Luxembourg: Five Myths About The 183-Day Rule

Last Updated: 8 September 2017
Article by Maikel Wijsbek

Most Read Contributor in Luxembourg, July 2018

As a global mobility tax advisor I often hear comments like I am not taxable in country A as long as I stay for fewer than 183 days. Another common one is I am being paid from Country A, so I am not taxable in Country B. When we discuss employee taxation in an international context, we often refer to the so-called "183-day rule"—however, there seems to be a widespread misconception that this 183-day rule is merely about counting days. It is in fact more complex than that. Below, I address five myths about the 183-day rule, aimed at helping you better understand the rules of international taxation of employees.

This article should be read as a general guideline. For simplicity purposes, many nuances have been disregarded. Please consult your global mobility tax advisor for case-specific advice, especially as seemingly small details can sometimes make an enormous difference.

Myth 1: "As long as I stay under 183 days I am not taxable."

Although most tax treaties are based on the guidelines from the OECD, they are certainly not all the same. The wording is not easy, as they are negatively formulated as an exception to an exception. Basically, there are three elements that could trigger the employee's taxation in the other country where he/she is performing work. Stripped of legalese (and nuances), these three elements are as follows:

  • The employee's stay in the work country exceeds 183 days.
  • The employee is performing activities for an employer in the work country.
  • The employee is working for an employer's permanent establishment in the work country.

Each of these elements has their own nuances and complexities. In a separate article I will delve deeper into the second element and discuss the concept of (economic) employers. Being classified as a permanent establishment is for the (corporate) tax department to worry about: they will either be planning for it, or trying hard to avoid it.

The key message here is that even when the employee does not exceed 183 days in the work country, he/she could still be taxable therein.

Myth 2: "The 183 days are counted per calendar year."

This is one of those items where the tax treaties are often different. The three most common variations are:

  • 183 days per calendar year
  • 183 days per tax year
  • 183 days per any twelve-month period

Older treaties mostly use calendar year or tax year, whereas newer treaties most often refer to the twelve-month period. For many countries the tax year is the same as the calendar year, but there are exceptions (e.g. Australia, the UK, Nepal, Singapore, Iran, and Thailand).

Where treaties are based on calendar or tax years, employees regularly plan long-term projects to span two years, but that don't exceed 183 days in each of those years. For example, a worker might start the project on 15 July and end it on 15 June of the following year. In neither year is the 183-day threshold exceeded, so taxation would be avoided (provided that taxation was not triggered by other circumstances).

Newer treaties most often count the days in "any twelve month period". This generally means that you only know if days worked in, e.g., December 2016 are taxable in the work country by November 2017. It is important to track the days in each country and to check the applicable treaty for the period in which they should be counted.

Myth 3: "A two-hour meeting does not count."

In counting up to 183 days, most countries apply the "any part of the day counts as a whole day" principle. This means that a two-hour meeting counts as one day. An employee who starts every morning with a meeting in Country A, but spends the rest of the work day in Country B, will be considered to be working in both countries simultaneously. He/she would therefore be taxable on his/her employment income in both countries.

However, the amount of employment income that may be taxed in each country is a separate discussion. If the meeting in Country A only lasts two hours, and the remaining six hours of the work day are spent in Country B, then most countries would agree to 25% of the employment income being taxable in Country A and 75% of the employment income taxable in Country B.

Myth 4: "I am not paid in Country A, so I am not taxable there."

Even if the employee does not exceed 183 days in Country A, and his/her payment occurs in Country B, he/she could still be taxable in Country A: if the employee is working for the employer's permanent establishment in Country A, then he/she would be taxable in Country A. Or, if the entity for whom the employee performs activities in Country A is deemed to be the (economic) employer, then he/she could be taxable in Country A. In a separate article I will discuss the intricacies of the (economic) employer principle.

Myth 5: "If I am taxable in Country A, I will only need to file a tax return."

Unfortunately, (tax) life is more complicated than that. In some cases in some countries, filing a tax return settles the taxes owed. However, it is more likely that there is an obligation for the employer to remit payroll tax on a monthly basis. The compliance formalities depend on the situation, but may include a shadow payroll, annual income tax return, and other registrations.

Conclusion

Although 183 remains a magic number in employee taxation, there is more that can trigger taxation. A stay of more than 183 days in a country almost certainly results in taxation, but other elements can trigger taxation from the first work day. The same set of circumstances could trigger taxation in Country A, but would not necessarily trigger taxation in Country B. To determine taxation, check the applicable treaty for each country combination, the country's interpretation, and all the relevant facts. In cases of doubt, consult your global mobility tax advisor.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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