Introduction

A Tax Residency Certificate (TRC) is an important document that verifies an individual’s or entity’s tax residency in a specific country. It is primarily used to claim tax benefits under Double Taxation Avoidance Agreements (DTAA) and establish tax residency. The TRC is essential for international trade, foreign investments, and cross-border transactions to prevent double taxation.

Why is a Tax Residency Certificate Important?

A TRC acts as proof that a person or business is a tax resident of a country and provides multiple benefits, such as:

• Prevention of Double Taxation: Ensures that the same income is not taxed in two jurisdictions.
• Lower Withholding Tax Rates: Allows reduced tax deductions on income sources like interest, dividends, and royalties under DTAA agreements.
• Compliance with Tax Regulations: Demonstrates adherence to tax laws and assists in obtaining relief from foreign tax authorities.
• Facilitation of Global Business Operations: Benefits the multinational corporations and investors who deal with taxation across different countries.

Who is Eligible to Apply for a TRC?

A TRC is available to:

1. Individuals – Tax residents earning foreign-sourced income.
2. Businesses & Corporations – Companies conducting international operations and seeking DTAA benefits.
3. Trusts & Partnerships – Entities engaged in overseas investments and financial dealings.

Process for Obtaining a TRC

Although the procedure varies by country, the general steps are as follows:

1. Applying: The applicant must file the prescribed form with the local tax authority, such as the Income Tax Department in India or the IRS in the U.S.
2. Providing Supporting Documents, including
   • Proof of tax residency (such as PAN, Aadhaar, or Passport for individuals; Incorporation Certificate for businesses).
   • Tax returns filed in the respective country.
   • Bank account details and financial statements.
3. Verification & Approval: The tax authority reviews the application before issuing the TRC.
4. Issuance of TRC: Once approved, the certificate is granted, usually valid for one financial year.

Tax Residency Certificate in India

In India, the TRC application process is regulated under Section 90 and Section 90A of the Income Tax Act, 1961. The steps include:

• Filing Form 10FA with the Income Tax Officer.
• After review, the officer issues Form 10FB, serving as the TRC.
• Non-resident individuals or entities must submit TRCs from their respective home countries to claim benefits in India.

Global Practices for TRC Issuance

• United States: The IRS issues Form 6166 as a TRC for U.S. residents.
• United Kingdom: HMRC provides a tax residency confirmation letter.
• Singapore: Residents apply for a TRC through the Inland Revenue Authority of Singapore (IRAS).
• UAE: The Federal Tax Authority (FTA) issues TRC for both individuals and businesses.

Key Factors to Consider When Applying for a TRC

1. Validity: Generally valid for one financial year and requires annual renewal.
2. Accuracy of Information: Incorrect or incomplete details can result in rejection.
3. Compliance with Domestic & Foreign Tax Laws: Applicants must adhere to the tax laws of their country of residence and foreign jurisdictions.
4. Impact on Global Taxation: Holding a TRC in one country may have tax implications in another.