Our compliance specialists have noticed that there is a common misconception about the 183-day rule. Many believe that they are free to go to work in any EU country without applying for a work permit or paying taxes as long as they work there under 183 days. As a result, these mistakes may lead to serious legal charges and tax liability.
We have put together this document providing information on everything you need to know about the183-day rule.
First and foremost, let us establish what the 183-day rule is and how it works.
The 183-day rule is used by the majority of countries to determine whether someone should be considered a resident in a certain country for tax purposes. It states, that if a person spends more than half a year (183 days or more) in a single country, then this person will become a tax resident there. Consequently, if an individual stays in a certain territory less than 183 days, they are not considered a tax resident in this state.
However, this rule is not as straightforward as it may sound at first. Below are 6 misleading facts that will help you gain better understanding of 183-day rule.
I am not taxable as long as I stay under 183 days
183-days regulation is the exception to the rule rather than the rule itself. It applies only to the fully-employed dependent workers, not contractors or freelancers. The latter are considered to be tax residents in the host country as soon as their assignment begins. Therefore, they are obliged to pay taxes in their work country.
Moreover, it is valid only in the countries included in bilateral tax treaties between those countries and determines how the rights to tax employment income are allocated between treaty countries in the event of cross border employment.
Also, as soon as you cross borders for your job, and work in another country than where you live or usually work, you naturally become subject to the laws and regulations of two jurisdictions.
If I am not paid in country A, I am not taxable there
Even though you do not exceed 183 days in Country A, and are paid elsewhere, you could still be taxed in Country A under certain circumstances. For example, if you work for a company permanently established in Country A, you would be taxed in Country A.
183 days rule covers work permits and social security
Some migrant employees believe that 183 days rule includes working visas and social security too. However, this is not the case. As far as the immigration law is considered, normally the legislation of the host country will overrule any tax treaties. The same works for social security contributions. Although some countries may have concluded friendship treaties, which make it easier for citizens of those countries to obtain the relevant work visa, it is recommended to consult immigration experts before proceeding with your overseas work plans.
183 days rule applies only for working days
One of the most popular misinterpretations of the rule is that you should not work over 183 days in Country A. In reality is counts the days of physical presence in the state. All days spent in the work country, be it holidays, visiting family or friends, count. This only excludes international transits spent in the airport.
There is more to 183-days rule than just counting days
A lot of migrant workers don’t know that there are two additional conditions to be met. The first one states that your salary should be paid by or on behalf of an employer in the work country. As far as the second condition is concerned, if you have an employment contract with a legal entity in your home Country A but work for a branch office of this entity in Country B, you may become taxable in Country B.
Your employer is not your “employer”
This is the point where it gets really confusing. For instance, the employee has an employment contract with a legal entity outside the work country. But domestic law would qualify the relationship between an individual and a host entity as employment (even without the formal employment agreement). Consequently, the employee might be taxed in the host country, even without the formal employer.
It is true that 183-days rule has many advantages. On the other hand, sometimes it is more beneficial to avoid it.Sometimes people think that as long as all conditions are met, no tax consequences arise in the host country. Unfortunately, that is not always the case.
Ultimately, the situation depends on your unique circumstances.The best solution we can offer to you is to seek expert advice. As you can see from the article, this rule has many edges.
Bradford Jacobs are unrivalled experts in European Tax Compliance, offering flexible and innovative approach, uncommon services and bespoke solutions to meet the individual needs of each and every customer.
Contact us today to find out how our professionals can help you to stay compliant.