The 183-Day Rule Explained

The 183-day rule is a common threshold used by countries to determine tax residency. Understanding how it works is essential for anyone living a location-independent lifestyle.

What is the 183-Day Rule?

In simple terms: if you spend more than 183 days (roughly 6 months) in a country during a tax year, you may become a tax resident of that country.

Tax residency typically means:

You must report your worldwide income to that country
You may owe taxes on income earned anywhere in the world
You must file tax returns in that country

How Countries Count Days

Not all countries count days the same way:

Strict Counting

Some countries count every day you're physically present, including:

Arrival and departure days
Transit days (even if you don't leave the airport)
Days spent for any reason (business, tourism, visiting)

Weighted Formulas

Some countries (like the US) use weighted formulas that consider days spent over multiple years:

US Substantial Presence Test:

Tie-Breaker Rules

If you're a tax resident of multiple countries, tax treaties often have tie-breaker rules based on:

All days in the current year, plus
1/3 of days in the previous year, plus
1/6 of days in the year before that
If total ≥ 183 days, you may be a US tax resident
Permanent home
Center of vital interests (family, business)
Habitual abode
Nationality

Common Misconceptions

"If I stay under 183 days, I won't be taxed"

Not always true. Some countries have lower thresholds or additional criteria:

Having a permanent home available
Having your "center of vital interests" there
Being employed or running a business there

"The 183-day rule is universal"

No. Each country has its own rules. Some use 90-day rules, some use 60-day rules, some have completely different criteria.

"I can split my time equally and pay no taxes"

Risky. Most tax authorities expect you to be a resident somewhere. A lifestyle of perpetual travel without establishing residency anywhere can create problems—especially for banking, contracts, and legal matters.

Strategies for Digital Nomads

Option 1: Establish Residency in a Tax-Friendly Country

Choose a country with:

Territorial taxation (only taxes local income)
No income tax
Favorable treatment of foreign-source income

Examples: Panama, Paraguay, UAE, Cayman Islands, Georgia

Option 2: Maintain Home Country Residency

Keep residency in your home country and:

Stay compliant with all tax obligations
Use legal deductions and tax treaties
Accept that you'll pay some taxes

Option 3: True Perpetual Traveler

Never spend 183 days anywhere. This requires:

Careful tracking of days in each country
No permanent home anywhere
Acceptance of limited banking/legal options
Potential scrutiny from tax authorities

US Citizens and the 183-Day Rule

US citizens are taxed on worldwide income regardless of where they live.

The 183-day rule doesn't apply to US citizens in the same way. Even if you leave the US and never return, you owe US taxes on your worldwide income until you renounce citizenship.

US citizens abroad can use:

Foreign Earned Income Exclusion (FEIE)
Foreign Tax Credit
Tax treaties

Practical Tips

Keep detailed records — Track your days in each country carefully
Understand each country's rules — Don't assume the 183-day rule applies everywhere
Consult professionals — International tax is complex; get proper advice
Establish clear residency — Being a tax resident somewhere is often easier than being nowhere
Consider substance — Where is your bank account? Your business? Your family? These matter.

Our Services

Understanding tax rules is one thing—staying compliant with your US LLC is another. We help foreign-owned LLCs stay on the right side of the IRS with Form 5472 filing services.

This guide is for educational purposes only and does not constitute tax advice. Consult a qualified tax professional for advice specific to your situation.