Typically, for a company to be considered a tax resident, it must meet one or several of the following conditions. Below are some examples for better clarity:

Place of Incorporation

In most countries, a company is automatically considered a tax resident if it is incorporated under their domestic legislation. For example:
‍
• United States (US):

All corporations (C-Corp, S-Corp) incorporated in the United States or any of its states are automatically recognized as US tax residents - regardless of where the actual business activities take place.

LLCs, however, are treated differently. By default, an LLC cannot be a US tax resident since it is not considered a separate taxable entity. Instead, income flows through under the “pass-through taxation” mechanism and is taxed at the level of the members, depending on their own tax residency and ownership share.
‍
• United Arab Emirates (UAE):

Companies incorporated on the mainland as well as in Free Zones are automatically recognized as UAE tax residents. However, to confirm residency, a Tax Residency Certificate must be obtained annually.

Place of Effective Management or Control

The “effective management” criterion is widely used to determine tax residency in cases where a business operates across multiple jurisdictions. In most jurisdictions (e.g., the United Kingdom, France, Canada, Ukraine, etc.), tax residency is determined by the place where actual management takes place, namely:

• Board meetings

• Adoption of key strategic decisions

• Execution of contracts

Thus, if strategic decisions are made in Canada, a company may be considered a Canadian tax resident, even if it is incorporated abroad.

For example, in the landmark case De Beers Consolidated Mines Ltd v Howe (United Kingdom, 1906), the UK court ruled that a company is a tax resident of the country where key management decisions are made (the so-called “central management and control test”). Although De Beers Consolidated Mines Ltd was incorporated in South Africa, the court determined that it was a UK tax resident, since board meetings and major decisions were held in London.

This precedent laid the foundation for the modern approach adopted by many countries, where the place of actual management is considered more significant than the place of incorporation.

Double Tax Treaties

A company’s tax residency may also depend on the provisions of international tax treaties, as these often take precedence over domestic rules.

Companies can rely on tie-breaker clauses included in such treaties to determine their tax residency. For example, if a company qualifies as a resident in two countries, the decisive factor is typically the place of effective management. This mechanism prevents double taxation and helps resolve conflicts between jurisdictions.

Other Criteria

Physical presence as a key factor

Beyond the classical criteria, a company’s tax residency is often influenced by a number of additional factors. These include having a physical presence in the country: an office, employees, bank accounts, or even a local director or secretary (e.g., Cyprus, Malta, etc.).
‍

Licenses and regulatory “anchoring”

In some countries (e.g., UAE, Singapore, Canada), obtaining a local license automatically ties the company to tax residency, as it confirms that the company operates under the supervision of the local regulator. Maintaining corporate records and minutes in accordance with local rules also serves as evidence of a company’s link to that jurisdiction.
‍

Nature of activities and permanent establishment

Tax authorities closely examine the nature of a company’s activities. If the operations indicate an intent to establish a permanent presence in a country, this may automatically lead to the creation of a Permanent Establishment (PE) and the corresponding tax obligations.
‍

Contracts, place of performance, and reporting

Key indicators also include the location where contracts are signed, services are performed, or goods are produced. Equally important is compliance with statutory reporting requirements. Filing annual tax returns and financial statements in the country of incorporation often points to a company’s tax attachment to that jurisdiction.

Ownership structure and shareholder influence

The ownership structure also plays a role: the involvement of shareholders or control exercised by residents of a particular state may trigger the application of Controlled Foreign Company (CFC) rules. Collectively, all these criteria form the picture tax authorities use to determine where a company “truly lives” for tax purposes.
‍

Tax residency as a multifactor concept

Therefore, a company’s tax residency is not merely defined by its country of incorporation or a prestigious address on its certificate. It is a multifactor concept, shaped by management decisions, directors’ place of residence, actual business presence in a jurisdiction, and even “digital footprints.”

Before selecting a jurisdiction for incorporation, businesses should look beyond glossy brochures with attractive tax rates and honestly ask themselves: Where does the team actually sit? Where does the board of directors meet? Where are contracts signed? Otherwise, one might unexpectedly wake up as a tax resident in a country intended only as a vacation destination - not as a place to pay taxes.

‍