The 183-Day rule, how does it work?

A question that often arises, is whether an employee can work outside of the Netherlands without this having consequences for the employer (and employee). The perception is often that this is possible as long as the employee works less than 183 days in the other country. But is that really the case? This article outlines some aspects that are (also) important in these situations.

Determining (Tax) Residency

It’s important to check whether an employee will remain a resident of the Netherlands or will become a resident of the other country. The employee may want to move to another country and work (partially) from home there. Factors that play a role in determining (tax) residency are the registration with the municipality, keeping a home in the Netherlands and where the employees’ family resides. All relevant facts and circumstances should be considered when determining the residency.

Foreign Office and Employee Function

Additionally, it is important whether there is an office of the employing company in the other country. For example, is there a German or French entity or will the Dutch employer rent office space in the other country? There may be several employees who want to work from the other country. The employee’s function can also play an important role. For example, should the employee work in a sales function, would they have the ability to conclude contracts  on behalf of the company (i.e. make binding decisions)?

Tax Treaties

Once the facts and circumstances are known, it should be determined in which country the salary will be taxable. The Netherlands has established tax treaties with many countries that include the so-called ‘183-day rule’. In some (older) treaties this is assessed per tax year (usually calendar year), but in newer treaties the assessment is  per 12-month period. For that reason, it’s important to check this first as the outcome could be different. It can also be the case that the Netherlands has no agreements with the other country to prevent double taxation.

How Does the 183-Day Rule Work?

What does the 183-day rule actually entail? The main rule is that a resident of a particular country is taxed on his or her salary in that country (taxable in state of residence), unless he or she works in another country (taxable in state of employment). For example, if the country of residence is the Netherlands and part of the work is performed in Germany, then the German working days are generally taxed in Germany.

However, the state of residence (the Netherlands in this case) may still levy tax on the salary of the employee, if:

• The employee does not stay in Germany for more than 183 days.
  Note: not working, but being physically present is relevant. In other words, if someone spends their weekends in Germany, these days count for the 183 day rule; and
• The salary is not paid by a German employer; and
• The salary is not borne by or charged to a permanent establishment (such as a branch or office) in Germany.

Whether an employee working abroad has consequences for the employer (or employee) all depends on the employment situation and the tax treaty between the Netherlands and the other country. It is possible that working abroad would require registration and payroll administration in the other country.

It should be noted that the above only applies to regular employees. Different rules may apply to board members or company directors. Moreover, each tax treaty should be assessed individually.

If you have any questions about the 183-day rule or other Global Mobility related questions, please feel free to contact our Global Mobility Services team.