How does the 183 day rule work?

[debudubai]

There are some difference from country to country, but in general, how does the 183 day rule work?

It seems that if you stay more than 183 days in a country, that's where you're considered tax resident.

Consider the following scenario: you stay in country A where you are resident, but earn no income locally or internationally, and you have no close ties in the country (assets, property, family, etc). After 190 days, you relocate to country B and become a resident. You cut off all ties with Country A. You set up a company or become employed and now derive an income in country B. There's a double tax treaty between country A and country B.

As you stayed more than 183 days in country A, is it possible that the income derived in country B will be taxable in Country A as well?

 

[Sols]

debudubai said:
As you stayed more than 183 days in country A, is it possible that the income derived in country B will be taxable in Country A as well?
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Yes, that is possible. Check the relevant tax treaty and see what it says.

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This is the probably the answer to your question.

 

[debudubai]

Sols said:
Yes, that is possible. Check the relevant tax treaty and see what it says.
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I read through the tax treaty, but it's surprisingly sparse on details. Essentially it just outlines the procedure for exchanging of information on request, possibility to deny a request and confidentiality clauses.

 

[Sols]

debudubai said:
I read through the tax treaty, but it's surprisingly sparse on details. Essentially it just outlines the procedure for exchanging of information on request, possibility to deny a request and confidentiality clauses.
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That sounds like a Tax Information Exchange Agreement (TIEA), which are/were a way to exchange information before we had CRS.

What you're looking for is usually called a Double Taxation Agreement (DTA) or Double Taxation Avoidance Agreement (DTAA). If there is no DTA and there only is a TIEA, then you are risk of double taxation.

The term tax treaty is sometimes used for both, but they are very different agreements.

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This is the probably the answer to your question.

 

[debudubai]

Sols said:
That sounds like a Tax Information Exchange Agreement (TIEA), which are/were a way to exchange information before we had CRS.

What you're looking for is usually called a Double Taxation Agreement (DTA) or Double Taxation Avoidance Agreement (DTAA). If there is no DTA and there only is a TIEA, then you are risk of double taxation.

The term tax treaty is sometimes used for both, but they are very different agreements.
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I wasn't aware of this. Thanks for sharing.

I just had a look, and you're correct, there only seems to be a TIEA in place. So, all things being equal, avoid 183 days in Country A?

 

[Sols]

The absence of a DTA makes things much more difficult and generally not favorable.

There might still be provisions in the law that allow for exceptions or special treatment. A lawyer should be able to guide but just as a general rule, don't play with fire.

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This is the probably the answer to your question.

 

[debudubai]

Sols said:
The absence of a DTA makes things much more difficult and generally not favorable.

There might still be provisions in the law that allow for exceptions or special treatment. A lawyer should be able to guide but just as a general rule, don't play with fire.
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Agree. That's why I'll be leaving before I reach 183 days and all ties will be cut off. Thanks again.

 

[backpacker]

debudubai said:
Agree. That's why I'll be leaving before I reach 183 days and all ties will be cut off. Thanks again.
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Do take into account that many countries apply the "183 days in any 12-months-rolling-period" rule.
This can lead to unpleasant surprises if not calculated carefully.

In the early days it was simple because countries just calculated the 183 days per each calendar year or -rarely- per each the tax year.
This has changed a few years ago and ever more countries are adopting the 12-months-rolling-period.

 

[debudubai]

backpacker said:
Do take into account that many countries apply the "183 days in any 12-months-rolling-period" rule.
This can lead to unpleasant surprises if not calculated carefully.

In the early days it was simple because countries just calculated the 183 days per each calendar year or -rarely- per each the tax year.
This has changed a few years ago and ever more countries are adopting the 12-months-rolling-period.
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Another thing I didn't know. Thanks for sharing. I haven't seen this mentioned with the tax authorities, but good to know. Waiting to hear back from a lawyer on this. It seems to be an incredibly fuzzy area with no clear yes/no answers.

 

[backpacker]

debudubai said:
Another thing I didn't know. Thanks for sharing. I haven't seen this mentioned with the tax authorities, but good to know. Waiting to hear back from a lawyer on this. It seems to be an incredibly fuzzy area with no clear yes/no answers.
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You will have to study the national tax code of each country involved. This is not something which you find in a DTA.

 

[debudubai]

Thanks for taking me back to school. 🙂 Learning something new everyday. Appreciate your insight.

Received an initial assessment today. It's complicated and there is no clear answer. Things here are determined on a case by case basis. There are certain things that may constitute having close ties to Country A, despite relocating to Country B. As such, the objective is to make sure that I can proof that I do not have any of these things (property, family, assets, business etc in Country A).

However, tax residency may still be contested so the burden is on me to provide evidence to show that all ties have been cut.

It's crazy there is not more clarity on things like this.

 

[Fulton Abraham Sanchez]

Only if country A has a worldwide income taxation like US.