The concept of "center of economic interests" explained simply

The Concept of "Center of Economic Interests" Explained Simply

When it comes to international taxation, few terms are as decisive — and as misunderstood — as the “center of economic interests.”
It is the invisible line that separates where you live from where you are taxed.

Every year, thousands of entrepreneurs, executives, and crypto investors believe they’ve left their country’s tax system — only to discover that, legally, they never really left.

Why?
Because they failed to move their center of economic interests.

At SBH Capital Partners, based in Saint-Barthélemy, we help clients establish real, recognized fiscal substance abroad — ensuring their tax residency is legally anchored, not merely declared.

SBH Insight: You can change your address overnight. Changing your tax residency requires moving your economic life.

1. What Is the “Center of Economic Interests”?

The concept originates from Article 4 of the OECD Model Tax Convention, which defines an individual’s tax residency.

When someone has ties to multiple countries, the “center of economic interests” is one of the key criteria used to determine where they are actually resident for tax purposes.

Definition (OECD Article 4):

A person is considered tax-resident in the country where they have their center of vital interests, which includes both personal and economic ties.

While personal ties cover family and home, economic interests refer to:

• The place where the person earns most of their income,
• Where they manage investments and businesses,
• Where their banking relationships and financial management occur,
• The jurisdiction where they make strategic or managerial decisions,
• And where their assets are effectively controlled.

In simple terms: your “center of economic interests” is where your money lives, grows, and works.

2. Why It Matters for Tax Residency

Tax authorities worldwide use this principle to determine fiscal residency, especially when individuals spend time in multiple jurisdictions.

Even if you physically live abroad, you may still be considered resident in your home country if your economic center remains there — for example:

• Your main company is still based in France;
• You manage assets from a French bank;
• Your family office or advisors operate from Paris;
• Your dividends or salaries are paid into a French account.

In such cases, the tax authority can argue that your center of economic interests — and therefore your tax residency — remains in France.

SBH Insight: Tax residency is not a question of kilometers — it’s a question of control.

This is where fiscal structuring becomes critical: moving one’s assets, management, and decision-making authority under a new jurisdiction.

3. The Legal Framework: How Countries Apply It

Different jurisdictions interpret “economic interests” with nuances, but the general logic follows OECD guidelines and local laws.

France (Article 4B of the French Tax Code)

You are considered tax resident in France if:

1. Your main home (foyer fiscal) is in France;
2. You carry out a professional activity in France (unless secondary);
3. You have the center of your economic interests in France — meaning the place where you make or manage your main investments.

In disputes, French courts have consistently upheld that bank accounts, company directorships, and income sources are key indicators of economic attachment.

United States (IRS Tests)

The IRS applies the substantial presence test but also looks at financial and business ties to determine effective residence.

OECD Tie-Breaker Rule

When two countries claim the same taxpayer, the order of analysis is:

1. Permanent home;
2. Center of vital interests (personal + economic);
3. Habitual abode;
4. Nationality;
5. Mutual agreement between tax authorities.

SBH Insight: The center of economic interests is the “smoking gun” of fiscal residency — the place where the money trail ends.

4. How to Move Your Center of Economic Interests Legally

Relocating your tax residency is not only about physical presence; it’s about economic coherence.
To move your “center of economic interests” successfully, you must transfer substance — not just paperwork.

✅ Key Steps for a Lawful Relocation:

1. Establish a Local Company or Structure
   • Incorporate an entity in your new jurisdiction (e.g., Saint-Barthélemy).
   • Ensure it holds real economic activity or asset management.
2. Shift Banking Relationships
   • Use local banks for income, investments, and payments.
   • Avoid keeping operational accounts in your former country.
3. Transfer Decision-Making Power
   • Document that management and control occur locally.
   • Hold board meetings, sign contracts, and approve transactions in your new jurisdiction.
4. Restructure Investment Vehicles
   • Move holding entities, funds, or real estate under the new fiscal residence.
5. Ensure Local Governance and Compliance
   • Appoint a local manager (gérant) or trusted fiduciary (such as SBH Capital Partners) to maintain effective control.

SBH Insight: You can’t simply “declare” a tax move — you must demonstrate it through economic reality.

5. Saint-Barthélemy: A Lawful Framework for Fiscal Relocation

Saint-Barthélemy offers one of the most credible and secure environments to relocate your center of economic interests — combining tax neutrality with French legal certainty.

Key Advantages:

• 0% income, capital gains, and wealth tax for residents.
• Independent fiscal authority, recognized by the French Republic.
• Full compliance with OECD and FATF standards.
• Access to French and European banking systems.
• Possibility to manage crypto-to-fiat conversions without flat tax exposure.

At SBH Capital Partners, we design structures ensuring that your economic life is lawfully relocated:

• Creation of a Saint-Barthélemy company (fully tax-resident locally).
• SBH appointed as gérant, ensuring real substance and management.
• Local banking, accounting, and compliance oversight.
• Residency recognition after five years of continuous management.

SBH Insight: In Saint-Barthélemy, we don’t relocate people — we relocate their fiscal sovereignty.

6. Common Mistakes to Avoid

Relocating your center of economic interests can fail if not properly executed.
The following are frequent pitfalls observed in international audits:

1. Maintaining Control in the Old Jurisdiction
   • Signing contracts or managing assets from your previous country invalidates the relocation.
2. No Local Substance
   • Paper companies without management or accounting are automatically disregarded by tax authorities.
3. Using Offshore Jurisdictions
   • Non-transparent havens (Cayman, BVI) attract red flags and increase audit risk.
4. Inconsistent Residency Documents
   • Contradictory information on social media, billing addresses, or company filings can trigger investigations.
5. Ignoring Double Tax Treaties
   • Failure to understand DTT provisions often results in double taxation despite relocation.

SBH Insight: The law doesn’t punish relocation — it punishes incoherence.

7. How SBH Capital Partners Secures Fiscal Recognition

Our methodology ensures that every client structure meets both local substance and international transparency requirements.

SBH’s 5-Step Fiscal Relocation Framework:

1. Legal Incorporation – Creation of a locally recognized company or holding.
2. Gérance Locale – SBH acts as local manager for at least 5 years.
3. Economic Substance – Banking, accounting, and administration managed on-island.
4. Fiscal Recognition – Validation of residency status under French oversight.
5. Client Sovereignty – After 5 years, clients can assume management or extend our governance.

This framework ensures defensible, OECD-compliant relocation that stands up to any jurisdictional challenge.

SBH Insight: With SBH, residency isn’t claimed — it’s proven.

Conclusion

The “center of economic interests” is the cornerstone of modern tax residency law.
It determines where your wealth truly lives — and where your tax obligations begin or end.

Relocation is not about geography; it’s about control, substance, and credibility.
By anchoring your structure in Saint-Barthélemy under SBH Capital Partners’ management, you gain what few jurisdictions can offer:

• Complete fiscal neutrality,
• Full French legal protection, and
• Recognition under international standards.

Because in global taxation, the strongest residency isn’t declared — it’s built.

FAQ

1. What exactly determines the “center of economic interests”?
It’s where your primary financial, managerial, and investment decisions are made and controlled.

2. Can I live in one country but have my center elsewhere?
Yes, but only if the other jurisdiction holds real economic substance and local control.

3. How can Saint-Barthélemy be recognized internationally?
It operates under French sovereignty with its own fiscal regime — OECD compliant and legally sound.

4. What happens if my old country challenges my residency?
A documented SBH structure with management, accounts, and substance locally provides legal defense.

5. How does SBH Capital Partners help?
By creating and managing your company in Saint-Barthélemy, ensuring fiscal recognition and lawful neutrality.