Tax residence and regions

States have limited jurisdiction to impose income tax, with the rules that set the limits of the particular state’s jurisdiction known as jurisdictional nexus rules. Various states around the world impose tax on the basis of differing jurisdictional nexus rules. However, the most common jurisdictional nexus rules are those of residence and source. These clearly constitute an international norm owing to the extent of their adoption and the fact that they are key concepts in international income tax interactions through double tax agreements and unilateral international tax regimes. Many jurisdictions, such as Australia, use a combination of these rules – taxing residents on their worldwide income and non-residents only on income sourced within Australia. However, certain states depart from their adoption by claiming a lesser tax jurisdiction – for example, Hong Kong adopts only the source rule – but these are a clear minority and are often regarded as undeveloped or old fashioned tax regimes. ¹