Why do you need to know if you are a tax resident or not?

Taxation is an administrative and financial system that consists of the payment of a social contribution by individuals and companies. This system, called the tax system, is present in all countries and allows building up a financial capital of the country. Depending on your position in the system, you can be qualified as a tax resident or non-resident. Why should you know your qualification in this system?

To know how to calculate your tax

Depending on your status, whether you are a tax resident or not, you have a tax rate to pay in relation to your income. You must also, for each status, meet certain criteria and conditions. As this article indicates, knowing your tax status is important to properly prepare your tax return.

Tax residents are not taxed the same as non-tax residents. Tax residents are taxed on all their income, whether in their country of residence or abroad. A non-tax resident in a country, on the other hand, will only be taxed by that country on income earned in that country.

For example, suppose you are a French tax resident and you have a business in Germany. The amount of your tax in France will depend on your income from France and Germany. However, if you are not a French resident, but you earn income there, the French tax will only take into account the income earned in France.

To avoid paying double tax and benefit from tax advantages

Knowing your residential status in each country allows you to avoid wasting money. For example, it prevents you from being taxed twice on all your sources of income in two different countries. Also, knowing your tax status allows you to optimize the amount of your taxation. The better you know your tax status, the more you can benefit from the advantages of this status.