How to Obtain a Tax Residency Certificate: A Step-by-Step Guide

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Individuals and businesses who are involved in international transactions and are pursuing relief under the Double Taxation Avoidance Agreement must obtain a Tax Residency Certificate. The TRC is proof that an individual or an organization is a resident of a specific country during a specific financial year. Having TRC will prevent the same income from being taxed in two different countries that offer significant legal and financial advantages.

Whether you are an NRI, a freelancer who works for international clients, or an entity that receives cross-border payments, having the Tax Residency Certificate will ensure that you have lower tax rates or exemptions.

What is a Tax Residency Certificate (TRC)?

A Tax Residency Certificate (TRC) is a document that is issued by a country’s taxation authority that proves an individual’s or an organization’s residency status. If you want to claim benefits under the Double Taxation Avoidance Agreements (DTAAs), then the TRC is the most essential document, as this allows taxpayers to avoid paying the tax twice on their income. The other advantage of having the TRC Certificate is that the tax rate is reduced or exempted in foreign countries.

Who Needs a Tax Residency Certificate?

Anyone earning income from foreign countries that includes rent, salary, dividends, etc.
People who are freelancers or working with international clients also need a TRC certificate.
Individuals or companies that are seeking tax exemptions under the DTAAs
Organizations that receive payments, like interest, royalties from foreign countries
Businesses that are involved in any cross-border trading or services.

Benefits of Having a TRC Certificate

Avoids Double taxation: Once you have the TRC certificate, as an individual or organization, it ensures that you do not have to pay taxes for the same income twice in the country where you reside and the country from which you earn the income.

Claim tax treaty benefits: Tax treaties like the DTAAs, you have reduced tax rates and are exempt.

Valid proof of residency: The Tax Residency Certificate confirms your tax residency and is useful for international tax filings.

Lowers tax burdens: Decreases tax liability on foreign income.

Eligibility Criteria for Obtaining a Tax Residency Certificate

Here are the eligibility criteria that you need to meet if you want to obtain a Tax Residency Certificate:

Resident Status: If you want to apply for a TRC certificate, you must be a resident of the country during the relevant financial year for tax purposes.

PAN Card: If you are an Indian resident, then having a PAN Card is very important.

Tax Return filing: The individual or organization that needs a TRC Certificate must have filed tax returns for the applicable year.

Residency proof: You need to have sufficient residency proof that includes utility bills or a rent agreement.

Income sources: If you want to get tax benefits under a tax treaty like the Double Taxation Avoidance Agreements (DTAAs), then you must earn income from any other foreign country.

Documents Required for a Tax Residency Certificate

To apply for a Tax Residency Certificate, also known as the TRC certificate, you will need certain documents to prove your tax residency status. These documents include a copy of your Permanent Account Number (PAN) card, any ID proof like the Aadhaar card, Passport, also address proof of the recent tax returns.

Also, you need to submit proof of income and a self-declaration of your residency. Sometimes, you also need to submit a cover letter that explains the need for the TRC certificate and a passport-size photograph. Submitting these documents helps the taxation authority to verify your eligibility for the Tax Residency Certificate and grant permission for the Double Taxation Avoidance Agreements (DTAAs) benefits.

Step-by-Step Process to Obtain a TRC Certificate

Here’s a step-by-step process to obtain a TRC certificate

Step 1: Ensure that you are a resident of the country for the relevant financial year.
Step 2: Check all the necessary documents like the PAN Card, Aadhaar card, ID proof, residency proof, tax return filings, and income details.
Step 3: You must complete the application form 10FA (only for Indian residents) to apply for the TRC Certificate.
Step 4: Submit the filled form and the required documents to the local income tax office..
Step 5: Once your request is approved by the tax department, the Tax Residency Certificate will be given for the requested period.

How Long Does It Take to Get a Tax Residency Certificate?

After you submit the form and the documents, the tax authorities review your documents and application. Usually, it takes 2 to 4 weeks to receive the TRC Certificate. But this time span depends on the accuracy of documents and the workload at the tax office.

If you want to receive the documents within the above time span, then you must submit the right documents with the correct details. The Tax Residency Certificate will be delayed if the documents are missing or have any verification issues.

Validity and Renewal of TRC Certificate

A tax residency certificate is valid for a financial year or the period mentioned on the certificate.
Some countries issue the Tax Residency Certificate for a shorter or longer period, mainly based on their rules and regulations.
If you earn foreign income continuously, then you need to renew the TRC Certificate every year to claim the DTAAs benefits. When you renew the certificate, you need to submit a new application along with the updated documents.
Also, to get the renewed TRC Certificate, you need to apply for the same before the expiry date.

Common Mistakes to Avoid While Applying

Avoids double taxation: The TRC Certificate helps you to avoid paying taxes for the same income in two countries.

Claim the DTAA benefits: The Tax Residency Certificate helps you to get tax exemptions and rates under the Double Taxation Avoidance Agreements.

Proof of tax residency: This certificate serves as proof of your tax residency for international transactions.

Financial advantage: With the help of the Tax Residency Certificate, you can improve your net income as it reduces tax liability on foreign income.

Supports businesses globally: This is one of the most essential documents for organizations that have cross-border operations and payments.

Conclusion

Getting the Tax Residency Certificate or the TRC certificate is important for individuals and companies that are involved in international business. It prevents double taxation and helps people claim the tax treaty benefits. With the right documentation and application, the TRC certificate provides financial and legal advantages.