Why obtain a tax residency certificate from a foreign state if you have earned income this year?
A tax residency certificate (or certificate of tax residency) is an official document confirming that you are a tax resident of a specific foreign state and that you pay taxes there.
If, in the current calendar year, you have earned income abroad (from the sale of assets, rental income, dividends, interest, as well as from entrepreneurial or employment activities), the tax authorities may ask you three key questions:
- Where did you pay taxes on this income?
- Are you a tax resident of another country?
- Is this income subject to taxation in your country of citizenship?
What is the certificate used for?
- Confirmation of the source of income.
If you declare foreign income, the tax authorities may request documents confirming not only the amount but also the source of the income. A residency certificate is often submitted as part of the evidence that the income was legally obtained in a specific jurisdiction. - Exemption from tax (or reduced tax rate).
Depending on your country of tax residence at the time the income was earned, you may be able to apply a 0% tax rate to certain types of income or take advantage of Double Taxation Treaties (DTT). Without the certificate, the tax authority may withhold tax at the full rate, and a separate procedure will be required to claim a refund for overpaid tax. - For CFC reporting and tax returns.
The certificate allows you not to be considered a tax resident of your country of citizenship (under certain conditions) and avoid additional tax consequences. It is also used when filing notifications about foreign assets, where it is important to substantiate your tax jurisdiction.
Additionally, it is worth noting that Cyprus and Georgia provide the opportunity to become a tax resident not only by residing for 183+ days but also through the 60+ rule (Cyprus) and based on wealth (Georgia). You can read more about this in our materials on the website.
Authors: Yaroslavna Zadesenskaya, Oksana Iashagyan
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