Domicile vs. Residence: Are Both Possible?

Is someone’s country of domicile and country of residence different? The two terms often need to be correctly interpreted. Confusion can arise when they are interpreted incorrectly. However, the two have legal differences that can significantly impact someone’s financial status. 

Citizenship by investment and Golden Visa Programs are excellent legal ways to have residence and domicile in a country. Additionally, there are special tax non-dom programs for individuals. Global citizens can legally reduce their tax liabilities by using their residence, domicile, and non-dom status. 

There is a Difference Between Domicile vs. Residence

When understanding the legal concepts of domicile and residency, it is crucial to delve deeper into their meanings. Governments consider domicile as an important legal status for someone having close ties to the country. Even if one moves from their domicile of origin, their principal home can remain the same.

On the other hand, governments see residence as something that is not as formal. An individual can have multiple residences, depending on where they reside. To better understand the differences, let’s look at them independently.

What is Domicile

The common question is, “What does domicile mean?” Domicile refers to a person’s permanent legal residence, which is the place where they have the most significant connections, such as family, property ownership, and voting registration. Residency, however, refers to where a person lives, temporarily or permanently.

Domicile is not automatic in many countries, and there are specific administrative requirements that you need to fulfill. 

What is Residence

“Residence” refers to where someone lives or resides, temporarily or permanently. It can refer to a physical location, such as a house or apartment, or a broader area, such as a city or country. 

A person’s residence is typically determined by where they spend some of their time and where they have legal residency. Residence can still have legal implications, such as choosing a person’s eligibility for certain benefits or services based on where they reside. In a broader sense, it can refer to someone’s overall sense of belonging or attachment to a particular place. 

Primary Differences of Residency vs. Domicile

A person can have multiple residences. A residence is a more flexible and temporary concept. A person’s residence can change frequently and have numerous residences simultaneously. 

Regarding legal status, a domicile is often considered more formal and legally significant than a residence. Domicile determines their legal rights and obligations, such as tax liabilities, inheritance rights, and eligibility for certain benefits or services. 

Possible Hurdles to Overcome

Domicile can be more challenging to obtain and to change than residency. Domicile requires a person to demonstrate an intent to abandon their previous domicile and establish a new one. Showing intent usually involves a more substantial and permanent move, such as buying a new home, moving your family or registering to vote (if possible).

• Residency requirements: 
  • Many countries require individuals to establish a minimum residency before claiming domicile. The residency period can vary depending on the country and may range from a few days, months to several years.
• Proof of intent: 
  • To establish a domicile, an individual must intend to make the country their permanent home. The process can be challenging, as it requires evidence of long-term commitments, such as property ownership, employment, and social connections.
• Legal and administrative barriers: 
  • Obtaining domicile often involves navigating complex legal and administrative procedures, such as applying for visas and work permits, registering with local authorities, and complying with tax and immigration laws. Some countries have special domicile forms that an individual needs to formally submit for approval.
• Language and cultural barriers: 
  • Moving to a new country can be challenging, mainly if significant language and cultural differences exist. Knowing a local language can make establishing social connections and integrating into the local community easier. No doubt, this can impact one’s ability to domicile.
• Financial considerations: 
  • Moving to a new country can be expensive. A new domicile can increase your cost of living or additional costs to establish a new business or source of income. A domicile may require considerable financial resources to cover housing, education, and healthcare expenses.

State of Domicile Meaning: Physical Presence?

A person can have only one domicile at a time, but they can have multiple residencies. For example, someone might have a primary residence in one state but spend several months each year in a second home in another state. Many countries follow a 183 days per year rule that can help domicile in a country. Other countries may only need persons to show a few days physical presence to be domiciled. These persons are likely to have significant assets and investments in the country. 

Other factors determining a person’s domicile can be complex and require consideration. Where they spend the most time,  pay taxes, and where their primary business interests are. Countries may even issue residence that only needs a resident to be in the country for one day per year. Others issue residences with no physical presence requirements.

Tax Specifics for Domiciled Persons

Domicile is often used for legal and tax purposes, while residency can determine eligibility for services and benefits, such as in-state tuition or healthcare. Each country can have varying interpretations of domicile status and tax status. For tax purposes, residency vs. domicile are two concepts that can impact an individual’s income tax liability.

Individual Income Taxes

Individual income tax is determined based on a set of rules and regulations set forth by the tax authorities of a particular country. These rules typically consider the taxpayer’s income, deductions, exemptions, and credits, among other factors. The income subject to tax can come from various sources such as wages, salaries, tips, interest, dividends, rental income, and capital gains. 

Deductions and exemptions can reduce the income subject to tax. Credits, such as those for child care or education expenses, can directly reduce taxes. The tax rate, which often varies depending on the taxpayer’s income level, is applied to the taxable income to determine the amount of tax owed.

Capital Gains Tax

Capital gains tax is a tax on the profits from selling assets such as stocks, bonds, or real estate. While some countries tax capital gains, others do not, regardless of the state of domicile. In countries that do levy capital gains tax, the tax rate may vary depending on the type of asset sold, the length of time the investment, and the amount of profit made from the sale. 

Some countries may also provide certain exemptions or deductions that can reduce the amount of capital gains tax owed. Understanding the capital gains tax laws in the country is essential to ensure compliance with the tax requirements and minimize potential tax liability. 

Inheritance Tax

Domicile can significantly impact inheritance tax, particularly when an heir passes away in a different country. In general, inheritance tax is usually governed by the country’s tax laws where the deceased person was domiciled. The country where the deceased was a resident impacts the initial inheritance claim. If the heir moves the assets from one jurisdiction to another, there is potentially another tax event that can arise. 

However, some countries may have bilateral tax treaties or agreements to prevent double taxation on inherited assets. In such cases, the two countries’ tax authorities may work together to determine the appropriate tax liability and ensure that the heir is not taxed twice on the same assets.

Where May be Good to Domicile 

Tax laws, regulations, and qualifications for a domicile in different countries are subject to change. Tax liability can depend on various individual factors, such as income, assets, and residency. However, some countries are known for having low or no tax liabilities for individuals who are domiciled there.

Countries such as Monaco, Andorra, the United Arab Emirates (UAE), and the Cayman Islands are known for their favorable tax regimes for individuals. These countries offer low or no income, capital gains, and inheritance taxes, making them attractive options for individuals looking to reduce their tax burden.

The Caribbean Islands and citizenship by investment programs can offer great places to domicile. Antigua and Barbuda is free of taxes if citizens can obtain a legal domicile. Similarly, Saint Kitts and Nevis is also a great option. Other citizenship by investment programs, Dominica, Grenada, and Saint Lucia, will be good places to domicile if persons do not remit income in the countries. None of the above countries tax global income that is not remitted in the country. 

What about Nom-Dom Status

Non-dom status programs are residency programs some countries offer that allow individuals to enjoy favorable tax treatment on their foreign-sourced income or assets. These programs attract high net worth individuals seeking to minimize their tax liability. Under a non-dom status program, an individual who becomes a country resident may be able to claim non-dom status. 

The status means that they are not subject to tax on their foreign-sourced income or assets or are subject to tax only on a limited basis. In some cases, these programs may also offer other benefits, such as reduced or exempted rates of inheritance or wealth taxes.

The crux of non-dom status is that, at times, there is significantly limited presence compared to standard requirements for domicile vs. residence. The UK only requires an individual to be physically present for sixteen days for non-dom status, and Cyprus is sixty days. 

Which Countries Have Non-Dom Programs

Many countries in Europe offer non-dom status to residents. Often the resident cannot be a citizen of the country itself, but there are exceptions. Notable countries that have non-dom programs include the Golden Visa countries such as Portugal and Greece. These two programs can offer residents non-dom status to reduce their tax liability legally.

Portugal Non Habitual Residence

The Non Habitual Residence (NHR) program was introduced in 2009 and is designed to attract non-resident individuals to become tax residents of Portugal, offering several tax benefits for ten years.

Under the NHR program, qualifying individuals can benefit from a tax exemption on foreign-sourced income and certain Portuguese-sourced income if they meet specific criteria. The NHR can reduce Golden Visa holders tax liability to 0% with the maximum threshold at 20%. 

Greece Non-Dom Resident Tax Regime

Greece offers a non-dom program that is called the Non-Dom Resident Tax Regime. The Greek non-dom program attracts high-net-worth individuals and entrepreneurs to live and invest in Greece. Often Golden Visa investors use the program as there is limited physical presence.

Under the Non-Dom Resident Tax Regime, qualifying individuals who become tax residents of Greece can benefit from a flat tax rate of €100,000 per year on their foreign-sourced income and assets, as long as they do not have any Greek-sourced income. Individuals who qualify for the program can also benefit from exemptions or reduced rates on inheritance and gift taxes.

Malta Global Residence Program

Malta’s special tax program is the Global Residence Programme (GRP). It is designed to attract individuals not nationals of the EU, EEA, or Switzerland and are not long-term Maltese residents. 

The program allows qualifying individuals to benefit from a flat tax rate of 15% on their foreign-sourced income remitted to Malta, with a minimum tax liability of €15,000 per year. To be eligible for the GRP, individuals must meet specific criteria, such as having a minimum annual income of €100,000 or a minimum net worth of €500,000. The GRP can be an essential consideration for investors using Malta’s Exceptional Investor Naturalization (MEIN) program. 

Frequently Asked Questions

What is the difference between domicile and residence?

Domicile refers to a person’s permanent legal home or country of origin, whereas residence refers to where a person currently lives and spends most of their time.

How does domicile impact tax liabilities?

Domicile can significantly impact a person’s tax liabilities, as it can determine which country has the right to tax their income and assets.

Can a person have multiple residences?

Yes, you can have multiple residences. Certain residence do not require any significant time in different locations throughout the year.

Can a person change their domicile?

Yes, a person can change their domicile if they establish a new permanent legal home in another country and sever their ties to their previous domicile. The process can be somewhat tricky at times to cut all previous ties to a previous domicile. 

How do non-dom status programs work?

Non-dom status programs typically require individuals to meet specific criteria, such as having a minimum income or net worth and limiting their physical presence in their country of domicile. In return, they may receive tax advantages or exemptions in the new jurisdiction where they establish tax residency.

What are some popular non-dom status programs?

Popular non-dom status programs include the Greek Non-Dom Tax Resident program, Portugal’s Non-Habitual Resident (NHR) program, and Malta’s Global Residence Programme (GRP).