Much of the confusion surrounding the 183-day rules stems from the fact that there are two such ‘rules’. In this article both rules are examined and we set out what you need to know to keep on the straight and narrow.
The first 183-day rule appears in most Double Taxation Agreements (DTAs) and it sets the maximum duration of stay in a work country that a posted worker can remain paying income taxes in his/her home country. This features in the sections dealing with dependent workers or employees. This rule has no bearing on the self-employed or those described as independent workers. Should the duration of the stay in the non-home state extend beyond 183 days then taxes are payable in the work state from the start of the contract.
The other 183-day ‘rule’ applies in countries that have worldwide taxing rules. In such countries 183 days spent in country in either a calendar year or any twelve-month period (this varies) is the most time you can spend there and be assured to be taxed only on the income that has arisen in the non-home country. After that period, all you worldwide income will become subject to taxation in that country.
Contrary to what some believe there is nothing in either of these two distinct rules that suggests that there is a six month ‘tax holiday’.
The problems arise when the six month period is exceeded and tax that has not been withheld is suddenly due to be paid from the start of the assignment. The other risk is that not all the conditions of the applicable DTA are met and that the provisions of the DTA do not apply in any case. In some states where labour-leasing is considered to apply the DTA is not respected. For certainty on this you must study the relevant DTA. Our advice is always to veer on the side of prudence and do not take unnecessary risk as there are normally provisions to make sure that the same income is not taxed twice. It’s important to pay the tax where it’s due. If you are unsure of where you stand, please feel free to contact us.