In The myth of the 183 days, we wrote that there was no such thing as a 183 days’ rule. In this post , we will say that there is a 183 days’ rule. Is that a contradiction? Not really.
There is no 183 days’ rule to determine whether you are a Belgian resident.
There is, however, a 183 days’ rule to determine whether you are liable to tax in Belgium if you work in Belgium as an employee but do not live in Belgium.
There are a lot of myths about this 183 days’ rule. Let’s debunk some of these myths.
Myth 1: “I work in Belgium, but I am not paid in Belgium, so I am not liable to tax in Belgium.”
Where you are paid is irrelevant.
If you live in one country and work in another, you risk being taxed in both countries, in your home country and in the country where you work.
You are subject to the laws and regulations of at least two jurisdictions. Usually your home country wants to tax you on your worldwide income (that is any income irrespective of where it is earned, located, received etc.).
The country where you work wants to tax the part of your employment income that is related to your work in that country.
For US citizens and US green-card holders, who do not live or work in the US, there is the added complication that they may be liable to income tax in the US as well, but we will ignore that here.
This is where the double tax treaty comes in.
For employment income, the rule that determines where the employment income is taxed can usually be found in article 15 in respect of ‘income from employment’, or as it was called ‘income from dependent personal services’. In most double tax treaties, it is the 183 days’ rule.
One double tax treaty looks very much like another; that is because most double tax treaties are negotiated starting with the text of the OECD’s Model Tax Convention. There are different versions and every couple of years a new text is published, and a rule may be replaced by its opposite. This is the latest proposal of article 15 in the 2017 OECD Model Tax Convention.
Always check first if there is a double tax treaty between the country where you live and the country where you work, and read the text of the article 15. If you live in the United Kingdom, in the Netherlands, France (article 11) or the U.S.A. (article 14), click on the link.
By way of example, this is the text of article 15 in the double tax treaty between Belgium and the United Kingdom:
ARTICLE 15 Dependent personal services
(1) Subject to the provisions of Articles 16, 18 and 19 of this Convention, salaries, wages and other similar remuneration derived by a resident of a Contracting State in respect of an employment shall be taxable only in that State unless the employment is exercised in the other Contracting State. If the employment is so exercised, such remuneration as is derived therefrom may be taxed in that other State.
(2) Notwithstanding the provisions of paragraph (1) of this Article, remuneration derived by a resident of a Contracting State in respect of an employment exercised in the other Contracting State shall be taxable only in the first-mentioned State if:
(a) the recipient is present in the other State for a period or periods not exceeding in the aggregate 183 days within any period of 12 months; and
(b) the remuneration is paid by, or on behalf of, an employer who is not a resident of the other State; and
(c) the remuneration is not borne by a permanent establishment or a fixed base which the employer has in the other State.
Myth 2: “If I meet the 183 days rule, I am not liable to tax in Belgium”
What does this mean when we strip away the legalese?
The basic rule is that you pay tax in the state where you work, and the 183 days rule is the exception to that rule. Paragraph (1) says that on the remuneration for work in another country you pay tax in that country. However, paragraph (2) says that you pay tax on that remuneration at home under the (negative) conditions of paragraph (2).
If you work in Belgium, you only pay tax at home if you meet all three conditions at the same time :
|you work less than 183 days in Belgium in any 12 months ;|
|your remuneration is paid by a non-Belgian employer;|
|your salary is not borne by a permanent establishment that your employer has in Belgium.|
That is a very subtle distinction, and to see when you are liable to tax in the work state, we turn article 15 upside down. You are liable to tax in Belgium if you meet (at least) one of the following conditions:
|you work 183 days or more in Belgium over any period of 183 days;|
|your remuneration is paid by a Belgian employer (see myth 7) ;|
|your salary is a tax deductible cost of a permanent establishment (such as an office or a branch) that your employer has in Belgium (see myth 8).|
The 183 days in the Work State are just one criterion, you may also be liable to tax under conditions (b) and (c), i.e. when you have an ‘economic’ employer in the Work State.
Myth 3: “If there is a 183 days rule in the double tax treaty, it applies to me”
The 183-days rule does not apply to all workers. Government official and civil servants and military personnel only pay tax in the state that pays them. Cabin crews and crews of ships in international traffic may be liable to tax in the country where their employer is effectively run from. Teachers and professors may be liable to tax at home for a number of years. And there are different rules for company directors.
Myth 4: “I am fine as long as I do not work more than 183 days in Belgium”
This is a first important misunderstanding. The 183-days-rule does not count working days, but days of physical presence in the Work State.
If a British resident works 150 days in Belgium, but also spends weekends, bank holidays and vacations here, discovering the charms of Bruges and the Ardennes, he can go over the 183 days of physical presence and he becomes liable to income tax in Belgium. All days are counted, even days when non-working days in Belgium.
If this Brit works from Monday to Friday in Belgium, returns home on Friday evening but comes back on Sunday evening to start work early on Monday morning, he is six days in Belgium in the week.
And if a Belgian resident goes to the US to study from September to June and then works three months for a company in New York, he has about 270 days of physical presence, even if he worked only 60 days. In any event, he will have been paid by a US employer and he will meet two conditions to be liable to tax there.
That being said, some of Belgium’s older double tax treaties count 183 days of activity. This is the case for the double tax treaty between Belgium and Austria (1971), Germany (1964), Israel (1972), Italy (1983) and Portugal (1969). They count working days, but also all days in between in Belgium or abroad : weekends, holidays, even days working abroad.
If an Italian employee works from Monday to Friday, returns home on Friday evening but comes back on Sunday evening, all seven days of the week count as days in Belgium. Practically speaking, he can only work 26 successive weeks in Belgium.
If you work a lot of days in another country, keep a travel log, with proof of travel (train and plane tickets, hotel bills, …), especially if you plan to avoid being liable to tax around the 183-days-rule.
Myth 5: “If I am not here for 24 hours, it’s not a day in Belgium”
Most countries count any part of a day as a whole day.
A three hours meeting in Belgium counts as a day in Belgium.
An employee who works in the office at home, and travels to his Work State in the afternoon, will have a day in both countries and be taxable on his/her employment income in both countries.
The day of arrival and the day of departure are counted: if you arrive at the hotel at 22:15 for a meeting the following day, and leave at 6:34 on day 3, that counts as three days in the same country.
The Belgian tax authorities will, however, disregard days where you just pass through Belgium (because you take a connecting flight in Brussels Airport, or because you drive or pass through Belgium on the train) as long as that does not take more than 24 hours.
The problem then is that you can be liable to tax in two countries for the same working day. It is then up to the tax administrations to determine which part of your remuneration is taxable where.
Myth 6: “If I work 180 days in one year and 180 in the next year, I am fine”
In older treaties, the 183 days are indeed calculated per calendar year or per tax year, but newer treaties look at a period of twelve months.
If the double tax treaty between Belgium and your state of residence calculates the 183 days in the calendar year, employees can plan to work on a project from 15 July to 15 June of the following year. Even if the employee has worked 330 days in the Work State, he does not exceed the 183-day threshold in either year. Unless he is paid by a Belgian employer or by a Belgian permanent establishment of your employer, he is not liable to tax in Belgium.
In most countries, the tax year is the calendar year, but there are exceptions. In Australia it is July to June, but in New Zealand it is April to March, in the United Kingdom 6 April to 5 April, Nepal has 1 Shrawan to 31 Ashad, Iran calculates from 21 March to 20 March, and in Myanmar it is October to September.
The newer treaties count the days in “any twelve-month period” so that the employee cannot work more than 183 without facing taxation in the Work State. The 12 months start on the day you start working in Belgium until the day before one year later. That also means that if you start working on 1 November, you may not be able to determine whether you will have worked 183 days until 31 October of the following year. By then, you may have had to declare the income already.
This just shows that you need to read the double tax treaty carefully and keep track of the days in each country is important.
Myth 7. “The 183-days-rule is all about counting days”
Because the 183-days rule is called the 183-days rule, many people forget or are unaware that there are two other conditions. These are that (b) the salary is not paid by or on behalf of an employer in the work country and that (c) the employment cost is not borne by a permanent establishment that the foreign employer has in the work country.
This means that you pay tax if you have an employer or an ’economic’ employer in the Work State.
If an employee lives outside Belgium and signs an employment contract with an employer in Belgium, he does not have to count days. He will be liable to tax in Belgium for the income that can be allocated to any workday in country B even if he spends less than 183 days in Belgium.
If your employer in your home country sends you to work in his branch office in Belgium, you may also be liable to tax in Belgium, but only if the cost of your employment is borne by the permanent establishment. That may be hard to find out if your employer does not tell you.
Myth 8. “I have no problem: my employer is in my home country”
If your employer sends you to do a job in Belgium, e.g. give a training to the staff of a Belgian company, to review the accounts of a Belgian company, etc …. you are indeed working for your employer. If you are not working under the authority of the Belgian company, that company is not your employer.
However, you may be working for the headquarters of a multinational company that sends you on secondment to work in Belgium under the authority of the local managing director. Your employer at home may, therefore, not be your employer in the sense of the double tax treaty.
This is where the 183 rules can become complex. In the past, countries applied a formal approach to the second condition, that the salary must not be paid by or on behalf of an employer in the Work State. That means that if the employee has an employment contract with a legal entity outside the Work State, this condition would be met, even if the salary costs are charged back to an entity in the host country.
However, work countries have the freedom to re-qualify the employment relationship in case domestic law would qualify the relationship between an individual and a host entity as employment (even without the availability of a formal employment agreement) or if they consider the situation as disabuse of the tax treaty.
Even then, you are only liable to tax in Belgium if your remuneration is charged back by your employer at home to your employer in Belgium.
Myth 9: “If I am taxable in the country where I work, all I need to do is file a tax return there.”
Unfortunately, your employer in your work country may be obliged to withhold tax at source (payroll tax) and possibly social security before paying you a salary. And your employer at home may have to keep a shadow payroll and make other registrations. Filing a tax return in your work state may just help settle the tax there.
Myth 10. “I will be worse off if I have to pay tax for work abroad”
Belgium has one of the highest tax rates, it is unlikely that a Belgian working abroad will pay more tax in Belgium. In fact, spreading your salary over two or more countries may reduce your total tax bill.
Belgium gives tax relief for double taxation by giving “exemption with progression”. This means that if you pay tax at low tax rates on your remuneration for work abroad, Belgium must exempt that part of your remuneration, but the Belgian tax authorities may take account of that remuneration to determine the tax on your remuneration for work in Belgium.
You do not pay tax on your remuneration for work abroad, but you may have to pay tax at rates of 45 to 48% on your Belgian income. The average tax rate will be less than 45 or 48%. There is even a name for this tax efficient technique: it’s called ‘salary split’.
And because paying tax abroad can be advantageous, the Belgian tax authorities are double checking when you are claiming the exemption for overseas income; they want you to prove that you are liable to tax there.
Non-residents who come to work in Belgium will usually not have that same benefit. Many other countries do not give tax relief by way of exemption with progression, but by giving a tax credit for overseas tax. They pay the full tax at home, and then they can deduct the tax they paid abroad. There is no advantage in that.
The 183 days rule is more complex than just working less than 183 days in another country. These are only the most common misunderstandings about cross-border employment. Such misunderstanding may result in double taxation that may be challenging to clear up. What is more, even with the same text in the double tax treaty, not all countries give the same interpretation to these rules.