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What Is a Business Domicile?

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  • Written By: Mary McMahon
  • Edited By: O. Wallace
  • Last Modified Date: 08 November 2016
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A business domicile is a location which is treated for tax and legal purposes as the headquarters of the business. For a small business such as a retail store, the store itself is the business domicile, while for a multinational company, the domicile is determined by figuring out which location serves as the principle place of business or hub for the business. For legal reasons, the location of a domicile can be critically important.

Both individual people and firms must have domiciles. In the case of people, the domicile is someone's primary residence, which may not necessarily be a location where someone lives full time. For companies, the domicile is the site where the business is headquartered, where decisions about the business are made, and where people would go if they wished to do business with the company in question.

The location of a business domicile impacts its tax liability. For example, if a company is headquartered in a major city, it may have very high taxes because it pays national, regional, and local taxes. Some cities have high tax rates to support services, and locating out of a city can reduce tax liability by eliminating the need to pay municipal taxes. Likewise, a domicile may be located in a tax haven, a location where taxes are minimal, so that the company can avoid paying taxes it might be expected to shoulder if it was headquartered in another location.

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Legal issues can also arise, depending on where a company is domiciled. Different nations have different laws about business activities and practices. Companies which wish to avoid restrictive or complicated laws may opt to have a business domicile in a “business friendly” location where these laws are relatively lax. This can make it difficult for customers to mount legal challenges to the business, because as long as the business abides by the laws of the region where it is domiciled, customers may not have recourse to legal remedies.

If people are curious about the business domicile of a company they are doing business, usually communications from a business list its headquarters and branch locations along with contact information. Return addresses on official correspondence from the business can also be a good clue, and it is possible to look up the businesses licenses and public filings to determine which location it is treating as its domicile for legal purposes.

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miriam98
Post 3

@Mammmood - I agree. It’s not the domicile legal definition that is really at issue here; it’s our tax rates. Businesses in the United States are even relocating from one state to another just for lower tax rates. California has been bleeding for a long time with an exodus of businesses from that state.

No one can deny that by physical relocating, these businesses are meeting the strictest definition of domicile. They are in fact physically moving. But we have to ask why; and time and time again, it’s all about taxes.

Mammmood
Post 2

@nony - The domicile definition is a tricky one indeed. I believe that the IRS and many politicians understand that a physical domicile is a place where the bulk of your physical presence resides, not where you have a P.O. Box. I am pretty sure that they make these distinctions clear in their regulations, since they must know what these corporations are doing.

However, the corporations have a battery of lawyers that find loopholes in whatever current laws exist. While I do agree with you that the practice is somewhat shady, I think the real culprit is our high tax rates.

We have the highest corporate tax rates in the world. I believe we need to slash our rates to lure these businesses back to the United States, and even incentivize foreign corporations to be domiciled here.

nony
Post 1

I saw a television program that talked about the low corporate tax rates in other countries compared to the United States.

They stated that many large corporations were choosing to be headquartered (or have a legal domicile I suppose) in countries like Switzerland to avoid having to pay the high U.S. corporate tax rates.

Of course, this is legal, if somewhat shady, since most of their operations were still in the United States. As a matter of fact, what was funny was that many of these companies had little more than a P.O. Box and a small office in some building in Switzerland. The reporters traveled to these locations wanting to be meet the executives of the company, and were politely given the runaround.

It’s legal, I suppose, but as I said, a little bit on the shady side.

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