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

Tax (2nd Edition)

Spain Small Flag Spain

The Corporate Income Tax is based on the concept of residence. In order to be a resident in Spain, the company shall:

  1. Be incorporated according to Spanish Law.
  2. Have its registered office in Spanish territory.
  3. Have the headquarters (place where the company’s decisions are made) in Spanish territory.

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.

Australia Small Flag Australia

Australian income tax is levied based on the residence of the taxpayer and the source of its income. Subject to the application of any relevant double taxation agreement:

  • Australian tax residents are subject to Australian income tax on their worldwide income (i.e. irrespective of source); and
  • • foreign tax residents are subject to Australian income tax on income which has an Australian source.

Whether income has an Australian source is a question of fact and must be determined on a case by case basis.

Whether income has an Australian source is a question of fact and must be determined on a case by case basis.

The tests for residence are discussed in more detail at question 7 above.

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As the case may be, these criteria could be superseded by the stipulations of a tax treaty.
In addition, passive income (dividends, interest and royalties) received by a French entity is taxed in France.

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.

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.

Bulgaria Small Flag Bulgaria

The liability to business taxation is based upon a concept of fiscal registration. Under the Bulgarian Corporate Income Tax Act, the following are considered local legal entities:

  • legal entities established under Bulgarian law;
  • companies established under Regulation (ЕC) No. 2157/2001 of the Council; and
  • co-operative societies established under Regulation (ЕC) No. 1435/2003 of the Council, which have their registered office within the country and are entered in a Bulgarian register.

Under the definitions of a double taxation treaty, the tests for determining the residence of incorporated businesses could be the place of effective management or the place of incorporation.

United States Small Flag United States

The United States taxes the worldwide income of U.S. companies. A company is a U.S. company if it is incorporated in the United States. Foreign corporations are subject to tax in the United States on income that is effectively connected with a U.S. trade or business and on certain of its income from U.S. sources.

Individual U.S. citizens and U.S. residents are generally taxed on their worldwide income regardless of their country of residence.

Ukraine Small Flag Ukraine

Taxpayers of profit taxes are resident companies, which receive profits from a source of origin in Ukraine and from abroad and non-resident companies which receive profit from a source of origin in Ukraine.

The determinative factor concerning whether a company is a resident of Ukraine, is the fact of its registration on the territory of Ukraine. Resident taxpayers are legal entities registered in Ukraine, which carry out their business activities - both on the territory of Ukraine and abroad. Non-resident taxpayers are legal entities registered abroad, which receive income from a source of origin from Ukraine, and permanent representative offices of non-residents that receive income from a source of origin from Ukraine or perform agency (representative) and other functions related to such non-residents or their founders, unless otherwise established by the law.

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.

Ecuador Small Flag Ecuador

Tax residency for corporations is based on registration and therefore, any corporation incorporated in Ecuadorian territory will be considered a tax resident of Ecuador.

Tax residency for individuals is based on any of the following methods: a) residing 183 days or more in Ecuador in any given 12 months period unless being able to proof residency in another jurisdiction, in which case, the 183 days apply only to a calendar year. If the jurisdiction of residency is a tax haven jurisdiction for Ecuadorian tax purposes, the individual will be considered to continue the tax residency in Ecuador for the following 4 years. Sporadic absences from Ecuador (those that do not exceed 30 days) will not be deducted from the day count; b) the principal place of business is located in Ecuador (i.e. The majority of the income/value of assets is sourced in Ecuador); and c) family ties to Ecuador (wife and dependent children residing in Ecuador) provided there is no proof of tax residency in any other jurisdiction.

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.

Gibraltar Small Flag Gibraltar

Yes. Ordinary residence.

Israel Small Flag Israel

Both. Please refer to question 7 above.

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 domicile or it effective place of management is located in Switzerland.

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.

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.

Kenya Small Flag Kenya

Tax liability is based upon the concept of fiscal residence in Kenya, as described in paragraph 7 above.

Poland Small Flag Poland

Liability to taxation is based on residence. For individuals, this is a matter of their physical presence in Poland for 183 days or more within a single tax year, or having a centre of personal or economic interests (centre of vital interests) in Poland. For companies, it is based on the place of management, or the location of its registered seat in Poland.

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 place of effective management 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 place of effective management 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

Entities incorporated under Dutch law are subject to tax in the Netherlands. The same applies to foreign entities which are deemed to be a resident of the Netherlands based on facts and circumstances and an applicable tax treaty. Although registration is usually required, it is not a determinative factor for taxability.

Mexico Small Flag Mexico

The Mexican income tax system is mainly built around the concepts of residence and source. In 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.

Norway Small Flag Norway

Norwegian tax law distinguishes between general tax liability and limited tax liability. Companies resident in Norway have a general tax liability to Norway. This means that a resident company is liable for Norwegian tax on its worldwide income. A company is considered resident in Norway if it has its place of effective management and control in Norway.

Non-resident companies are subject to corporation tax on profits/income from Norwegian sources, including income derived from a permanent establishment in Norway.

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.

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).

Updated: May 31, 2018