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A fiscal domicile is the home of a person or company kept for tax purposes. Each nation has its own standards, although it is common for allies to coordinate their tax laws to reduce the risk of double taxation. The goal of creating a fiscal domicile is to ensure that people are not taxed twice on their earnings while countries are able to tax people who generate profits and work within their borders. Tax accountants can provide assistance on this topic for people who are not sure about which laws apply.
For someone who does business and lives in the same country for most of the year, establishing a fiscal domicile can be easy. A United States citizen living and working in the US who travels outside the country for work sometimes would pay taxes in America. This can become more complicated for people who split time between several nations when their time and financial activities are roughly equal. The same holds true for companies that may operate in multiple nations.
One way to determine fiscal domicile is to set a time-based standard. A nation may decide that someone is an official resident with 185 or more days of residence per year, for example. Setting the standard slightly over half a year makes it impossible for someone to be trapped with two fiscal domiciles because of equal time spent in two countries. Residency standards can also go by month, or by continuous time spent; someone might, for example, need to spend six months continuously in a country.
Another consideration is where a person or company’s vital interests lie. This includes close financial and personal connections. The fiscal domicile would be the nation with the closest network of connections, reflecting the location of the most economic investment. Someone with close family and business connections in Canada who spends a lot of time in Japan might consider Canada a fiscal domicile under this standard.
Establishing residence for tax purposes is important, because it can affect the total amount paid in taxes. Authorities are typically alert to signs of fraud and evasive tactics people may use in an attempt to get more favorable treatment. Someone who splits time between nations with radically different tax laws, for instance, might be closely scrutinized if the nation with more lax laws is claimed as a fiscal domicile. It can be helpful to consult an international tax attorney or accountant to get specific advice on this subject before filing documentation.