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Working in another EU member state and income tax

In the European Union, is no unified legal framework that would stipulate the taxation of income of those who move to other member states to find a job. In spite of each member state having established domestic laws pertaining to this issue, there are certain basic principles effective in most cases.

(Source: Courtesy of EURES)

In the European Union, is no unified legal framework that would stipulate the taxation of income of those who move to other member states to find a job. In spite of each member state having established domestic laws pertaining to this issue, there are certain basic principles effective in most cases.

The first is the principle that you pay the income tax generally in the country on the territory of which your income originated. A conflict might arise if you work in a different country than the one in which you live and in which you are considered a tax resident.

Tax resident

The country of your tax residence is the country that due to your address, permanent residence, the location of management or any other similar criterion may tax your total income including any income earned in other countries.

Each country has its own criteria for determining the tax residence and definition of the term “tax resident” resulting from national legislation.

In general, if you move to another country and live there for more than 183 days per year, it is possible that you will be considered a tax resident of this country. If you live less than 183 days per year in a different country, you usually remain a tax resident of your home country. In this case you will pay in the other country only the tax from the income that was earned on its territory.

If you are a tax resident in the country where you work, the same rules as for people living in this country apply to you, i.e. that you are entitled to, for example, a common tax assessment, tax reliefs, etc.

How to prevent double taxation?

If such a conflict of double tax residence arises, i.e. if you are considered a tax resident both by the country in which you work and the country in which you have your permanent residence, the solution of this situation is regulated by the double tax avoidance treaty concluded between the country in which you live and the country in which you work. The crucial condition for applying the due treaty on prevention of double taxation is to prove the place of tax residence in one of the countries with which Slovakia has concluded such a treaty.

Treaties on prevention of double taxation include so-called delimitation criteria for determining the residence, which are applied gradually in the order in which they are named in the due international treaty (i.e. the place of permanent housing, centre of life interests, location of usual stay, state citizenship, and agreement of authorised bodies of contractual states). These criteria are applied gradually until only a single state of residence is determined (it is not necessary to exhaust all criteria). Thus, if there is a conflict, and you are considered a tax resident in two countries, you will be the resident of that one in which you have permanent housing. If it is not possible to determine in which of the two states you have permanent housing, the due institutions will assess your tax residence according to the second criterion – usually by the centre of life interests, etc.

Various methods are used to prevent double taxation; and in most treaties on preventing double taxation this is either the method of a simple inclusion in which the tax duty is reduced by the income tax paid abroad, or the method of excluding the income in which the income taxed in the country of the source is excluded from the taxation in the country of tax residence.

If you want to find out which rules apply to you, you can find information on the treaty on prevention of double taxation or you can ask for help the local tax office.

Example:
Mister Kováč, who has permanent residence (or an address) in the Slovak Republic, is according to the domestic tax directive, a tax resident of the Slovak Republic. He does not have permanent residence on the territory of the Czech Republic, but in 2012 he worked and stayed in the Czech Republic for more than 183 days. Due to this fact, he is also considered a tax resident by the Czech Republic. After applying the delimitation criteria stipulated in Article 4 of the international treaty on preventing double taxation concluded between the Slovak and Czech Republics, Mr. Kováč is considered to be a resident of the Slovak Republic, and after the delimitation of double residence according to the international treaty, he will thus be considered a taxpayer with limited tax duty on the territory of the Czech Republic where he will pay tax from the income earned on the territory of the Czech Republic. In Slovakia (i.e. in the country of tax residence) he will file a tax return from the global income and by applying the due method stemming from the treaty on prevention of double taxation he will be prevented from having his income, already taxed in the Czech republic, taxed for a second time in Slovakia.

EURES adviser, Mgr. Miroslava Hiľovská
Office of Labour, Social Affairs and Family, Humenné

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