Tax Residency vs. Permanent Residency: Key Differences and Strategic Relocation Planning

Every year, more and more people are thinking about moving abroad - whether for tax optimization, better quality of life, education, or business opportunities. However, there are many legal and bureaucratic subtleties along the way. One of the most common mistakes is the confusion between the concepts of tax residency and permanent residence. Although both statuses are associated with residence in another country, they are fundamentally different in essence and consequences. Let's find out the difference between them and how to properly approach planning a move.

What is tax residency?

The question of tax residency arises whenever a person moves to another country or starts earning income from foreign sources. This is especially true for freelancers, remote workers, entrepreneurs, investors, and anyone who spends a significant portion of the year outside of their home country.

Many people mistakenly believe that tax residency is directly related to citizenship or residency. In fact, it is a separate legal status governed by the tax laws of a particular country. It determines in which jurisdiction a person must report his or her income and pay taxes on income earned both domestically and abroad.

Tax residency is not just a formality. It directly affects:

• the amount of taxable income;
• the need to file tax returns;
• the right to tax deductions or exemptions;
• the possibility of applying double tax treaties.

How tax residency is determined

Each country has its own criteria for determining whether a person is considered a tax resident. Below we will consider the main approaches that are most common in international practice:

1. Number of days of residence in the country

The most universal criterion is the number of days spent by an individual in the country during a calendar year. Most often a threshold of 183 days is used - if a person stays in the country longer than this limit, he is recognized as a tax resident.

For example:

In Russia, tax residency is determined according to this principle: if you are in the country for 183 calendar days or more within 12 months, you are considered a tax resident and must pay taxes on global income.

Germany and Italy have a similar rule: if you stay in the country for more than 183 days a year, you automatically become a tax resident, even without a formal residence permit.

It is important to realize that these 183 days may not go consecutively - they are counted cumulatively for the year.

2. Center of vital interests

Some countries take into account not only the actual presence but also a more subjective factor - the presence of a “center of vital interests”. This concept encompasses all major aspects of a person's life related to the country:

• real estate, especially housing for permanent residents;
• family residence (spouse, children);
• business or permanent employment;
• bank accounts, membership in clubs and other organizations;
• permanent place of personal and economic affairs.

So, for example, in France, even if you spent less than 183 days in the country, but have a house here, where your family lives, and are active in business - you can be recognized as a tax resident. 

This approach is less formalized but gives the tax authorities more flexibility in determining status.

3. Citizenship and/or registration

Some states tie tax residency to citizenship or permanent registration. A particularly striking example is the United States of America. There, a tax resident is anyone:

• who is a U.S. citizen;
• who has a green card (permanent resident status);
• or who passes the so-called substantial presence test (total number of days of stay over 3 years, weighted).

In the US, tax residency means the obligation to declare and tax all income, regardless of where it was earned - even if the person lives outside the country. This makes the U.S. one of the few countries where citizenship almost automatically entails tax residency.

In some countries - for example, Canada - tax residency may also be established on the basis of “habitual residence” or “intent to settle”, which requires analysis of a combination of factors.

Comparison of approaches: Russia, the US, and the EU

For the sake of clarity, three different models for determining tax residency can be distinguished:

• Russia: strict quantitative criterion - 183 days of residence. If you have not lived the required number of days, you automatically lose your residency status, unless you declare otherwise.
• USA: Citizenship and migration status are the main determinants, with special tests for foreign nationals. You can be a tax resident of the USA even if you do not live there permanently.
• EU countries (e.g. France, Germany, Spain): combine quantitative criteria (days of residence) with qualitative criteria (center of vital interests), and each case can be considered individually.

Thus, tax residency is not just a matter of residence. It is a matter of tax obligations, accountability, and potential risks. If you regularly live or work in more than one country, it is important to understand in advance exactly where you may be recognized as a tax resident to avoid surprises in the form of double taxation, penalties, and litigation.

What is a residence permit?

In today's world, where migration has become part of the lives of millions of people, the status of permanent resident - or Permanent Residence (PR) - is of particular importance. This status allows a foreign national to live in another country for an indefinite period of time without being a citizen of that country. It is important to realize that permanent residence is an immigration status, not a tax or political status. It is governed by the country's migration laws and gives foreigners almost the same rights as citizens but with certain restrictions.

Many people consider obtaining a residence permit as a key step to later obtaining citizenship. But even without a passport, the status of permanent resident allows you to fully integrate into society and enjoy a wide range of rights and freedoms.

Difference between permanent residence and citizenship

Although permanent residency and citizenship at first glance seem to be similar statuses - both allow long-term residence, access to medicine, education, and the labor market - there are fundamental differences between them.

The main difference is the lack of political rights for the holder of a permanent residence permit: such a person cannot participate in elections, hold certain public offices, or vote for changes in legislation. Also, a permanent resident, unlike a citizen, can lose his status if he violates migration rules - for example, leaving the country for too long or committing a serious offense.
In addition, a citizen has an inalienable right to stay in the country - he cannot be deported. The holder of a residence permit, although protected from arbitrary expulsion, does not have such a full guarantee.

Rights and obligations of a holder of a residence permit

Obtaining a residence permit provides a wide range of opportunities comparable to the rights of citizens. Holders of the status can:

• Live and work in the country without restrictions and the need to extend visas.
• Enjoy social protection: health care, education, pensions, and other public services.
• Open a business and freely engage in entrepreneurial activities.
• Buy real estate, open bank accounts, and enter into long-term lease agreements.
• In a number of countries - to move freely within the territory of neighboring countries (for example, in the Schengen zone countries).

However, along with rights, residents have responsibilities:

• To comply with local legislation and migration regulations.
• In some countries - to report income, file tax returns, or re-register.
• Maintain actual residence in the country: if a person leaves for a long period of time, his or her residence permit may be revoked.
• Behave “approximately” - in some countries, serious offenses can be grounds for revocation of residence permit.

How you can get a residence permit: the main ways

There are many ways to obtain a residence permit, and they depend on the legislation of a particular country. But there are several universal and most common grounds, which are found all over the world:

Through investment

Many countries offer “golden visa” or investment residency programs that allow you to obtain first a temporary and then a permanent status. This requires investing in the country's economy - for example, buying real estate, investing in government bonds, or starting a business. Bright examples of such programs are Portugal, Spain, Malta, and Greece.

Family reunification

If close relatives already live in the country - spouse, children, parents - you can apply for a residence permit based on family reunification. This is one of the most “humane” and frequently used forms of migration.

Through marriage

The conclusion of marriage with a citizen or permanent resident of the country also provides grounds for obtaining the right to long-term residence. Most often, a temporary residence permit is first issued, and after a few years - a permanent residence permit. However, most countries have strict checks to exclude sham marriages.

On the basis of employment

Foreigners who have been legally working in the country for several years (usually 3 to 5 years) may qualify for a permanent residence permit. A work visa can be converted first to temporary and then to permanent status. This way is widespread in Canada, Germany, and Australia.
Some countries also grant residence permits to highly qualified professionals or scientists after completing their studies and gaining work experience.

A permanent residence permit is a solid and stable legal status that opens the door to long-term residence and full integration into the life of another country. For many, it is an intermediate but important step on the path to citizenship. However, even the status of permanent resident itself provides ample opportunities to live, work and develop abroad. To avoid losing it and make the most of it, it is important to understand the rights and obligations associated with it - and to comply with the conditions set out by law.

Key differences between tax residency and residence permit

The relationship: whether you can be a tax resident without a residence permit - and vice versa

Many people think that tax residency and permanent residence necessarily go hand in hand. However, these are two independent legal statuses, each of which is governed by separate rules of law - tax and migration law, respectively. In reality, different combinations of these statuses are possible, and understanding the differences between them is crucial for planning relocation, doing business, and avoiding tax risks.

Tax residency determines where you are obliged to pay taxes and file tax returns, while permanent residence determines where you have the right to reside permanently without being a citizen of the country. One status does not automatically guarantee the other.

Is it possible to be a tax resident without a permanent residence permit?

Yes, and this is a fairly common situation. Tax residency in many countries is determined solely on the basis of actual residence - for example, if you are in the country for more than 183 days a year, you may automatically be recognized as a tax resident even if you do not have a permanent residence permit or even a temporary residence permit.

Example: a person lives and works remotely in Thailand, Portugal, or Georgia for eight months a year using a tourist visa or short-term residence permit. If his stay exceeds 183 days, the local tax authorities may recognize him as a tax resident. This means that he will have to declare income and possibly pay taxes in this country - even without the right of permanent residence.

This relationship is especially clear in countries with an automatic mechanism for determining tax residency (e.g., Canada, Australia, UK), where the main criterion is not the type of visa, but a combination of factors: length of stay, availability of housing, and center of interest.

Is it possible to have a residence permit and not be a tax resident?

Yes, and this is also a real scenario. A permanent residence permit gives you the right to live in the country but does not oblige you to do so permanently. If you have a PML but spend most of your time abroad, you will most likely not be recognized as a tax resident.

Example: a person has obtained a residence permit in Spain under an investment program, but actually lives in the UAE or Singapore. Since he spends less than 183 days a year in Spain and does not have a center of vital interests in Spain, he is not considered a tax resident of Spain and does not have to pay taxes on global income in this jurisdiction. However, he is obliged to keep track of the length of stay so as not to cross the invisible line.

Many holders of permanent residency in European countries deliberately avoid tax residency status to avoid being subject to high tax rates. This is especially important for those with international sources of income.

Examples of countries with automatic or hybrid determination of tax residency

Some countries use strict quantitative criteria, while others use a flexible combination of factors:

• Canada: tax residency is determined by the concept of “significant ties” to Canada. If you have a home, bank accounts, or family, or have lived in the country for a long time, you may be recognized as a resident even if you do not formally have a residence permit.
• Australia: applies the “residence test” and considers behavior, intent, and connection to Australia. Even in the absence of a permanent residence visa, a person can be recognized as a tax resident.
• Germany and France: if there is a center of vital interests (family, housing, business) and even with a relatively short stay in the country, tax residency can be established.

Risks of double taxation and how to avoid them

The main problem arising at the intersection of tax residency and permanent residence is double taxation. It occurs when two states simultaneously consider a person to be their tax resident and require them to pay taxes on the same income.

For example, if you:

• Hold a residence permit in one country;
• But by number of days or family ties are considered a tax resident of another, you may receive notices from both tax authorities and be required to file a tax return in each.

To avoid this, there are double tax treaties (DTTs). These treaties are signed between many countries and establish which country has the right to tax a particular type of income - wages, dividends, interest, capital gains, etc.

Also important:

• Keep records of days spent in different countries.
• Consult with international tax advisors.
• If necessary, formally renounce one tax residency if you have moved and do not plan to return.

Conclusion

Although PML and tax residency often go side by side, they are not equivalent and can exist independently of each other. Understanding their differences and interrelationships is essential in order to:

• intelligently plan a relocation or long-term stay abroad;
• choose the best jurisdiction for paying taxes;
• avoid double taxation and non-obvious legal risks;
• protect your finances and status in another country.

If you live in one country, pay taxes in another, and have a residence permit in a third, you are not alone. But with such a lifestyle, it is especially important to build a personal tax and immigration strategy, rather than relying on general rules or chance.

The GARANT.in team helps private clients and entrepreneurs understand the issues of tax residency, obtain a residence permit in a reliable jurisdiction, and avoid mistakes when moving. The agency's lawyers and migration experts work with dozens of countries and offer turnkey solutions - from analyzing your situation to obtaining the right status.