Dual residence

If you have not read yet about the difference between a permanent establishment and dual residence, do that before diving into this article. 

It can easily happen that a company is considered tax resident in two different states at the same time if it is registered under the laws of one state, but has the place of effective management in another. It is generally understood that a place of effective management is the place where key management and commercial decisions that are necessary for the conduct of the enterprise's business are in actually made, but of course, states are free to attach a different meaning to the concept. A conflict like this results in dual residence for the company.

Bilateral tax treaties include certain tie-breaker rules to decide where the company should in fact be considered resident and which state can, therefore, tax the company’s worldwide income.

It might be necessary to involve competent authorities to eliminate the issue of dual residence. Competent authorities are normally the local tax authorities or an office responsible for enforcing tax treaties. All tax treaties Estonia has concluded with other countries can be found at the website of the Estonian Tax and Customs Board. 

If you have also read the permanent establishment article, check out some country-specific examples on how PE and corporate residence is determined. 

This article is part of a Business Guide

This article is a part of larger set of guidelines that e-Residency project team has requested for you and that has been compiled in cooperation with AS PwC. Download the full version of the Business Guide

Articles in the Knowledge Base and the Business Guide are intended solely to provide general guidance on matters of interest for the personal use of the reader, who accepts full responsibility for its use. This information should not be used as a substitute for consultation with professional accounting, tax, legal or other competent advisers. 

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