Definition of tax residence

Being a tax resident of a country means that you are considered domiciled there for tax purposes. In practice, that country has the authority to tax your worldwide income (salaries, dividends, capital gains, etc.).

The difficulty arises when several countries may claim your tax residence, for example if you live between two jurisdictions or if you set up a company outside your usual country of residence.

Criteria applied by France

Under French law, you are considered a tax resident if you meet one of the following criteria:

• Your home or your main family is in France.
• You carry out your main professional activity there.
• You have your centre of economic interests there (bank accounts, investments, income).

Even if you set up an LTD in England or a company in Bulgaria, if your family and main income are in France, you will remain a French tax resident.

International tax treaties

When a taxpayer may be considered a resident of two different countries, bilateral tax treaties make it possible to decide. They follow a hierarchy:

1. The country where the permanent home is located.
2. If a home exists in both countries: the one where the centre of vital interests is located (main activity, income, assets).
3. Failing that: the country of habitual abode.
4. And finally, nationality.

These treaties prevent double taxation, but they only work if your filings are consistent and transparent.

Why is tax residence decisive for entrepreneurs?

Tax residence directly affects your strategic decisions:

• It determines where your dividends and capital gains are taxed (see our article on flat tax vs progressive tax).
• It determines the legitimacy of your foreign company: a business without economic substance may be attached to your country of residence.
• It affects your banking credibility: when opening an account, banks systematically verify the director’s tax residence (opening a bank account with a foreign company).

Risks of misinterpretation

Many entrepreneurs think that by setting up an offshore company, they automatically escape French taxation. In reality, if your tax residence remains in France, repatriated profits will be taxed in France, and the company may be reclassified.

Example: a consultant based in Paris opens an LLP in the United Kingdom with no British clients. If their income is received and managed from France, the tax authorities will consider that this company is taxable in France.

Conclusion and Recommendations

Tax residence is a key concept that no international entrepreneur should ignore. It determines where your income is taxed and secures your project vis-à-vis the authorities.

In practice:

• If your life is in France, you remain a French tax resident, even with a foreign company.
• If you want to change your tax residence, you need a genuine life plan, not a simple administrative arrangement.
• Setting up a foreign company is not enough: you must also consider your personal status.

At service-societe.com, we help our clients analyse their situation, optimise their taxation, and choose the jurisdiction suited to their project, taking their actual tax residence into account.