Why is Residence an Important Question?

The mobility of individuals has been in high concentration as students, expats and business owners and investors are increasingly relocating from their home country to another country. I have experienced this myself as I moved from India to pursue graduate course at Georgetown University Law Center and became an expat to work at Asena Advisors. It was not only an offer to gain an exhilarating experience to study tax laws beyond Indian borders but also to personally connect with people from around the world.

With good opportunities in the expat world, there is a greater need to plan taxes as no two countries have same tax laws. For example, In India, an Indian resident (irrespective of his citizenship) is taxable on his worldwide income from April 1st to March 31st of the following year. In the U.S., a U.S. citizen, whether or not residing in the U.S. is taxable on his worldwide income from Jan 1st to Dec 31st. The fact the basis of taxation of an individual change from one country to the other, I have been making it a priority question in my meetings with senior executives and global investors – what is your residential status or day count in a country?

So, if I miss this question, it means there is missing analysis. This further means you may rake over the coals for not meeting the compliance requirements had you known your residence in a country which otherwise may result in huge tax, interest and penalties. For example, the number of Indians holding green cards in the U.S. by 2014 was estimated to be 13.2 million.1 Generally, green card holders are considered U.S. tax residents and required to comply with annual tax and information tax returns reporting their worldwide income, foreign bank and financial accounts. How many of the 13.2 million actually report their worldwide income, accounts and assets? I may not have number with me, but U.S. tax authorities under the Foreign Account Tax Compliance Act closely work with governments of other countries in a targeted effort to combat failure to report foreign assets and income.

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A residential status is therefore an underlying derivative specifically when taxing rights are invoked in a jurisdiction based on your residence. The rules for determining residence may be either objective (similar to countries like India and US) or subjective (like Australia).

Our whitepaper titled Interaction of Indian and U.S. Tax Laws sets out the rules for determining residence in India and the U.S. The interaction of the U.S. and Indian will offer an insight to high net worth individuals, global business owners and senior executives about the key issues to be looked into before planning a move from their home country to the host country.