Tax systems and the 183 days’ rule
The conditions for becoming tax-resident and tax non-resident vary from country to country and depend on such things as length of stay, type of accommodation, location of family, and nationality.
In most tax systems, presence of an individual in a country for 183 days or more in any 12-month period is very relevant in respect of an individual’s residence for tax purposes or for the taxation of employment income (although other tests must also be met). In many countries including Nigeria, being tax-resident causes an individual to be taxed on global income.
If you work less than 183 days in many countries you may be considered tax non-resident if certain other criteria are also met. However, even as a non-resident you should normally still be paying tax on the revenue you generate in that country.
If you work more than 183 days in most countries, then you will become tax-resident and liable for tax on your worldwide income, i.e. revenue from your work, interest on investments, etc.“Residence” is a principle according to which residents of a country are subject to tax on their worldwide income and non-residents are only subject to tax on domestic-source income.
Definitions of residence for tax purposes vary considerably from country to country. For individuals, physical presence in a state is an important factor. Some countries determine residency of an individual by reference to a variety of other factors, such as the ownership of a home or availability of accommodation, family, and financial interests. For companies, some states determine the residence of a corporation based on its place of incorporation. Other states determine the residence of a corporation by reference to its place of management. Some states use both a place-of-incorporation test and a place-of-management test.
Whether you are a taxpayer or not depends on where you are ‘resident’ and ‘domiciled’ in a tax year.
In many countries, being tax-resident causes an individual to be taxed on global income. Frequently, spending 183 days or more during a tax year in a country may result in tax residence. This is true for countries such as the United States, Canada, and the United Kingdom.
It is a common perception that exceeding 183 days of physical presence in any particular country in a tax year is the only factor that triggers residency in that country. Many countries do in fact follow the 183-day rule, but often there is more to residency than simply counting days.
The ‘183 day rule’ does NOT automatically mean that you can work for 183 days in a new country without paying tax or becoming tax-resident. However in most situations, particularly if a double taxation avoidance treaty exists between your country of work and your home country, you will not have to pay tax on the same income twice.
The tax authorities in Nigeria will usually regard a person as a Nigerian resident for tax purposes if he is physically present in Nigeria for a period or periods in all amounting to an aggregate of 183 days (period of annual leave or temporary absence inclusive) or more in any 12 months period commencing in one calendar year and ending either within the same year or in the following year. The amendment to the Personal Income Tax Act (PITA) in 2011 clearly defines the 183 days rule to include annual leave and temporary period of absence’
Apart from Nigeria, quite a number of countries apply the 183 days rule in determination of residency.
· Applying the 183-day test in Australia
Your presence in Australia need not be continuous for the purposes of the 183 day test. All the days you are physically present in Australia during the income year will be counted. It is important to note that the 183 day test applies in relation to the year of income, not the calendar year.
Belgium
New 183-day rule for individuals working in Belgium
Belgium recently revised its domestic 183-day rule to follow article 15 § 2 of the OECD Model Treaty. The amended version of the 183-day rule now provides that salary and other similar income are taxable in Belgium if an individual is present in Belgium for more than 183 days in any 12-month period and if the payment relates to such activity. The amended domestic 183-day rule is effective 1 January 2009.
The prior version of the domestic 183-day rule provided that salary and other similar income were taxable in Belgium if an individual spent more than 183 days in Belgium in a calendar year. The wording of this provision was not precise and resulted in conflicting case law in which some tax courts held that the 183-days presence must be satisfied in the year of payment of the salary, whereas other courts held that the 183-days presence test must be determined by reference to the period in which the employment for which the salary was paid was exercised.
Canada
The 183 days rule is applicable in Canada. Where an individual does not have any residential ties but stays in Canada for more than 183 days in the year, he or she will be considered a “deemed resident.” It should be noted that Canada has no formal definition of residence within its income tax laws. The courts have interpreted residence to be “a matter of the degree to which a person in mind and fact settles into or maintains or centralizes his ordinary mode of living with its accessories in social relations, interests and conveniences at or in the place in question.” Residency is based on factors such as whether a person has a home in Canada, whether the person has a spouse or dependents living in Canada, as well as whether the person has social and economic ties in Canada. If you did not have significant residential ties with Canada and you lived outside Canada throughout the year (except if you were a deemed resident of Canada), you may be considered a non-resident of Canada.
You are a non-resident for tax purposes if you:
. normally, customarily, or routinely live in another country and are not considered a resident of Canada; or
. do not have significant residential ties in Canada; and
. you live outside Canada throughout the tax year; or
. you stay in Canada for less than 183 days in the tax year
Dominica
The imposition of Income Tax in Dominica is governed by the Income Tax Act, Chapter
67:01 of the Revised Laws of Dominica 1990, generally referred to as the Income Tax
Act. Administration of this Act is vested in the Comptroller of Inland Revenue.
In order to qualify for the resident allowance, a person has to be physically present in
Dominica and one of the following conditions must be satisfied:-
• The person’s permanent place of abode must be in Dominica. This means that the
person must have a home, family ties or business transactions carried out in
Dominica or Dominica must be the place where the person’s rights and
obligations are governed as regards to marriage, taxation etc;
• The person must be physically present in Dominica for one hundred and eighty-three
days (183) in the year of assessment; and
• The person must be physically present in a year which is continuous with another
year that the person had been present for one hundred and eighty-three days (183).
183-day test in France
To be ‘fiscally resident’ in France, under Article 4B of the Code Général des Impôts (CGI) only one of the following three conditions need apply:
· It is considered you have your main home in France;
· You carry on a professional activity in France, either self-employed or as an employee;
· Your centre of economic interests is in France, e.g. investments, business.
For determination of residency status the general rule that is applied is that if you spend 183 days per calendar year in France then you are deemed to be resident.
Singapore
In Singapore, under its tax residency rules , the Inland Revenue Authority of Singapore. (IRAS), will regard you as a tax resident if you stay or work in Singapore for at least 183 days in a calendar year. The number of days in Singapore includes weekends and public holidays. Under the two-year administrative concession, you will be regarded as a tax resident for the two years if you stay or work in Singapore for a continuous period of at least 183 days. The number of days in Singapore includes weekends and public holidays.
For example if you have stayed or worked in Singapore from 3 Nov 2012 to 7 May 2013 which is over 183 days, you will be taxed as a resident for the 2013 and 2014 years of assessment.
183 days principle in US
Although the US has an elaborate rule to determine residency, the 183day rule is still part of the criteria. There are two major tests, the “green card test” and the “substantial presence test.”
The 183-day rule is part of the “substantial presence test” used by the Internal Revenue Service to determine if a person, who is a dual taxpayer, will have to pay taxes in the United States. It is commonly used by aliens to establish residency in the United States. The determining factor is whether the number of days on which the person was present in the United States exceeds 183 days.
The “green card test” to determine if someone is resident in US. If at any time during the calendar year you were a lawful permanent resident of the United States according to the immigration laws, and this status has not been rescinded or administratively or judicially determined to have been abandoned, you are considered to have met the green card test.
The second test is the “substantial presence test.” To meet the substantial presence test, you must have been physically present in the United States on at least:
. 31 days during the current year, and
. 183 days during the 3 year period that includes the current year and the 2 years immediately before. To satisfy the 183 days requirement, count:
. All of the days you were present in the current year, and
. One-third of the days you were present in the first year before the current year, and
. One-sixth of the days you were present in the second year before the current year.
Some days are not counted as days of presence in the United States for the substantial presence test: for example:
. Days you are in the United States for less than 24 hours when you are in transit between two places outside the United States.
. Days you intended to leave, but could not leave the United States because of a medical condition or problem that arose while you were in the United States. Whether you intended to leave the United States on a particular day is determined based on all the facts and circumstances.
. Days you are an exempt individual.
OECD and 183 day rule
Many countries have negotiated tax treaties to eliminate double taxation of income. Many of these international tax treaties, particularly those based on the Organization for Economic Cooperation and Development (OECD) model convention, contain an article whereby a business traveller living in a home country that is a party to the treaty can exclude income from taxation in a host country that is also a party to the treaty. Generally, the exemption applies if a business-traveling employee satisfies all of the following criteria:
. The employee remains a resident of his or her home country
. The employee is present in the host country for less than 183 days in either the calendar year, fiscal year, or any rolling 12-month period (the period may differ according to the treaty)
. The employee is not paid by (or on behalf of) an employer or person resident in the host country
. The compensation paid to the employee is not borne by a permanent establishment which the employer has in the host country.
Although most treaties are based on the OECD model, they may differ in details such as the time period. Therefore, the 183-day rule in isolation does not determine host country taxation; one must also look in detail at othercriteria .
Residence as defined in double taxation treaties is different from residence as defined for domestic tax purposes. Tax treaties generally follow the OECD Model Convention although Nigeria has developed its own model.
Under Article 15(2) of the OECD Model—the 183-day ruleis important in taxing employment income in relationto the short-term assignment of employees and the hiring-out of labour. If the 183-day rule applies, theincome is taxable only in the residence state and, therefore, it is exempt in the source state in which the
employment is exercised.
Article 15(2) requires that the remuneration is paid by, or on behalf of, an employer who is not a resident of the source state and that the remuneration is not borne by a permanentestablishment which the employer has in the source state.
In 2010, the OECD updated its Commentary on Article 15 by including extensive explanations of whenservices are provided in the exercise of an employment and to whom such services are rendered.
