In this write-up, I have made a attempt to summarise the various criteria adopted by key countries to determine the residential status of an individual.
As you would read further, one thing that is common between all these countries and also India is that the criteria of stay of 182/183 days has been adopted across all these geographies. Also, many countries do take into account the ‘intention’ of the tax payer as well.
The information collated in this writeup is based on the official income tax websites of the countries. The key countries covered are:
- United Kingdom
- United States of America
For an individual to be regarded as a tax resident, he has to satisfy at least one of the following tests:
1) Quantitative Test: The individual is: a. Physically present in Singapore for at least 183 days in the calendar year preceding the year of assessment; or b. Exercises an employment in Singapore for at least 183 days in the calendar year preceding the year of assessment (excluding directors of a company)
2) Qualitative Test: The individual must reside in Singapore and that his absence from Singapore must be temporary and reasonable.
Residents are taxed on their Singapore income. Generally, foreign-sourced income received in Singapore is not taxable unless received by a resident individual through a partnership in Singapore. Capital gains are exempt in Singapore.
Individuals are residents of Australia if they reside in Australia, and this includes the following:
- Individuals whose domicile is in Australia, unless they have a permanent place of abode outside Australia.
- Individuals who have actually been in Australia for more than one-half of the income year (i.e. at least 183 days in the income year), unless the individual’s usual place of abode is outside Australia and the individual does not intend to reside in Australia.
- If the individual is an ‘eligible employee’ for the purposes of legislation relating to the superannuation entitlements of Federal public servants.
Persons who take up a contract of employment in Australia may be regarded as residents if they are in the country for more than six months.
To summarise the above, there are four tests to determine the residential status: an individual satisfying any of these tests will be resident in Australia:
|The ‘resides’ test||The domicile test||The 183 days stay||The Commonwealth superannuation fund test|
|Under this test, you are a resident if you reside in Australia according to the ordinary meaning of ‘reside’ – which means ‘to dwell permanently, or for considerable time, to have a settled or usual abode, and to live in a particular place’. Some of the factors that can be used to determine residency status include physical presence, intention and purpose, family and business/ employment ties, maintenance and location of assets, social and living arrangements.||Under this test, you are a resident of Australia if your domicile is in Australia, unless the Commissioner is satisfied that your ‘permanent place of abode’ is outside Australia. A domicile is a place that is considered to be your permanent home by law. For example, it may be a domicile by origin (where you were born) or by choice (where you have changed your home with the intent of making it permanent). A permanent place of abode should have a degree of permanence and can be contrasted with a temporary or transitory place of abode.||You will be a resident under this test if you spend over half the year in Australia, unless it is established that your ‘usual place of abode’ is outside Australia and you have no intention of taking up residence here. If you have already taken up residence in Australia, this test will not generally apply regardless of the number of days you spend overseas. In practice, this test only applies to individuals arriving in Australia.||This test only applies to certain Australian Government employees who are eligible to contribute to the Public Sector Superannuation Scheme (PSS) or the Commonwealth Superannuation Scheme (CSS). If this is the case, you (and your spouse and children under 16) are considered to be a resident of Australia regardless of any other factors|
Residential status is divided into three categories:
Australian Resident – If you satisfy any of the above conditions, you will be a resident in Australia for tax purposes. Your worldwide income will be taxable.
Temporary residents: You will be a ‘temporary resident’ if you hold a temporary visa and neither you nor your spouse is an Australian resident within the meaning of the Social Security Act 1991 (that is, not an Australian citizen or permanent resident). As a temporary resident, you only need to declare income derived in Australia, plus any income earned from employment or services performed overseas while you are a temporary resident of Australia. Other foreign income and capital gains do not have to be declared.
Foreign residents: If you do not satisfy any test of residency, you are a foreign resident. Income derived in Australia is taxable. No tax free threshold available. If you have a Higher Education Loan Program or Trade Support Loan debt, you are required to declare your worldwide income or lodge a non-lodgment advice.
Tax year in UK – April 06 to April 05:
To determine the residential status of an individual in UK, one needs to checkn the automatic residence test in UK. This test is further divided into ‘automatic UK test’ and ‘automatic overseas tests’.
For an individual to be resident in UK, any of the Automatic UK tests at point (a) and all of the automatic overseas tests mentioned at point (b) should be satisfied:
Any one to be followed:
- Spending at least 183 days in the United Kingdom in the year (barring some exceptions) or
- His / her only home is in UK for atleast 91 days period (of which he has stayed in that home for atleast 30 days in the tax year)
- working full-time in the United Kingdom for a period of 365 days, and, during that period, there are no significant breaks from UK work and all or part of that period falls within the year; where full time work is on average 35 hours or more per week over the period.
Automatic overseas tests –
All of the following conditions to be satisfied –
- he was UK resident in one or more of the three prior tax years and they spent less than 16 days in the United Kingdom in the year in question.
- was not UK resident in any of the three prior tax years and they spent less than 46 days in the United Kingdom in the year in question.
- If the individual works full-time overseas in the year in question, they spend less than 31 days working in the United Kingdom, and they spend less than 91 days in the United Kingdom; where a UK workday is a day on which an individual works more than three hours in the United Kingdom.
If after testing the above conditions, an individual happens to be a non-resident, he still needs to satisfy ‘sufficient ties test’ to determine his residential status.
Sufficient ties mean family tie, accommodation tie, work tie, 90 day tie or country tie. There are separate thresholds for each of these ties which also need to be tested.
- S. law treats U.S. persons and foreign persons differently for tax purposes. Therefore, it is important to be able to distinguish between these two types of taxpayers.
- ‘US persons’ are taxed on their worldwide income. The definition of the term ”United States person” includes citizen or resident of the United States.
- Individuals who are not citizens of USA are referred as ‘aliens’. Aliens may be resident in USA or non-resident.
- Since, US citizens are taxed on their worldwide income irrespective of whichever country they stay, it is the residential status of aliens which needs to be determined on for income tax purposes.
An alien considered as ‘resident’ if he satisfies either of the following tests:
- Green card test
- Substantial presence test
Green card test:
An individual is a lawful permanent resident of the United States, at any time, if he / she has been given the privilege, according to the immigration laws, of residing permanently in the United States as an immigrant. For this, the U.S. Citizenship and Immigration Services (USCIS) issues an alien registration card also known as a “green card.” All such green card holders are resident of the USA for tax purposes.
Substantial presence test:
Actual physical stay in the USA is :
- 31 days in the current year and
- A total of 183 days during the current year and prior two years.
The days to be counted for this purposes will be as follows:
- Any part of the days stayed during the current year will be counted as a whole day
- Days in the preceding year will be counted as 1/3rd of a day
- Days in the second preceding year will be counted as 1/6th of a day
- There are some exceptions to the above mentioned green card or substantial presence test. These are listed below:
- Election by non-resident spouse to be treated as resident
- Closer connection to foreign country in some cases
- Tax treaties
- Further, there are some relaxations provided to students, teachers, or trainees; crew members of foreign vessels; employees of foreign governments and international organisations; certain individuals with medical problems that arise while in the United States.
An individual spending at least 183 days in a calendar year will be considered as resident for tax purposes.
For determining the withholding tax rate, an individual is a Russian tax resident if he / she spends at least 183 days in Russia during any period of 12 consecutive months.
Residents are generally taxed at 13% on their worldwide income, baring a few incomes. Non-residents are taxed at 30% on their Russian sourced income.
UAE does not have income tax legislation and hence there is no question of determining the tax residency. Tax Residency Certificate is however issued to individuals with UAE residency visa / permanently residing in the UAE for at least minimum of 180 Days.