Many digital nomads know about the so-called 183 days rule or at least have heard of it.
Most nomads will know it has something to do with taxes. However, the actual depth of their knowledge will depend from one to another.
In any case, I noticed there are some misconceptions about this rule and some things need clarification.
What Does the 183 Days Rule Say
Basically, the 183 days rule states that if you stay longer than 183 days in a country during a twelve month period you become a tax resident of that country.
The reason behind this is that you spend the majority of your time during those twelve months in the country. Hence, you’re liable to taxes there.
Yet, this is a very basic explanation of this concept and there are some nuances we need to address.
First of all, in some countries the amount of days is not set at 183 days but at a different amount of days.
That’s why a lot of time you’ll hear people speak about the days test or substantial presence test without mentioning an actual amount of days. The reason is that the actual threshold differs from country to country.
In Thailand, for example, it’s sufficient to spend 180 days to become a tax resident. You can even become a tax resident of Cyprus by only spending 60 days there. However, in this case other conditions apply as well.
Please also note that the days test is only one way to assess whether or not a country deems you a tax resident or not.
A mistake I see many of my clients make is that they come to me saying there not a tax resident anywhere because they don’t spend more than 183 days in any country.
As already discussed, the 183 days is not a fixed threshold you can follow blindly.
Furthermore, many countries actually focus more on other criteria to determine if you’re a tax resident of their country or not.
How to Calculate Your Stay According to the 183 Days Rule
You would think calculating the days rule is just math. And to a certain extent that’s right. If you surpass the threshold set for the amount of days, a country can deem you a tax resident.
However, the real question is which days you need to take into account for your calculation. This differs again based on the legislation of the country we are talking about.
Some countries take into account your day of arrival and departure. While for other countries, these days will only count if you spend a certain amount of hours within the country. Which days actually count, isn’t always easy to find and can cause discussions in any case.
Therefore, an easy guideline is to take into account any day you spend any amount of time in the country.
Tax Implications for Digital Nomads
The tax implications are rather straightforward and I already mentioned them before.
If a country applies the rule that you become a tax resident after spending a certain amount of time there, you’ll be liable to personal income taxes in that country.
As simple as that.
However, the question is often from what point in time you become a tax resident. If you meet the days test during the twelve months of one tax year, it is easy. You will just be a tax resident for that specific tax year.
However, it’s not always as easy as that. What if you meet the days test during a twelve month period that extents over two tax years?
Let’s say the tax year follows the calendar year. And you stay in the country from 1 November of year one till 31 May of the year after. You’ll meet the 183 days test during the second year (on a running twelve month period). In some countries, you’ll be a tax resident only for the second year while in others you’ll be a tax resident for both years.
Furthermore, you should note that your stay doesn’t need to be continuous like in my example. If you come and go but still spend 183 days in the country, the rule still applies.
If you’re still a tax resident in one jurisdiction while meeting the days test in another jurisdiction, this could mean that two countries will ask you to pay taxes on the same income. Luckily, there are double tax treaties to avoid this.
These double tax treaties can also help to mitigate double taxation if you change your tax residency during the tax year. This is important as it is rarely the case that you’ll change your tax residency exactly at the end of the tax year.
Nevertheless, there are some exceptions to this the rule that you become a tax resident by default if you meet the days test.
Exceptions to the 183 Days Rule that Digital Nomads Can Take Advantage Off
Sometimes exceptions can apply to the principle of the days rule.
The first example is that certain countries give you an exemption from taxes or becoming a tax resident if you stay in their country on a digital nomad visa.
You can have a look at my list with tax free digital nomad visas if this sounds appealing to you.
Next, there is of course the practical approach.
Clients often ask me “how would they know how much time I spend in the country?”. And that’s a fair question.
In many countries there isn’t necessarily a link between the migration office / border checks and the tax authorities.
This is even more the case for the countries which are part of the Schengen Area. Those track when you enter and leave the Schengen Area as a whole but not how much time you spend in each separate country.
However, you could get on their radar if you would own or rent a place in the country. And if they have a feeling you might stay a bit long, they might come to you to ask you for prove you didn’t.
So, there are definitely people who qualify as a tax resident according to the letter of the law but who were able to stay under the radar so far.
However, I wouldn’t recommend to count on this approach and to go for a proper tax strategy instead.
Feel free to reach out if you want to see what options you have.
