Insight

What you need to know about the 183 day rule for contractors

By David Lawrence |

The 183 day rule for contractors relates to tax liabilities for workers contracted to work in countries where they are not normally resident. The rule is not clear cut but can be used as a guideline for people working away from their home country.

About the 183 day rule

In general, if you work less than 183 days in many countries around the globe it's possible you could be classified as non-resident for tax purposes, just so long as all other criteria are met. It's normally the case, though, that even if you are non-resident, you will still be paying tax on revenues generated within the country you are working. Working for more than 183 days in most countries generally makes you resident for tax purposes. On the whole, the 183 day rule doesn't mean that you can work up to 183 days in a new country without any need to pay tax or becoming tax-resident for legal purposes. What it does mean is that, if this double taxation avoidance treaty is in existence in your home country and the country in which you are working, then you will not need to pay tax twice on the same income.

There are several myths in circulation surrounding the use of the 183 day rule, and as a result it can be misused. For example, contractors with assignments lasting up to six months will often claim they are covered by this directive. This will only be the case if they are full-time dependent workers, with a contract of employment issued by the employing company. Self-employed and independent workers are treated as tax-resident for the purposes of income tax deductions. Workers operating through a personal services company (PSC) or umbrella company will also be unable to use the 183 day rule and need to become tax resident within the country they are working. This ruling applies to all company employees, from the managing director and down.

Misuse of the 183 day rule can have devastating effects for agencies and contractors. Recruiting agencies could possibly lose clients if they place contractors in roles where they are non-tax compliant, or could be investigated by the relevant tax authorities. Contractors risk tax penalties if they opt to run a PSC while working away from their country of residence, they also risk being fined or penalised if they are operating a PSC which is not valid in their host destination.

You should always seek expert advice on the 183 day rule before attempting to work in any country.


David Lawrence

Written by David Lawrence

David is the founder of Vine Resources.