Corporate Residence Criteria
The concept of corporate residence refers to the place where a company is liable to pay tax. The criteria to define a corporate tax residence vary from country to country and from jurisdiction to jurisdiction. For companies, some jurisdictions can determine the residence of a corporation based on its place of incorporation, on its place of management, or can use both.
In China, according to the Article 2 of the Law of the People’s Republic of China on Enterprise Income Tax, released in 2007, “Enterprises are divided into resident enterprises and non-resident enterprises:
resident enterprises are enterprises which are set up in China in accordance with law, or which are set up in accordance with the law of a foreign country (region) but which are actually under the administration of institutions in China.
non-resident enterprises are enterprises which are set up in accordance with the law of a foreign country (region) and whose actual administrative institution is not in China, but which have institutions or establishments in China, or which have no such institutions or establishments but have income generated from inside China.”
A company is considered resident if it has been incorporated under the Chinese law or if it has been incorporated outside China but has a place of effective management in China, which overall management and control over business operations, staffing, finance and assets are all substantially managed and controlled in China. Thus, all these criteria must be met:
the enterprise’s senior management personnel and the senior management bodies carry out the day-to-day management of the enterprise mainly in China;
finance-related decisions and HR-related decisions are decided or approved by bodies or personnel in China;
the major assets, accounting books, meeting records for shareholders’ meetings and directors’ meetings, etc., are located or kept in China; and
at least half of the directors with voting powers or the senior management personnel are habitually resident in China.
In Italy, an important regulation of the Italian tax system regarding the tax residence is art. 73 of the TUIR (Testo Unico Imposte sui Redditi), enacted in 1986, which identifies the criteria to the existence of which a foreign company can be considered resident in Italy.
According to the tax regulation, a company is considered tax resident in Italy, when it has in Italy even one of the following factors for the majority of the tax year, even if the company is registered abroad.
the registered legal office, as resulting from the incorporation or from the articles of association of the company; or
the place where the main economic interests are concentrated and the business is carried out in order to achieve the company's goals.; or
the seat of administration: the seat where corporate decisions are taken and therefore where the corporate will is actually formed.