Tax Residency of an Entrepreneur — How Not to Pay Taxes Twice

Tax residency is one of the most underestimated topics among entrepreneurs who work internationally. It is precisely the misunderstanding of this concept that most often leads to situations where a person pays taxes twice or, even worse, becomes subject to tax audits and additional assessments.

In this article, we will look at what tax residency of an entrepreneur is, how it is determined in practice, why “an individual entrepreneur in Ukraine + a company in the EU” is not always a safe structure, and how to legally avoid double taxation.

Do you work internationally and are not sure about your tax residency?
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What Is Tax Residency and Why It Is More Important Than Citizenship

Tax residency is not about your passport and not about the place where your business is registered. It is about which state has the right to tax your personal income.

An entrepreneur may:

be a citizen of one country;
live in another;
run a business in a third;
have clients all over the world.

But they will have tax residency in only one country (in most cases). This is exactly what determines:

where you declare your income;
where you pay your main taxes;
which tax authority considers you “its taxpayer.”

The biggest mistake is to think that tax residency is automatically retained in the country of citizenship.

Tax residency is determined not by your passport, but by the real picture of your life, income, and ties to a specific country.

Main Criteria for Determining Tax Residency

In most countries of the world, a combination of criteria is applied rather than a single factor. The tax authority looks at the overall picture of an entrepreneur’s life.

The most common criteria:

1. Number of Days of Presence

The classic rule is 183 days per year. If you are physically present in a country for more than this period, it has grounds to recognize you as a tax resident.

But it is important to understand: this is not the only criterion.

2. Center of Vital Interests

The tax authority analyzes:

where you live permanently;
where your family lives;
where your children study;
where rented or owned housing is located;
where the main source of income is concentrated.

Even if you spend fewer than 183 days there, a country may still recognize you as a resident if that is where your life is actually centered.

The 183-day criterion is important, but not the only one.

In many cases, the tax authority evaluates a broader picture: where the family lives, where housing is rented, where the business operates, and where income is actually received. That is why “I haven’t lived there for half a year yet” does not always protect you from tax residency.

3. Source of Income

If your main income:

is generated in a specific country;
is received into local bank accounts;
is connected to a local business,
this is a strong argument for the tax authority to recognize you as a resident именно there.

Why Double Taxation Arises

Double taxation arises when two countries simultaneously consider you their tax resident or have grounds to tax the same income.

Typical situations:

an entrepreneur physically lives in the EU but continues to operate as an individual entrepreneur in their home country;
the business is registered abroad, but personal income is still declared “the old way”;
there is no clear tax strategy during relocation;
the issue of residency is ignored because “nobody is asking anyway.”

The problem is that the tax authority does not ask right away. It does so after 1–2 years, when the data has accumulated.

NataliaExpert

Double taxation rarely begins with a “sudden mistake.” Most often, it is the result of an entrepreneur working for a long time without a clear tax logic, while the problems become visible only when data has already accumulated in several jurisdictions.We will help assess the risks of double taxation in your situation.

Double Taxation Avoidance Agreements: How They Work in Practice

Most developed countries, including Poland, have double taxation avoidance agreements with Ukraine.

But it is important to understand: such an agreement does not exempt you from taxes; it only determines which country has the primary right to levy them.

Such agreements:

set out the rules for determining residency;
describe tax credit mechanisms;
allow you to avoid paying tax twice on the same income.

However, an agreement works only when:

you have correctly determined your residency;
you file tax returns;
you can document your status.

Tax Residency of an Entrepreneur in Real Life, Not in Theory

In practice, tax residency is not a formal checkbox, but a position that must be justified.

The tax authority pays attention to:

bank accounts;
movement of funds;
IP addresses;
rental agreements;
vehicle registration;
health insurance;
social contributions;
school and family ties.

That is why the situation “I will just live here, but I pay taxes there” often does not work.

The tax authority evaluates not the entrepreneur’s words, but their real actions, documents, payments, and life ties to the country.

If actual life and the income structure contradict the declared tax position, this is exactly what becomes the basis for audits, additional assessments, and disputes with tax authorities.

Entrepreneur and Business in Different Countries: Where the Biggest Risks Are

The following scenarios are especially risky:

an active business in the EU + an individual entrepreneur in the country of origin;
receiving income into foreign accounts without declaring it;
lack of proof of tax residency;
nominee companies without real presence.

At some point, the tax authority may ask a simple question: “Where do you actually live and where does your income come from?”

And the answer “it’s complicated” will not satisfy it.

Structures without a clear tax logic may work only temporarily — until the first serious audit or a request from a bank or tax authority.

How to Legally Avoid Double Taxation

There are only three legal paths that actually work:

Clearly determine your tax residency With documents, logic, and supporting evidence.
Build an income structure Understand where the income is generated and who receives it — an individual or a company.
Synchronize migration and tax status Residence permit, business, banks, and accounting must work within one consistent logic.

Everything else is a temporary solution with delayed problems.

NataliaExpert

A safe international structure is always based on three things: clearly defined residency, a transparent source of income, and consistency between the entrepreneur’s migration, banking, and tax status.We will show you how to synchronize your business, banks, and tax status without unnecessary risks.

Why Tax Residency Should Be Resolved BEFORE, Not AFTER

The worst option is trying to “fix” your tax history retroactively. It is:

expensive;
time-consuming;
not always possible.

Proper residency planning before relocation or business scaling makes it possible to:

reduce the tax burden;
avoid fines;
sleep peacefully;
build a business in the EU legally and transparently.

Need to understand your tax residency without mistakes?
We will help you build a legal and safe tax strategy

We will analyze your country of residence, business structure, and sources of income, and explain how to avoid double taxation and future claims from tax authorities.

Conclusion

Tax residency of an entrepreneur is the foundation. Without it, any international business stands on shaky ground.

If you work with foreign clients, move abroad, open a company in the EU, or plan relocation, this issue should be resolved as one of the first, not the last.