Residence Permit vs. Tax Residency (Why Getting This Wrong Could Cost You)

One lets you stay. The other makes you pay.

May 11, 2025

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I’ve lost track of how many times I have heard this

I learn of a new residency program, perhaps a business residence or even a simply e-residency, and immediately get the response:

“Cool! That country has no income tax. So, if you get that, you don't have to pay tax anywhere, right?”

Wrong.

Just because a nation has no (income) tax, or just because you possess a residency card, doesn't necessarily make you tax-free. Where you reside, work, conduct business, and spend your time is much more important than a stamp in your passport (or the card in your wallet).

Confusing residence permits and tax residence is one of the costliest errors global citizens make.

What's the Difference? (Residence Permit vs. Tax Residency)

Let's settle this once and for all.

A residence permit is about immigration.

It allows you to remain in a nation legally: to work, study, retire, etc. It's like a permission to come into the building.

Tax residency refers to taxation.

It works out where you are legally required to pay tax. This is based on where you reside, work, or spend most of your time, not where you hold a visa.

Here's the catch:

You can have a residence permit in a state and not be tax-resident there.

And you (in some cases) do not need to have any visa to be a tax resident.

That's where people get tripped up.

The Classic Mistake People Make

Most individuals presume:

"If I have a residence permit, I'm tax resident there."

Or worse:

“When I have a home in a tax-free nation, I'm tax-free everywhere.”

That's not the way it is.

Tax authorities don't care where you are able to live. They care about where you do live.

(print this out an hang it on your wall)

Here's an example

You obtain your long-term visa in Dubai and believe you're home free. But if you're spending 200 days a year in Germany, earning money for German clients, and your primary residence is there… what do you think occurs? Germany still considers you a tax resident. That's a ticking tax time bomb.

Mixing up where you can live and where you must pay taxes will cost you a lot.

Why This Mix-Up Can Wreck You

Getting this wrong is a financial and legal trap.

Here’s what can happen if you confuse residency with tax residency, at least the 3 most common cases I know:

Double taxation
Two countries might claim you as a resident and demand full tax on your income.
Backdated tax bills
Your home country comes knocking years later with penalties and interest.
Frozen bank accounts
Banks often ask for tax residency proof. If you can’t provide it (or give conflicting info), you risk compliance issues or blocked funds.

Once a tax authority decides you're a resident, you’re the one who has to prove otherwise. And by then, it's often too late.

Real-World Scenarios That Cost People

Let’s break it down with a few examples.

Example 1: German Freelancer in Bali

He gets a long-stay visa for Indonesia and thinks he’s escaped the German tax net.
He spends 5 months in Bali, so he’s outside Germany for most of the year.

All good, right?

Not quite.

He still has a flat in Germany with his name on the lease, a key in his pocket, and all his mail going there. He never officially deregistered from the German population registry (Abmeldung) - which is a strong indicator of continued tax residency.

He also didn’t file any tax documents in Indonesia to prove that he became a resident elsewhere. So from Germany’s perspective: "You never left."

Outcome: Full taxation on global income — plus backdated payments and penalties once the Finanzamt catches up.

What he should have done:

Officially deregister from Germany (“Abmeldung”, can be done in person, or online)
Close or transfer the lease (no key = no domestic tie)
Spend less than 183 days per year in Germany (which he did)
Establish clear tax residency elsewhere (ideally with a certificate, called Tax Residency Certificate, which will be written about in a future post)
Keep a clear paper trail of his new center of life

Example 2: Canadian Nomad in Portugal

She flies to Portugal on a tourist visa and ends up staying most of the year. She works online, pays no taxes locally, and figures she’s “off-grid.”

But here’s the problem:
Portugal’s 183-day rule kicks in. If you stay there more than half the year, even without a visa, you’re considered a tax resident by default.

Now, she technically owes taxes to Portugal. But since she never registered, she also didn’t apply for NHR (Non-Habitual Residency), Portugal’s special low-tax regime for newcomers. So now she’s taxed like a regular Portuguese resident, which could be much higher than expected.

Back in Canada…

She never told the CRA she was leaving. She still has a Canadian driver’s license, credit cards, maybe even health insurance. So Canada also sees her as a resident, and still expects her to pay tax on her global income.

Double trouble.

She could now be taxable in both countries, with no clear residency certificate from either to help her claim treaty benefits.

What she should have done:

Formally cut ties with Canada (file an exit return, notify CRA, update provincial health, etc.)
Apply for residency in Portugal and register with tax authorities
Claim NHR if eligible (ideally within the first 183 days)
Get a Tax Residency Certificate from Portugal to back it up
Keep proof of her new center of life (lease, local expenses, phone bill, etc.)

How to Stay Safe (and Smart)

Here’s how to protect yourself:

1. Track your days
Use an app (like Nomad Wallet, TaxBird, or a spreadsheet) to track how many days you spend in each country. 183 is the magic number (but even less can trigger tax ties).

2. Understand your home country’s exit rules
Some countries (like Canada or Germany) don’t let go easily. You need to formally cut ties or risk being taxed as if you never left.

3. Don’t assume a visa = tax residency
A residence permit or nomad visa is about immigration, not taxation. You need to register with the local tax authority if you want official tax residency (or be a Perpetual Traveller, and stay in at least 3 countries per year, but this is a topic for another post).

4. Get a Tax Residency Certificate
It’s the best proof you’ve changed tax homes. Some countries won’t let you claim tax treaty benefits without it.

5. Work with someone who gets cross-border tax
Most local accountants don’t. You need someone who understands international tax rules, especially if you're self-employed or have a business.

Tools + What to Do Next

Residency is a legal right to stay. Tax residency is a legal obligation to pay. Confusing the two can cost you.

Want to stay safe? Start with these tools:

Day tracking: Nomad Wallet, TaxBird, Timeular
Country-specific tax rules: Check the OECD tax residency guide or your home country’s tax authority
Tax Residency Certificates: Research how to request one in your new country (or ask a cross-border accountant)
Need help? Try Nomad Capitalist, Global Expat Advisors, or your country’s international tax forum

Still unsure where you stand?

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