days, times 1 = x days
Previous year days, times 1/3 = y days
Second previous year days, times 1/6 = z days
Total = x + y + z (If total > 183, then the individual is a U.S. tax resident)
Added to the above, the U.S. has different tax rates in different states, and if spending a large amount of time in the U.S. you must be cognizant of that fact as well.
For frequent business travelers it can become cumbersome to keep track of the tax laws in each country and/or state. However, this information is important when filing taxes at the end of the financial year. For employers, when planning travel for staff, you must be careful to understand if a traveler can visit the intended country without having tax implications.
Get TrackBasic to help manage your potential tax liabilities. TrackBasic helps you monitor the number of days spent in each country and/or state and notifies you when you are approach liability thresholds. You can set your own thresholds, which will also be monitored by the system. All of the data and reports collected can be accessed and printed for official or internal consumption. This life saving (and possibly tax saving) tool can be up and running in just a few clicks.