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

Tax (4th edition)

Angola Small Flag Angola

Companies that are incorporated, domiciled, or have their place of effective management in Angola are deemed to be resident in Angola for tax purposes and are taxed on their worldwide income. The law deems the place of effective management to be the place in which the acts of the company's global management are executed.

Brazil Small Flag Brazil

The Brazilian tax legislation is very formalistic in what concerns taxable presence. As a rule, only companies with physical presence such as subsidiaries and branches are subject to business taxation (i.e., local corporate income taxes).

Nevertheless, there are a few situations that might potentially generate a taxable presence in Brazil, as for example:

(i) De facto branch, i.e.; a foreign company that has an unregistered branch or office which could be identified by the existence of continuous foreign company's professionals in Brazil; local residents acting on behalf of the foreign company, use of a local address in Brazil; assets kept local;

(ii) Consignment agents engaged in the sales of goods supplied by a foreign entity; and;

(iii) An agent that performs sales in Brazil and has the power to legally bind the company to a contract.

Canada Small Flag Canada

Liability for income tax in Canada is by and large based on residence. Corporations, individuals and trusts can generate income from different sources identified in the Income Tax Act, which include income from business and property and capital gains. A resident taxpayer is liable to tax on his income from all sources on a worldwide basis. A non-resident taxpayer is liable to tax in Canada on his Canadian-source income.

As indicated above, a corporation will be resident where its central management and control is located, i.e. the board of directors. There is a deeming rule found in the Income Tax Act to the effect that a corporation that is incorporated in Canada is deemed to be a Canadian resident.

Colombia Small Flag Colombia

An entity is deemed to be Colombian for tax purposes if: (a) it is incorporated in Colombia; (b) it is domiciled in Colombia; or if (c) its place of effective management is located in Colombia.

Double taxation treaties to which Colombia is bound have typically adopted OECD residence rules.

As a rule, entities that are deemed Colombian for tax purposes are subject to Income Tax on their worldwide income, while entities that are deemed foreign for Income Tax purposes are subject to Income Tax on their Colombian-source income.

Colombia has adopted permanent establishment rules, which are based on OECD guidelines.

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 7 for the tests applicable to residence.

Germany Small Flag Germany

German tax law distinguishes between unlimited resident taxation and limited nonresident 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 worldwide 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.

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.

Greece Small Flag Greece

Greece taxes its residents on their worldwide income, whereas it taxes non-residents in respect of income sourced in Greece, such as for example business profits attributable to a permanent establishment in Greece. For establishing tax residence, as analysed under question 7, one may examine whether incorporation was performed in accordance with Greek law or whether the registered seat or place of effective management of a taxpayer is in Greece.

India Small Flag India

An Indian company is taxed based on its incorporation in India whereas, a foreign company is treated as a resident and taxed on global income if its POEM is in India.

For foreign entities not having a POEM in India, business income is taxed in India provided such foreign entity either have a ‘business connection’ in India and/or a ‘Permanent Establishment’ in India under applicable Double Tax Avoidance Agreement with India.

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.

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.

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, Austrian dividends and Austrian interest payments to individuals under certain circumstances).

Japan Small Flag Japan

Yes. Japanese domestic corporations are liable to business taxation on all income, while foreign corporations are liable to business taxation only on income sourced in Japan. Whether corporations are domestic is determined not by concepts of fiscal residence, but by the jurisdiction of incorporation. For example, corporations incorporated under the Companies Act of Japan are treated as domestic corporations for the purposes of corporate tax.

Luxembourg Small Flag Luxembourg

With regard to CIT and according to Article 159 of the LITL, commercial companies are considered as taxpayer residents in Luxembourg, being subject to corporate income tax on their worldwide profits, if their statutory seat or central administration is located in the Grand-Duchy of Luxembourg.

For MBT purposes, the tax applies to all companies carrying on commercial activities in Luxembourg.

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

The Mexican income tax system is mainly built around the concepts of residence and source. To this regard, whilst Mexican resident legal entities are required to pay income tax on a worldwide basis, foreign tax residents could be required to pay income tax on all income attributable to permanent establishments located in Mexico, or on Mexican-sourced income.

The Netherlands Small Flag The Netherlands

Liability to corporate income tax (resident taxation) is based upon the concept of fiscal residence. Legal entities incorporated pursuant to Dutch law are deemed to be a tax resident of the Netherlands for Dutch corporate income tax and dividend withholding tax purposes.

Generally, a legal entity is a resident of the Netherlands for tax purposes if its place of effective management is in the Netherlands.

Peru Small Flag Peru

In accordance with section 7 of the Income Tax Law, an entity is deemed to be resident in Peru for tax purposes if it has been incorporated in our country. Said rule also provides that branches, agents or other permanent establishments in Peru of sole proprietors, corporations and any other type of entity incorporated abroad is resident in our country but only levied on their Peruvian- source income.

Philippines Small Flag Philippines

Registration is the main basis for business taxation in the Philippines. 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. However, regardless of business registration, an entity can still be subject to taxation on income and other activities rendered in the Philippines.

Poland Small Flag Poland

Liability to income tax depends on the tax residence of the company. For the relevant test please see above answer to question 7.

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

Portugal Small Flag Portugal

Yes, liability to business taxation depends on the residence concept.

  • Residents in Portugal are taxed on their worldwide income.
  • Non-Residents are liable to income tax only on Portuguese-sourced income, which includes that portion of income that can be allocated to the activity carried out in Portugal.

South Africa Small Flag South Africa

The liability of a company to account for corporate income tax is dependent on the residency status of that company for tax purposes. The Income Tax Act, 1962 defines a "resident" as including any person which is incorporated, established or formed in South Africa or which has its effective place of effective management in South Africa. This will exclude any person deemed to be an exclusive resident of another country under a double taxation agreement.

The test to determine whether a legal person is effectively managed in South Africa is essentially a factual enquiry. SARS' has recently stated that the place of effective management of a company will be the place where the key management and commercial decisions necessary to conduct that business are actually made, which is consistent with the OECD Model Tax Convention and its commentary.

Spain Small Flag Spain

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 Spain would also be liable to taxation in the Spain.

Companies incorporated under Spanish law will in principle be considered to be a resident in Spain, unless on the basis of an applicable Double Taxation Agreement the company is tax resident in other jurisdiction.

Foreign entities can be regarded as a tax resident in Spain if they have the place of effective management in Spain.

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 its 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.

Zambia Small Flag Zambia

It is based on source of income. However the residence test, is set out in section 4 of the Income Tax Act. The liability under section 4 of the Income Tax Act requires that for Income to be taxed under the Zambian Tax Act it must be deemed to be from a source within the Republic of Zambia. In the case of JAYESH SHAH V ZAMBIA REVENUE AUTHORITY it was held that section 14(1)(a) of the Income Tax Act does not differentiate between a resident or non-resident regarding imposition of tax on income received from a source deemed to be from the Republic of Zambia.

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 must be treated as resident in another country under the tiebreaker 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.

Belgium Small Flag Belgium

Liability to business taxation is based on the concept of fiscal residence. Legal entities that are resident in Belgium are subject to corporate income tax. A corporate entity is a Belgian resident if it has its registered office, principal office or place of effective management in Belgium. The place of incorporation is not taken into consideration.

Non-resident entities can be subject to Belgium income tax if they gather income that is sourced in Belgium or income that is connected with a Belgian establishment.

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.

Updated: October 9, 2019