Although people use these terms interchangeably, there are basic differences between a residence and a domicile. The difference matters when it comes to tax liabilities in a Country.
When you have a domicile in a country, the laws of that country will apply to you. So, it can tax you. You can also rely on the laws of the country such as for asset protection. You should also note that the exact meaning of domicile may change from country to country. However, the two factors that they agree upon are:
- A domicile is an individual’s permanent and fixed home which they dwell in, and will return to at some point, and
- An individual can only have one domicile while they can have more than one residence.
Another point is the situation when you plan to spend a long time outside of your domicile. This can be several weeks or months. In this case, it is advisable to check the residency rules of the other country.
Understanding the Terms
First of all, a residence can be in more than one country. However, only one of them can be your domicile. In this sense, domicile is where you plan to have your permanent home. It is the place you eventually intend to return to if you reside in another place for a short time.
A residence, on the other hand, is the place you temporarily live. It can be anywhere from a summerhouse to a college dorm.
There is also the concept called “statutory residence”. This is basically a residency because of the country’s laws or statues, regardless of showing intent. So, you can be a statutory resident in a country by simply spending a considerable amount of time there. The statutory resident status differs from country to country. Yet, It is regardless of the fact that your domicile is in another place. So, that country can even tax you accordingly, if you meet certain conditions.
What is Domicile?
Domicile is the country you officially have a permanent home or the country you have a considerable connection with. Even if you don’t live there currently, it is the place you plan to come back. So, it is basically your primary residence.
Different criteria of residence requirements are possible by institutions in different countries. Occasionally, the requirement is related to time. For example, you need to spend at least 183 days to be considered a resident in some places.
What is Residence?
Residence means the place you live in for a duration of time.
If you live in a country for at least 183 days per tax year, or you visit the country frequently intending to reside there, you will be deemed as a resident. You will be a resident at least for tax purposes. Residence also means that you have the legal right to live, work, travel, establish a business, or study in a certain country.
Examples of Domicile vs Residence
You can have residences in more than one country for various reasons. Let’s look at some possible examples below.
For example, Mark’s home country is the UK. He moves to France to attend university. However, he intends to come back to his home country after university. In this case, his residence is France, and his domicile is still in the UK.
Another example is Kim and Jameson. They live in Germany, and they own their Spanish residence. They show their intent to change their domicile to Spain. For this, they open accounts at a local bank, get Spanish driver’s licenses. They also register to vote in Spain. Because of these actions, Spain can be now considered their residence and domicile Country.
The last example is about Jim. Jim moves to Brazil for a six-month job assignment. He votes in the US by absentee ballot. He also has bank accounts there. He does not intend to stay in Brazil in any way. He will come back to his home country when the assignment is complete. In this case, his residence is Brazil, but his domicile is still in the US.
The Challenge of Establishing Domicile
Deciding a domicile can be a challenge for you because it depends on your intent. The reason is that your domicile will be your permanent and principal home you intend to return to and remain.
If you only have one home, determining domicile is easy. In that case, the country where you reside is the place you have your domicile. Yet, for example, you may have two homes in different countries. They can be apartments, homes, or other kinds of places to live in. You may reside in these places for alternating periods of time. So, you can reside in two countries. However, you will still only have one “domicile”, which is the primary location you live in.
You may ask yourself in which country you spend more time. This may determine statutory residency. However, it is still not the most important factor in determining domicile. In fact, it is the intent that is the key factor here.
The intent issue is a bit problematic though. You are the only person who truly knows your intent. However, some people may lie about their intent to have a more useful domicile in terms of tax, for example. Because of this, the intent is given to other authorities. They include judges and revenue agents. So, you need to prove clearly that you changed your domicile to the related authorities. Otherwise, they will assume that there is no change of domicile. Thus, it is advisable to cut your ties from your former domicile as completely as possible.
Domicile in relation to Tax Status
Determining your domicile is also important for tax purposes. Generally, three main areas of tax liabilities are possible.
Income Tax (from investment or employment), Capital Gains Tax, and Inheritance Tax
When you own property or financial assets in foreign jurisdictions, your domicile will be quite important. Your domicile is also important when deciding the way your individual estate will be passed on when you die.
You should note that the country you are a resident of can also tax your worldwide income. So, if you have more than one residence, all of the countries or any one of the countries can also require taxation on your worldwide income as well.
Another point is the determination of domicile. Each country you’re a resident of may only tax the portion of your income related to that country. However, the country of domicile has a right to tax all of your income, regardless of where it was earned.
Changing Your Domicile
You can change your domicile after the age of 18. You need to meet certain criteria by indicating evidence for each of them. There are various criteria for changing your domicile. However, the following two are the basic conditions:
- You need to leave the country you are domiciled, and settle in another country, and
- Provide strong evidence of intending to live in your new place permanently or indefinitely.
What does the place of domicile mean?
Place of domicile means the place you have your permanent home. It is also the place you spend most of the year or you have a substantial connection with. The domicile of origin is the place you’re born. Typically, in the case of no marriage of parents, your domicile of origin is the same as your mother. However, this can vary depending on each individual’s conditions.
You should also note that even if you move abroad, your domicile will not change if you do not take any action.
Can I live in one country and claim residency in another?
Yes, you can. You can have more than one residency in different countries.
Can a person have two domiciles?
No, a person only has one domicile.
What determines primary residence?
Primary residence depends on the time you spend in that place and your intent.
What is required to change domicile?
You need to leave your prior domicile and settle in another country. In addition, you need to provide solid evidence that you intend to live in your new place permanently.
What is deemed domicile?
Deemed domicile is a concept for British expats living abroad. It has an important part in calculating inheritance tax on your estate when you die. ‘Deemed domicile’ means that even if you are not domiciled in the UK under general law HMRC could treat you as domiciled in the UK at the time of a transfer if
- you were domiciled in the UK within the three years immediately before the transfer, or
- you were resident in the UK in at least 17 of the 20 income tax years of assessment ending with the year in which you make a transfer.
Can you have no residency?
It is not possible to have no residency.
How to determine domicile status?
When you are born, you will be assigned to the same domicile as your parents. Later in life, if you leave your domicile of origin, move to another place, and spend most of your time there, this can be your new domicile.
Domicile vs Citizenship
Citizenship is basically a status as a member of a nation. Citizenship comes with certain rights and privileges. Domicile, on the other hand, is where you live with the intent to stay. It can be a city, a state, or a country.