Why your tax residency may differ from your address

Taxation is simple if you only have income where you live. However, it gets complicated when you start making money in two countries. By determining your tax residency, you can find out where you need to pay taxes. There are a lot of factors to consider, but Helpers Finance has years of experience in this matter. In this blog post, we tell you about the basics.

What is tax residency?

As the old saying goes, only two things are certain in life and one of them is paying taxes. Where you need to pay those is determined by tax residency. Finding that out is vital if you have income in two countries. Everyone is a tax resident somewhere, which means that everyone’s income is taxable in one place or another. Unless that is one of the few countries where income tax is 0%, you should make sure that you pay all your dues in the right place, because failing to do so is usually punishable by law.

Determining tax residency

You cannot simply choose your tax residency. Who is deemed a tax resident in a given country is regulated by the local laws based on citizenship, permanent or habitual residence, and residence permit. If you are subject to taxation in two countries, your tax residency will be determined by the double taxation treaties between them. (If there is no such agreement, double taxation will apply, meaning that you must pay taxes in both places.) These treaties usually take the following factors into account (in this order):

Your permanent home. Please note that this may differ from the address in your official documents: just having a permanent place to live will qualify.
The center of your vital interests. This entails your personal, economic and cultural relations such as where you work, where your income is coming from and where your family is.
Your habitual home. This is often called the 183-day rule: the place where you spend more than half of the year is considered your habitual home. Once again, this may differ from your official address.
Your citizenship.

As the list demonstrates, there are several factors at play and not all of them are strictly administrative. Therefore, if you would like to have Hungarian tax residency, it is recommended to move to Hungary (with your family if you have one) and spend most of your time in the country. Please note that the type of your income may also influence where it should be taxed. You can find some examples of possible scenarios here.

When in doubt…

If it is not clear based on the above conditions (e.g. because you have a home in both places, you do not have a center of vital interests, and you are the citizen of both countries or neither), your tax residency will be determined by a mutual agreement between the two countries. In case of any uncertainty, you can request a tax certificate from the authorities. In Hungary, these are issued by the National Tax and Customs Administration.

Need more information? Contact us!

Regarding tax residency, the rule of thumb is that you are a tax resident where you make money and where you live, although it is a bit more complicated than that. In any case, knowing where your income will be taxed is crucial to avoid unpleasant surprises.

If you would like to discuss your specific case with an expert, the English-speaking accountants of Helpers Finance are happy to offer you a detailed breakdown. You can learn more about our tax advisory services here. You can ask for a consultation by calling our office on +36 1 215 0712, by e-mailing info@helpersfinance.hu or by filling in our contact form. If you would like to be notified about our future blog posts, please like us on Facebook.

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