Tax residency refers to the status of an individual or entity that determines where they are liable to pay taxes. This status is usually based on factors such as the amount of time spent in a country, the location of a permanent home, or the center of economic interests. Different countries have their own rules for establishing tax residency, which can lead to varying tax obligations. Understanding tax residency is important for compliance with tax laws and avoiding double taxation. For example, a person who spends significant time in both Country A and Country B may need to determine their tax residency in each to know where they owe taxes.