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How is determined where you are a tax resident?


Where you are a tax resident the crucial question to be asked before you have any tax advise or start any operation that is tax related. The place where you are regarded a tax resident determine which taxes are applicable to you.

Our experience is that most tax payers think lightly about the subject and have the opinion that can convince the tax office if needed that they are a tax resident in the state of their desire. But is it this simple? No it is not.

Example situation of an ill organized fiscal emigration

Recently the following situation occurred.

A retired Dutch national emigrated to Switzerland for tax purposes. He had himself deregistered with city  hall, provided a forwarding address in Switzerland. His wife remained a Dutch resident tax payer. The retired Dutch national only filed a non resident tax payers tax return for the old age pension he received from The Netherlands (AOW) and the pension he received from his pension BV of which the shares were currently held by a Swiss AG.

Moreover he paid Swiss income tax and claimed to use the Swiss bank account for private spending.

This retired Dutch national was convinced he was a Swiss tax payer and he was convinced he tricked the Dutch tax office.

income tax audit orange tax services

Thorough investigation by Dutch tax office

Something trickered the tax office but a thorough investigation started.

During the tax audit  the Dutch tax office monitored his flight schedules. He always flew from the Netherlands to Switzerland. Stayed a short while and returned, either direct or via a stop over.

He performed services for Dutch BV companies situated in the Netherlands.

He still had multiple luxurious cars at his disposal in the Netherlands.

He was still registered as a patient with two drug stores in the Netherlands.

He was active member of a Dutch golf club.

Everything added up the Dutch tax office could not come to any other conclusion that he was living with his wife in the rented apartment in the Netherlands. That he was in fact a resident tax payer, subject to Dutch income tax over his world income and assets. He had not reported his income tax returns over the past years as such, hence income tax assessment with penalties were issued.

To make matters worse, the normal period during which the tax office can do an audit is max 5 years, however, in case of a tax payer living abroad, or a situation abroad, this period is extended to a 12 year period.

Orange Tax Services team

Our focus is internationally orientated, hence the place where a person or a limited liability company is a tax resident is more or less the first thought we have when a case is presented to us.

Working from the wrong assumption at the start (for instance managing director lives abroad and still it is assumed the BV company is a Dutch resident company only) will not result in issues. However, the longer the wrong assumption is in the system, the more complex/expensive it becomes to make good the mistake. Most of the time it is during an audit when the crucial questions are asked by the tax office to determine where someone or a company has its tax residency, the issue comes to light. Hence we suggest to contact an expert and we are keen to recommend ourselves.



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