Where can I be tax resident when I don't stay in any EU-country longer that 6 months a year?

Question

I'm a Polish citizen. I've become a German resident because I'm working there, and as fair as I have learned, I'm treated as resident if I'm in given country (Germany) more than 180 days a year.

This has tax implications if I'd like to work as contractor. Staying more than 180 days in Germany I'd be forced to register a company there (and be taxed there).

However, assuming I don't stay in any EU country more than 180 days, and I'm still contracting (either changing contract or working remote), what implication on taxation and company registration does it have? Can I than register my company for contracting in any country I choose (for example, Cyprus), or I'd have to register it in my home country (Poland)?

Just to give an example, I am contracting for German country, that allows me to work abroad half the time. I spend 5 1/2 months in Germany, 5 1/2 months in Poland, and 1 month 'abroad' (for example Montenegro, Croatia) on holidays. In none of the countries I'm longer than 180 days.

Answer 1

There's a lot more to tax residence in most countries than a simple time limit.

For Germany, for example, there are other specific triggers, other than the 6 consective month rule. One would be having an abode in Germany. Covered in reasonable detail in this KPMG report (pdf).

Tax residence generally implies you have to pay tax to that country on your worldwide income (possibly with some exceptions for tax already paid elsewhere and double tax treaties).

If you're not a tax resident, that doesn't mean you are outside tax - you may still be liable to be taxed on local income. For example, from that report from Germany:

Employment income is generally treated as German-sourced compensation where the individual performs the services while physically present in Germany.

Tax treaties may change this, but if you're not resident anywhere you can't take advantage of these.

Other countries have different rules on when you are resident for tax purposes, it's not always 180 days, whether in the EU or elsewhere. The UK has a Statutory Residence Test (pdf) with many rules. The US has another complex set of rules which effectively mean a maximum of 4 months per year presence.

Finally, you should consider how your residence affects the residence of any personal services company you own (in any country). Many countries (such as the UK) have an "effective control" test (that looks through nominees) that works out whether the majority of the ownership of a company is resident in their country. If it does, that company then also become resident for tax purposes (and possibly for registration as a foreign company, VAT, etc).

Answer 2

Each country where you are working, contracting or residing might try to tax some or all of your income based on the local rules and those are not fully unified even in the European Union. Worse case scenario, you could be taxed several times for the same income. Some countries like the US will also want a bite at the apple as long as you are a citizen, no matter where you live or what you do. Adding more countries to the equation (i.e. owning stuff, residing, earning income or being a citizen in several places) just adds potential liabilities. Except if you have a lawyer or tax adviser figuring things out for you, you are not necessarily doing yourself any favor by moving around a lot (except for the fact that it's pretty cool of course).

You did not mention it in your scenario but as an example, France would be to consider you a resident for tax purposes if it's the country you spent the most time in (i.e. even less than six months in total, as long as you haven't stayed longer anywhere else) or if you match any of a bunch of other criteria. It won't let you get away with registering in Cyprus and trying to evade French taxes merely because you stayed only five months and three weeks in the country. I don't know much about Germany, next to nothing about Poland or Cyprus so I can't get in the details of that particular scenario but you see how it can get very complicated real quick and there is no reason to be too worked up about the six-month limit, the relevant factors are much more complex than that.

Answer 3

Rob Hoare mentioned, correctly "There's a lot more to tax residence in most countries than a simple time limit". One consideration is that of being in the country's medical system. Tohecz, for example, said that he lives in France half the time but has no taxable income there. That would, AFAIK, preclude him from receiving any medical benefits.