Where am I considered tax resident?
The question of tax residence is the central determinant for taxation. It governs both national and international taxing rights and determines in which country a person must pay tax on their worldwide income.
Concept and Importance of Tax Residency
Tax residence is a key concept in tax law that assigns an individual or legal entity to a particular state’s tax system. At the national level, personal tax liability is assessed first. Under Austrian income tax law (§ 1 para. 2 Income Tax Act 1988), an individual is subject to unlimited tax liability if they have either a residence or habitual abode in Austria. In such cases, tax liability extends to the person’s worldwide income, meaning all domestic and foreign income must be included in the Austrian tax assessment.
Tax residence is not only relevant in domestic tax law but is particularly important for cross-border situations. It determines which state has the right to tax certain types of income and provides the basis for avoiding double taxation.
If a person also earns income in other states, this income is typically subject to limited tax liability in those states and is also taxed there. To avoid double taxation, double taxation agreements (DTAs) apply, defining which state has taxing rights and how relief—through exemption or credit—is granted.
Tax Residence in the International Context: OECD Criteria
In international tax law, the question of tax residence plays a crucial role—especially when a person qualifies as tax resident under the domestic laws of multiple countries. In such cases, more than one state claims the right to tax the person’s worldwide income, creating conflicts and potential double taxation.
To prevent such conflicts, states conclude double taxation agreements (DTAs). Most are based on the OECD Model Tax Convention (OECD-MC), which serves as the international standard for allocating taxing rights and defining tax residence.
A key provision is Article 4 of the OECD-MC, which defines a “resident of a Contracting State.” A person is considered resident if they are liable to tax in that state based on domicile, residence, place of management, or any similar criterion.
When an individual qualifies as resident in both states under domestic law, the question arises: Which state has the primary taxing right? In these cases, the tiebreaker rule under Article 4(2) OECD-MC applies, setting out a cascade of criteria.
TieBreaker Rule
First, it is determined whether the individual has a permanent home in one of the states.
If they have a home in both, the analysis moves to the next criterion:
This refers to the state with which the individual has the closest personal and economic relations, with personal ties generally given greater weight.
This step often leads to uncertainty in practice, as determining the centre of vital interests depends heavily on the facts of each case. A comprehensive overall assessment must be conducted, considering family ties, employment, assets, and social connections. This distinction is frequently complex and requires careful evaluation.
If no clear result emerges, the habitual abode is examined.
If still unresolved, nationality is considered.
If the question remains unanswered, Article 25 OECD-MC provides for a mutual agreement procedure, in which authorities of both contracting states must reach a joint solution to prevent double taxation.
Methods for Avoiding Double Taxation
To prevent individuals and companies from being taxed multiple times on the same income, various mechanisms are used. The main methods are the exemption method and the credit method.
Exemption Method
Foreign income is exempt from taxation in the state of residence.
However, a progression proviso often applies, meaning the foreign income influences the tax rate applied to domestic income.
Credit Method
Foreign taxes paid are credited against domestic tax liability, but only up to the amount of domestic tax attributable to that income.
In Austria, most DTAs apply the exemption method with a progression proviso.
Case Law
Decision of 10 February 2025 (RV/7104138/2023)
The Austrian Federal Fiscal Court examined the residence status of a taxpayer who received €30,000 in managing director remuneration from Slovakia, while maintaining a principal residence and spouse in Austria and holding an Austrian employment.
The court held that the centre of vital interests was in Austria due to the stronger personal ties.
Despite tax registration in Slovakia, Austrian residence could not be rebutted.
The Slovak income is taxable in Slovakia under the Austria–Slovakia DTA and is exempt in Austria under the exemption method. However, it is included in the progression provisoand thus affects the tax rate applied to Austrian income.
Other Decisions
Other Federal Fiscal Court decisions also highlight the importance of personal ties:
The court emphasized that personal ties—especially family—are more significant than economic connections when assessing residence.
A temporary work assignment in Germany was insufficient to shift the centre of vital interests from Austria, as family ties remained in Austria.
Conclusion
Anyone operating or maintaining residences in multiple countries should seek a thorough tax analysis at an early stage.
Our expertise in interpreting relevant legal provisions and managing practical implementation ensures a reliable assessment of tax residence and optimal structuring of tax consequences.
We are available to provide guidance, ensure clarity, and help avoid risks.
