Guest post on the meaning of residence

‘Conservative’ posted this as a comment, but I think it should more properly be put up as a guest post. I have accepted his offer to write a separate bit about ‘domicile’, which is distinct from ‘residence’.

Residence is a concept of international and national tax laws.

Most countries have clearly defined rules of what constitutes “residency”, normally a sojourn of 183 days or more in a tax year, irrespective of whether for a permanent or temporary purpose.

Rules vary from country to country and in some countries, such as the UK, residency rules are very complex.

Residency for a year in the Maltese tax law concept does not mean being physically in Malta for 365 days. It means spending 183 days or more in the country in any one tax year (which is the same as a calendar year).

However, this will be subject to any double tax treaties between Malta and the country of nationality. Most treaties have so-called “tie-breaker” rules in the event that a person spends an equal amount of time between the two countries, where their economic centre of interests is equally spread across the two – or more – countries, and where they own or maintain a residence in both countries. Often the last tie-breaker clause is nationality.

So if, for instance, one looks at the China-Malta double tax treaty (formally Legal Notice 104 of 1994, Income Tax Act, Cap. 123, Double Taxation Relief (Taxes on Income) (People’s Republic of China) Order, 1994), one would find that where residency is unclear – as in the example of a Chinese man holding Maltese nationality (passport), spending the same amount of time annually in both countries and having homes in both countries, as well as equal economic interests in both countries, and in all cases not excluding interests in third, fourth or fifth party countries – the treaty actually says:

“2. Where… an individual is a resident of
both Contracting States, then his status shall be determined as follows:

“(a) he shall be deemed to be a resident solely of the Contracting State in
which he has a permanent home available to him; if he has a permanent home available
to him in both Contracting States, he shall be deemed to be a resident solely of the
Contracting State with which his personal and economic relations are closer (centre of
vital interests);

“(b) if the State in which he has his centre of vital interests cannot be
determined, or if he has no permanent home available to him in either Contracting
State, he shall be deemed to be a resident solely of the Contracting State in which he
has an habitual abode;

“(c) if he has an habitual abode in both Contracting States or in neither of
them, he shall be deemed to be a resident solely of the Contracting State of which he is
a national;

“(d) if he is a national of both Contracting States or of neither of them, the
competent authorities of the Contracting States shall settle the question by mutual
agreement.”

Therefore, it is quite possible to be a resident of Malta without even spending the requisite 183 days in a year in Malta. So you can still have, say Mr Chang from China, spending equal time in both China and Malta, having no economic interests in either country, no permanent home in either country, having no habitual abode in either country, and having bought a Maltese passport (as a result of which he may have renounced his Chinese passport), then that person would qualify as a Maltese tax resident under the treaty agreement and we’re back to square one.

The dodgy Mr Chang has simply bought a passport, qualified as resident and bounces off into the EU Schengen area without leaving a trace after spending hardly any time at all in Malta – perhaps a three month holiday in the Malta Hilton, after having purchased his passport for a risible sum of money and rented a flat which he won’t even bother to furnish.

What PM Muscat is saying here is that there is only a one year residency requirement agreed with the European Commission – meaning that after the initial residency criterion is satisfied (and even perhaps before it is satisfied), that passport buyer can disappear from Malta and never be heard of again once he has his passport. He doesn’t even need to return to Malta to renew his passport once it expires, because that can be done at any Maltese embassy anywhere in the world.

The only way you can ensure that a person is linked to the country to which he or she has applied for nationality is by ascertaining that he is actually domiciled in that country. Domicile is not nationality or residence; it is very broadly where you consider your home to be – in the most simplistic terms possible. I can expand on domicile if necessary.