The “183-day rule” explained
Tax residency is a fundamental institution that determines the right of States to tax the income of a person. Basically, tax residency is how a state decides who to tax. Tax residency is what helps states distribute tax jurisdiction among themselves. This includes things like, the right to tax the income of residents, set certain tax rates and asking people to submit various kinds of reports in order to control the payment of the corresponding amounts to the state budget. So that’s how the basis of the State deciding to tax an individual isn’t citizenship, but residence.
Deciding the ways and methods of establishing this kind of connection is carried out by each jurisdiction independently. That being said, in order for the tax system to work effectively, states tend to just use the same rules to some extent.
One of these rules is the “183-day rule”.
So according to this rule, a person can be considered a tax resident of a State if he or she stays in it for a long enough period of time to “establish a certain kind of connection” with the state where that person is currently located.
How you interpret this rule differs from State to State, but its core remains unchanged in relation to each jurisdiction — you need to physically stay six months or more in the country of your choice to become a resident and pay taxes in accordance with local legislation.
For example, in the laws of Czech Republic, Estonia, Hungary, Israel, and Armenia, there is a rule that being on the territory of these countries for 183 days or more means you have established a tax residency regime for yourself.
Finland, Sweden, Denmark, Norway interpret this rule in a slightly different way. You basically calculate the term of stay in months, but not in days. To get residence status, you need to stay in the territory of the host State for 6 months, which is actually the same things as 183 days. It can, though, vary from 182 to 184 days. You need to pay attention to which month is taken into account and whether the year is a leap year.
There are other rules for getting resident status due to the stay in the country for a certain time period, however, the “183-day rule” is the most used and simplest way for most people to go about getting residency.
It is also important to bear in mind the fact that different States calculate these terms differently. Some States take into account only full days of stay on the territory of the country, others count as a full day a few minutes spent in the country. Some States do not include the day of departure in the period of stay, while others take it into account when calculating the period.
Some of the countries that count only full days are China and Guernsey. States that take into account any day of a person’s physical presence in the country are, for example, Estonia, Georgia, Ireland. Countries that do not take into account the day of departure: Costa Rica, Belize, Azerbaijan.
There are also States that do not apply the “183-day rule” at all. Usually these are countries in where they don’t tax individuals, so they won’t have any kind of legal institute such as “tax residency” either. Such States include, for example, Jersey, Kuwait, the Cayman Islands, the Bahamas and Bermuda.
So therefore, the vast majority of States apply a uniform “183-day rule”, which is the simplest and most convenient way to split people into the categories of “residents” and “non-residents”. It is also super helpful for individuals, because sometimes simplified procedures for recognition as a tax resident may take longer than 183 calendar days.
