Tax treaty tie-breaker rules: who is taxable where when both countries claim you

When tie-breaker applies

You become a dual resident when both US (substantial presence test) and treaty country (per their residency rules) claim you as a tax resident. Without a tie-breaker, you'd be taxed in both countries on worldwide income.

Tie-breaker is in Article 4 of most US tax treaties.

The tie-breaker hierarchy

Step 1: where is your permanent home? If only one country has your permanent home, you are resident there.

Step 2: if both countries have permanent home, where is your center of vital interests (family, professional, financial center)?

Step 3: if unclear, where is your habitual abode (where do you typically live)?

Step 4: if unclear, your nationality.

Step 5: if still unclear, competent authority procedure between the two countries.

Practical implication

Most non-resident founders with home country home, family, and primary residence break in favor of home country. The tie-breaker article supports this even if they spent substantial time in the US during a year.

Document permanent home and center of vital interests with: home country lease/property, family in home country, primary professional and social ties in home country.