People often think of residence and domicile as the same, but they have different meanings, particularly in regard to tax law. Residence is where you live temporarily or for part of the year, and it impacts taxes on income earned in that location. Domicile is your permanent home and affects taxes on your global income and inheritance.
This article will walk you through everything you need to know about domicile vs residence. We will focus on the legal definitions of these terms as well as how each influences taxes. We will cover:
- Understanding Domicile and Residence Differences
- What is domicile?
- What is residence?
- Residence vs. Domicile Examples
- Domicile Challenges
- Domicile versus Residence Taxes
- Establishing a New US Domicile
- Physical Residency vs Tax Residency
- What is Non Domicile status?
- Countries with Non-Domicile Programs
- Where to Domicile
Understanding Domicile and Residence Differences
The terms “Domicile” and “Residence” are terms often interchanged and mistaken as the same. However, the two have different legal definitions and implications. “Domicile” is your “permanent home,” while “Residence” is your “temporary home.”
- Residency is a loose term for where someone chooses to live. You can easily have multiple countries of residence.
- Domicile is more permanent and is effectively somebody’s home base. Once you move into a jurisdiction and take steps to establish your domicile in one country, that state becomes your tax jurisdiction.
Let’s look at an easier-to-understand example to help us understand the substantial connection and difference between the two.
If you are a student and attend university or college, you may have to live in the college dorm for a few years. The college dorm is one of your residences. The home you are leaving to study in college is your domicile home.
What is domicile?
Domicile status means an individual has a domicile in their country where they have a permanent or primary home. Nobody can have more than one domicile home. This status also makes you a part of specific laws undertaken by your country’s government authority.
Domicile requirements
The requirements to establish domicile residence vary from one’s domicile country to another. However, the critical factor required to establish a domicile home depends on the number of days you spend in the domicile country. For example, you can establish your primary residence if you stay for 183 days according to some legal terms in some regions.
What is residence?
Residence requirements
The requirement to be a lawful resident in a country or state is to live there for at least 183 days per tax year or visit the place frequently with the intention of staying. This can deem you as a resident for tax purposes. Once you have a legal residence, you can live, study, work, or establish a business in the country. Individuals can gain residency through various means such as work permits, family, or by investing in the country.
Take a look at our Residency by Investment Ultimate Guide by Experts
Residence vs Domicile Examples
Let us cite some examples to understand the distinctions between residence and that of domicile.
- John had lived in the United States of America for his entire life, making it his home country. He moved to the United Kingdom on a six-month job assignment, after which he will return to the United States. The United States of America is his domicile, while the United Kingdom is his residence.
- Dean and Alice grew up in Brazil but own property in the United States and intend to change their domicile to the United States. They acquire Green Cards, open US bank accounts at a local bank, and register to vote as permanent residents. The United States is now their principal home and domicile.
Domicile Challenges
It is essential yet difficult to understand domicile rules. Being clear about your intent is vital when choosing a principal home. A domicile is your permanent home where you intend to live for the foreseeable future.
Determining a domicile can be easy if you have only one home. In this case, your residence and your domicile is the where you live.
If you have two homes in two different countries, you must determine which one is your domicile. The two places you stay can be of various structures such as apartments, houses, or other residences. No matter where you stay longer, the country you intend to return to and reside in is your domicile or primary home.
Proving intent
When trying to prove intent, the length of time you spend in a home does not determine your domicile and residency.
The critical factor in determining your domicile is your intent. Many individuals choose to state their domicile depending on various factors from which they benefit. These factors can be based on taxes such as state tax on income.
Hence, the true intent of an individual is determined by other authorities. These authorities can include judges and revenue agents. If you have changed your domicile and want to state a new domicile as your primary home, it is advisable to go through a thorough legal process and cut all ties to your prior domicile.
Domicile versus Residence Taxes
It is important to determine and state your domicile for tax purposes. There are three main types of tax liabilities involved, including:
- Personal Income Tax
- Capital Gains Tax
- Inheritance Tax
Income Tax
Depending on the tax laws in the country where you hold residence, you may be liable to pay state taxes on your global income. Your financial assets or residences in other countries can fall under the tax policies known as worldwide income tax.
Residency rules in many nations dictate that upon becoming a resident, you acquire tax status within the country, thus making you liable for taxation. The tax rules for your domicile may differ if it is not your place of residence and your country of domicile practices residency-based taxation. In this case, you would not be liable to pay taxes from an income.
Should your country of domicile impose territorial or citizenship-based taxation, you would be liable to pay income taxes if you are a citizen or earn income there.
Capital Gains Tax
Owning financial assets or property in foreign jurisdictions and determining domicile is essential for state income taxes. Most countries impose territorial taxes, regardless of where you live, so you can expect to pay tax on capital gains in your country of residence or domicile.
Specific jurisdictions, such as Caribbean citizenship by investment countries, do not charge Capital Gains Tax regardless of immigration status.
Inheritance Tax
Like capital gains, inheritance is subject to taxation in both the place of residence and domicile based on territorial taxes, meaning that the tax is levied on assets within the jurisdiction. However, individuals can avoid paying inheritance taxes to tax authorities in countries that do not impose inheritance taxes, including Cyprus, St Kitts and Nevis, and Vanuatu.
Determining Your State Taxes
State Income Tax: As mentioned above, depending on the state’s tax framework, domicile states and taxing authorities may tax you on your worldwide income. Some legal constructs require individuals to pay taxes and undertake all tax liability proposed by the state government whether they live in the country or maintain a foreign residence.
Death Taxes: The primary location where death taxes are imposed is your country of domicile. If you have yet to cut ties with your previous domicile property fully, you may face significant tax liabilities on both properties.
Establishing a New US Domicile
Individuals may choose to change their domicile for many reasons. If you wish to establish a new domicile, you must undertake the following steps to do so lawfully:
- Change your driver’s license details and get it authorized by your new domicile state.
- Update the address of the automobile registration.
- Update your voter’s registration.
- Inform your bank of your new primary address and locate your new local branch.
- Show the last state income tax and tax return that you paid for, establishing transparency for tax purposes.
Change your domicile
The two primary conditions required to change domicile are:
- You are leaving the country where you are domiciled and settling in a different country permanently
- Firm proof that establishes your intention of staying in the new domicile home for an indefinite period
There can be various other reasons for a person to change their domicile, but the points mentioned above are the two primary reasons an individual can change their domicile.
Physical Residency vs Tax Residency
Physical residency refers to the physical location where an individual resides. It’s determined by how much time an individual spends in a specific place and is typically defined by immigration laws.
Tax residency, on the other hand, is the status that determines where a person is liable to pay taxes based on where they spend a substantial amount of time, usually over 183 days in a calendar year. Therefore, tax residency depends on factors including:
- Number of days spent in the country
- Income earned in the country
- Assets held in the country
Individuals may be considered tax residents even if they don’t physically reside there and be subject to paying income, capital gains, property, or other taxes based on their circumstances.
What is Non Domicile status?
Non-Dom (Non-Domiciled) status is a tax designation offered by countries like Malta, Cyprus, and Greece. It allows individuals who are residents but have their permanent home (domicile) elsewhere to limit tax obligations on foreign income. With Non-Dom status, only income earned within the country or brought into it is subject to local taxes. Foreign income and capital gains, if kept outside the country, remain largely untaxed. This tax setup is especially attractive for high-net-worth individuals who want to reside in these countries while optimizing their tax exposure.
Countries with Non-Domicile Programs
Malta Global Residence Program (GRP)
Malta’s tax benefits for non-domiciled residents are offered through the Global Residence Program (GRP),also known as the Resident Non-Domiciled Tax Scheme. While not officially labeled a “Non-Dom” program, it works similarly by taxing foreign residents only on income brought into Malta, with any foreign-sourced income remaining abroad exempt from local taxes. This program requires a minimum annual tax of approximately €15,000 on remitted income and includes residency requirements, like maintaining a property in Malta.
Greece Non-Dom Program
Greece also offers a Non-Dom program targeting wealthy individuals and retirees to draw foreign capital into the country. Under this scheme, approved applicants can pay a flat tax of €100,000 per year on their worldwide income, regardless of the total amount, in exchange for not being taxed further on foreign earnings. Non-Doms in Greece must either invest at least €500,000 in the Greek economy, such as in real estate or businesses or show significant financial assets abroad. This program is also available to retired foreigners with substantial pensions.
Where to Domicile
Many countries offer citizenship by investment programs that allow individuals to change domicile, providing a pathway to residency and citizenship. These programs often have favorable tax regimes, making them attractive for investors seeking global mobility and financial benefits.
Antigua and Barbuda
Antigua and Barbuda’s citizenship by investment program grants citizenship within six months through a donation of $230,000 or a real estate investment of $300,000. Successful applicants and their families gain visa-free access to over 150 countries, including the Schengen Area and the UK. This program is ideal for investors looking to get fast track to a second passport with significant travel benefits.
Dominica
Dominica’s Citizenship by investment program is renowned for its affordability and efficiency, providing citizenship in six to nine months. The minimum investment requirement is either a $200,000 donation or a $200,000 real estate purchase. Citizens enjoy visa-free travel to more than 140 destinations, including the Schengen Area, making it a practical and cost-effective choice for global mobility.
Grenada
Grenada’s CBI program stands out with its access to over 140 visa-free destinations, including China, making it particularly attractive for businesspeople. Investors can acquire citizenship in nine months through a $235,000 donation or a $270,000 real estate investment. Grenada’s program is especially valued for its unique international travel benefits and stable economic opportunities.
Malta
Malta’s citizenship by investment program is one of the most prestigious European CBI programs, granting citizenship in 12 to 36 months. Investors must commit to a €600,000 donation and a €700,000 real estate purchase. Successful applicants gain visa-free access to 180+ countries, including all Schengen Area nations, the UK, and the US for business visas. This program is ideal for high-net-worth individuals looking for global opportunities and EU access.
St. Kitts and Nevis
St. Kitts and Nevis’ citizenship by investment program delivers citizenship within 12 months. The investment options include a $250,000 donation or a $400,000 real estate purchase. With visa-free travel to over 150 countries, including the Schengen Area and the UK, this program is popular among those seeking a reliable and well-established route to a second passport.
Turkey
Turkey’s CBI program is known for its fast processing, offering citizenship in just three to six months. Investors must purchase real estate worth at least $400,000 to qualify. Successful applicants gain visa-free access to 110+ countries, including Japan and the Schengen Area. Turkey’s program is compelling for investors seeking strategic global mobility and fast results.
Vanuatu
Vanuatu’s CBI program provides the fastest route to citizenship, with processing completed in as little as 60 days. The minimum investment is a $130,000 donation. Citizens enjoy visa-free travel to 130+ destinations, including the Schengen Area, the UK, and Pacific nations. This program appeals to those who want a swift and straightforward second passport.
St. Lucia
St. Lucia’s citizenship by investment program offers a balanced and affordable scheme, granting citizenship in 10 to 12 months. Applicants can choose between a $240,000 donation or a $300,000 real estate investment. The program provides access to over 145 visa-free destinations, including the Schengen Area and the UK, making it a competitive option for investors seeking global travel benefits.
Frequently Asked Questions about Domicile versus Residence
What's the legal definition of domicile?
The legal construct of domicile is the primary home that you declare in legal documents for tax purposes, voting, bank, registering an automobile or pet, and receiving social security. You can have more than one residence but only one domicile.
What's the US difference between domicile and residency?
Tax residence or residence in the United States is a temporary concept that is determined for each tax year, depending on statutory residency. You are considered a statutory resident living in the US for a temporary period with a domicile in another country. If your domicile is outside the United States, you must still pay taxes on your entire income earned in the US and abroad.</p>
US domicile is permanent, referring to the United States being your primary home. As a legal term, domicile means playing a more significant role regarding legal matters and civil responsibilities.
Is your present abode your residence or domicile?
A statutory residence is where you live temporarily, whereas a domicile is the home where you live indefinitely. Your domicile of origin is based on your legal documents and authorized registration under state law.
Can I claim residency in another country?
It’s possible to live in one country and claim residency in another, depending on the immigration laws of both countries. Many have their own criteria for determining residency status, which may include factors such as the amount of time spent in the country or ties to the country through family or property ownership.
Can a person have two domiciles?
No, a person can only have one domicile.
How to acquire a Domicile Certificate?
You can acquire a Domicile Certificate or a Certificate of Residence based on the state laws and policies. For example, in the US, you must apply for a Certificate of Residence if you are a resident and have a taxation agreement, among several other procedures.
What is the difference between domicile and residence for tax purposes?
For tax purposes, residence refers to where you live temporarily or for part of the year and determines tax on local income. Domicile is your permanent home with long-term ties, affecting taxation on global income, assets, and inheritance. Residence is usually easier to change, while domicile often reflects deeper connections to a specific place.
How do you prove domicile vs. residence for tax residency?
To prove residence, you typically provide evidence like utility bills, rental agreements, or local tax filings showing where you live. To prove domicile, you need documents showing long-term ties, such as your birthplace, family connections, or ownership of a permanent home. Domicile reflects deeper, enduring connections than residence.
