Is liability to business taxation based upon a concepts of fiscal residence or registration? Is so what are the tests?

Tax (3rd edition)

Switzerland Small Flag Switzerland

A company is liable for Swiss federal and cantonal income tax and cantonal capital tax on its worldwide profit (excluding profit and capital allocated to permanent establishments and real estate located abroad) if either its statutory seat or it effective place of management is located in Switzerland.

United States Small Flag United States

Yes. US persons are generally subject to tax on their worldwide income. US tax law defines US person to include all U.S. citizens and residents as well as domestic entities such as partnerships, corporations, estates and certain trusts. As described above in question 7, the determination of whether an entity is subject to US taxation on its worldwide income is generally made on the basis of its place of organization.

Canada Small Flag Canada

Residents of Canada are subject to Canadian income tax on their worldwide income. Non-residents are subject to Canadian income tax on income from carrying on business in Canada, from being employed in Canada or from the disposition of “taxable Canadian property (see question 21). A non-resident may be exempted from Canadian income tax pursuant to an applicable tax treaty. Most of Canada’s tax treaties provide that a non-resident’s Canadian source business income will only be subject to Canadian income tax to the extent that it was earned from a Canadian permanent establishment.

Corporations that are incorporated under Canadian law are deemed by statute to be residents of Canada. In addition, under common law rules, a corporation that is not incorporated under Canadian law is resident in Canada if its central management and control is in Canada. This is generally considered to occur where the corporation’s board of directors exercises its responsibilities. However, where a shareholder effectively exercises control rather than the Board, the corporation will be considered to be resident where the shareholder resides. A similar central management and control test applies to trusts and their trustees.

The threshold for carrying on business in Canada is low and is generally governed by common law rules that evaluate all of the activities of the non-resident in Canada with a particular emphasis on the place where contracts are made and the location of the operations from which the profits arise. In addition, the meaning of “carrying on business in Canada” is extended by statute to include situations where (a) the non-resident solicits orders or offers anything for sale in Canada through an agent or servant, whether the contract or transaction is to be completed inside or outside Canada or partly inside and partly outside Canada; and (b) the non-resident (or an agent acting on behalf of the non-resident) produces, grows, mines, creates, manufactures, fabricates, improves, packs, preserves or constructs, in whole or in part, anything in Canada, whether or not it is exported from Canada prior to its sale.

Austria Small Flag Austria

Individuals having a domicile or their habitual abode in Austria or corporations having their corporate seat or their place of management in Austria are considered residents for Austrian income and corporate income tax law purposes, respectively and are subject to unlimited resident taxation in Austria on a world-wide basis.

Non-residents are taxed on the basis of a territorial system (involving taxation of PEs and other income sourced from Austria like income from immovable property located in Austria and Austrian dividends and Austrian interest payments to individuals under certain circumstances).

France Small Flag France

French corporate income tax is not based on fiscal residence or registration but on the principle of territoriality: only profits derived from activities carried out in France are taxable in France. As a consequence, an entity, be it French or not, is to be considered to be carrying out activity in France if:

  • it has an establishment in France: the notion of establishment provided for in the FTC is close to that of permanent establishment provided for in international tax treaties;
  • it has in France a representative with a dependent professional status. This notion is also close to that of dependent agent provided for in international tax treaties; or
  • it performs in France a complete 'cycle commercial complet (cycle of business) separate from the company’s other domestic business.

As the case may be, these criteria could be superseded by the stipulations of a tax treaty. With the ratification of the MLI, these criteria may evolve in the tax treaty signed with certain States.

In addition, passive income (dividends, interest and royalties) received by a French entity is taxed in France.

Cyprus Small Flag Cyprus

Liability to Cyprus tax (and eligibility for benefits under double tax agreements) is based on residence. Mere registration is not sufficient. See the answer to question 8 for the tests applicable to residence.

Brazil Small Flag Brazil

The liability to business taxation in Brazil depends on the registration concept. As a general rule, Brazil imposes taxation on a worldwide basis.

It is worth noting that the concept of permanent establishment is not yet regulated by Brazilian internal legislation.

Notwithstanding, it is important to mention that both, representatives (those who negotiate in the name and on behalf of third parties) and commissioners (those who negotiate on their own name but on behalf of third parties), are deemed as a corporate income taxpayer of their foreign principal in Brazil to the extent that they have powers to bind their principals on the local sales/services or enter into local transactions on behalf of them. In this case, the principal may be subject to tax in Brazil on a percentage of the sales revenue.

Germany Small Flag Germany

German tax law distinguishes between unlimited resident taxation and limited non-resident taxation. In the first case, the taxpayer is subject to tax with his world-wide income, in the second case only with certain income from German sources.

A corporation is subject to unlimited taxation of its world-wide income if its statutory seat or place of effective management is in Germany. Accordingly, business individuals are liable to unlimited resident taxation if they have their place of residence or their place of habitual abode in Germany.

Ireland Small Flag Ireland

Liability to business taxation is based on residence or conducting business through an Irish branch or agency. In addition Irish source income (other than that related to a PE may be subject to withholding taxes).

Companies incorporated in Ireland are considered tax resident in Ireland unless they are resident in another jurisdiction in accordance with the terms of the relevant DTA. Companies incorporated outside Ireland may be Irish resident where they are centrally managed and controlled in Ireland (subject to application of a DTA).

Individuals are resident in Ireland where they are present in Ireland for 183 days in any calendar year or for 280 days over two calendar years (and at least 30 days in each year).

Partnerships are transparent for Irish tax purposes so one must consider the tax residence of the individual partners.

Ireland imposes a 20% withholding tax on dividends, interest and patent royalties. However there are broad exemptions under domestic law on payments to DTA partner jurisdictions (regardless of the rate applicable under the relevant DTA).

Israel Small Flag Israel

Both. Please refer to question 7 above.

Malaysia Small Flag Malaysia

Malaysia adopts a territorial tax system and liability to business taxation is posited upon the concept of fiscal residence.

Under Section 8 of the ITA, a company or a body of persons carrying on a business or businesses is resident in Malaysia for the basis year for a year of assessment if at any time during that basis year the management and control of its business or of any one of its businesses, as the case may be, are exercised in Malaysia; and any other company or body of persons is resident in Malaysia for the basis year for a year of assessment if at any time during that basis year the management and control of its affairs are exercised in Malaysia by its directors or other controlling authority.

Any LLP carrying on a business is resident in Malaysia for the basis year for a year of assessment if at any time during that basis year the management and control of its business or of any one of its businesses, as the case may be, are exercised in Malaysia. An LLP will also be considered a resident in Malaysia for the basis year for a year of assessment if at any time during that basis year the management and control of its affairs are exercised in Malaysia by its partners.

A business trust is resident in Malaysia for the basis year for a year of assessment if the trustee manager of that business trust is resident in Malaysia and a trustee manager of a business trust is resident for the basis year for a year of assessment if the trustee manager in his capacity as such carries on such business trust in Malaysia; and the management and control of the business of such business trust is exercised in Malaysia.

Mexico Small Flag Mexico

Pursuant to article 9 of the Federal Fiscal Code, a legal entity will be deemed to be a resident in Mexico for tax purposes if its main business administration is established in Mexico or its place of effective management is established in Mexico. Further, article 6 of the Regulations to the Federal Fiscal Code provides that a legal entity will be considered to have established its main business administration or place of effective management in Mexico, when the place in which the person or persons that take or execute the control, direction, operation or management decisions of the entity in question and the activities it engages in are located in Mexico.

Under most of Mexico’s double taxation treaties, the residence tie breaker rule for persons other than individuals that are residents of two States will be determined by the place in which they have established their place of effective management.

Norway Small Flag Norway

Companies incorporated under Norwegian law and registered in the Norwegian Register of Business Enterprises will as a starting point be tax resident in Norway. If the operations of the company, as well as the effective management and control at board level is carried out abroad, the company could however be regarded as not being tax resident in Norway.

Companies incorporated under foreign law and registered in a foreign business register, whose effective management and control at board level is carried out in Norway, are considered tax-resident in Norway.

Foreign incorporated companies conducting or participating in business in Norway will be considered as having a taxable presence in Norway. Most Norwegian bilateral tax treaties are based on the OECD Model Convention, and generally companies that are conducting, participating and carrying out business in Norway from a fixed place in Norway will be considered having a PE in Norway. Activities on the Norwegian continental shelf related to petroleum resources will always constitute a taxable presence pursuant to Norwegian domestic law.

(Please see item 7 above for a description of a recent proposal on amendments to the requirements for tax residency).

Panama Small Flag Panama

Liability to business taxation is based upon if the income have been generated and obtain within the Republic of Panama, without the consideration of where the contract had been signed or the payment had been done.

Registration is mandatory for all companies incorporated in Panama, this do not trigger any filing or tax obligation.

Philippines Small Flag Philippines

Registration is the main basis for business taxation in the Philippines. It is basic that an entity should be registered and licensed by government agencies such as the Securities and Exchange Commission for corporations and partnerships and the Department of Trade and Industry for single proprietors, as a requirement for doing business in the Philippines. In the absence of registration or a license, a foreign entity cannot maintain or intervene in any action, suit or proceeding in any court or administrative agency in the Philippines but it can be sued on any valid cause of action under Philippine laws. However, regardless of business registration, an entity can still be subject to taxation on income and other activities rendered in the Philippines.

Portugal Small Flag Portugal

Under Portuguese law, taxation in general (including business taxation) is based on tax residency.

Corporate taxpayers are deemed to be tax resident if their head-office or place of effective management is in Portuguese territory and are taxed on their worldwide income. Non-resident corporate taxpayers with a permanent establishment in Portugal are subject to taxation on their taxable profit allocated to such permanent establishment. Non-resident corporate taxpayers without any permanent establishment in Portuguese territory are subject to taxation only on income deemed to be obtained (sourced) in Portugal.

Individual resident taxpayers are subject to taxation on their worldwide income and non-resident individual taxpayers are subject only on income deemed to be obtained in Portuguese territory (for business income, if it is carried out through a permanent establishment in Portugal).

The main tests for individuals are “having been in Portugal more 183 days in the last 12 months” and “having a permanently available place of residence in Portugal”.

Italy Small Flag Italy

Liability to income tax depends on the tax residence of the company. For the relevant test please see above answer to question 7. Non resident companies are taxed in Italy on the income attributed to their Italian permanent establishments and on other income sourced in Italy under general rules.

Turkey Small Flag Turkey

“Fully-liable taxpayers” resident in Turkey are obliged to pay taxes on income generated either in Turkey or abroad. “Limited-liability taxpayers” are obliged to pay taxes on income generated in Turkey. There are different tests to decide whether the taxpayer is resident in Turkey or whether the income is generated in Turkey. As for corporations, if the legal or actual headquarters of a company is in Turkey, then it is resident in Turkey. In addition, when a foreign nonregistered company generates income through a permanent establishment or agent in Turkey, this is taxable under income tax law. The terms of double taxation treaties are applied together with domestic law when deciding what constitutes a permanent establishment.

Japan Small Flag Japan

In taxing business profits of a corporation, whether or not a corporation is a Japanese corporation or a foreign corporation for tax purposes is determined by reference to the jurisdiction of incorporation or registration. That is, so long as the taxpayer is a Japanese corporation for Japanese corporate law purposes such as a KK or a GK, even if the principal place of management and control of that corporation is outside Japan, it is treated as a Japanese corporation for Japanese tax purposes.

Similarly, so long as a corporation is incorporated and registered in jurisdictions other than Japan for corporate law purposes, the corporation is a foreign corporation for tax purposes even if the principal place of management and control is within Japan. However, in that case, the foreign corporation is very likely deemed to have a permanent establishment in Japan, and the business profits are taxed in Japan so long as the profits are attributable to the permanent establishment in Japan.

The Netherlands Small Flag The Netherlands

The liability to business taxation is based upon a concept of fiscal residence rather than registration. Further profits derived from a permanent establishment in the Netherlands would also be liable to taxation in the Netherlands.

Dutch tax law contains an incorporation fiction. Pursuant to this fiction a company incorporated under the laws of the Netherlands will in principle be considered to be a resident of the Netherlands for Dutch corporate income tax and dividend withholding tax purposes, unless another jurisdiction rightfully claims that the company is tax resident in that other jurisdiction under a tax treaty concluded with the Netherlands.

Foreign entities can be a tax resident of the Netherlands based on the facts and circumstances. If the place of effective management is located in the Netherlands, the Netherlands can claim that the foreign company is a tax resident in the Netherlands, without the need of a registration in the Netherlands.

Romania Small Flag Romania

Both. Romanian legal entities, as well as foreign entities that have the place of effective management or a “permanent establishment (PE)” in Romania are subject to corporate income tax in Romania. Conditions for a foreign taxpayer to generate a PE in Romania are similar with those provided in the OECD Model Tax Convention.

Gibraltar Small Flag Gibraltar

Gibraltar levies tax on a territorial basis. This will be determined on whether income accrues or derives from Gibraltar or as a result of services being rendered in Gibraltar. Those businesses whose income arises from an underlying activity that requires a license and is regulated under any law of Gibraltar (or is licensed in another jurisdiction but enjoys passporting rights into Gibraltar) shall be deemed to accrue in and derive from Gibraltar.

Income which is not accrued in or derived from Gibraltar is not taxed in Gibraltar. “Accrued in and derived from” is defined by reference to the location of the activities which give rise to the profits. Where the income is intercompany interest or royalties it is automatically deemed to accrue in and derive from Gibraltar if it is received by a Gibraltar company.

United Kingdom Small Flag United Kingdom

Yes. The UK follows the principle of territoriality: it taxes the worldwide profits of its residents and the UK profits of non-residents. There are two tests for determining whether a company is resident for tax purposes in the UK: (1) the incorporation test (the process is also referred to broadly as company registration), or (2) the central management and control test. A company will automatically be resident in the UK for tax purposes if it is incorporated in the UK, unless it has to be treated as resident in another country under the tie breaker provisions of a double tax treaty. For companies incorporated outside the UK, they will be deemed UK tax resident if they are centrally managed and controlled in the UK.

Updated: October 19, 2018