Tax residency is the status that determines in which country a person is subject to income tax on their global earnings. Most countries define residency through domestic legislation based on factors such as the number of days spent in the country, location of the permanent home, centre of vital interests, and habitual abode. In the Netherlands, the Belastingdienst assesses residency based on the totality of personal and economic ties rather than a single day-count rule.
When an individual qualifies as a tax resident in two countries simultaneously, a double-residency situation arises. Bilateral tax treaties based on the OECD Model Convention resolve this through sequential tie-breaker tests: permanent home, centre of vital interests, habitual abode, and nationality. The competent authority procedure enables the two treaty states to reach a mutual agreement if the tie-breakers produce an uncertain result.
For international assignments, employers must assess residency at the start of an assignment and at each year end, as status can change mid-year. Incorrect residency classification results in under-withholding, penalties, and potential double taxation for the employee.