Navigating Tax Residency: Solving the Challenge of Counting Days

We don’t think the old way of counting days is working. Tax advisors are pushing clients to improve record-keeping for tax residency compliance, while clients are trying to keep up with the different rules. There is too much margin for error, inaccuracies and frustration out there.

Let’s solve day counting by looking closely at some of the main pain points to navigate. By the end of this article, we’ll show you how to solve the problem with day counting with Daysium.

Let’s look at the following topics:

The Organisation for Economic Cooperation and Development’s (OECD) definition says tax residency “is determined under the domestic tax laws of each jurisdiction”.

Its two main functionalities are:

• • To decide whether you are liable to pay tax in the jurisdiction where you spend time.

• • To determine the scope of your liability.

Tax residence is crucial because it will decide where and when to pay tax. In a global world, and as a global citizen, determining residency can be trickier. If you spend significant time abroad, you may expose yourself to different jurisdictions. You must know the rules in different jurisdictions to ensure proper tax planning.

Your residence matters because:

• • The right to reside in a country, permanently or temporarily, doesn’t automatically make you a ‘tax resident’.

• • You might not be liable to pay taxes to the country where you have citizenship.

• • You might have to pay tax in two jurisdictions: where you work and reside.

No, but your domicile can impact your taxation. Domicile is a historical legal concept still used. You’re domiciled in the country to which you are most closely connected. For many, it is where you were born or have a permanent home. You could think of it as the place you intend to return to, even if you’ll spend time somewhere else in between.

Your domicile can impact your tax status and determine where and how much you pay. It’s important to note that your domicile status might make it so that you don’t pay tax on certain assets to your tax residency country.

You can acquire a domicile of choice. However, the process can vary between jurisdictions. We always advise contacting tax experts if you’re interested in learning more.

Jurisdictions use different criteria to determine residency, ranging from your time in the country to your ties to it. The rules introduce the first layer of complexity to your day counting.

The amount of time you spend in different jurisdictions can change yearly. Since tax residency is evaluated annually, you must know how many days you spend in different countries.

Let’s look at the two critical conditions:

Days Spent in the Country

The critical factor for most jurisdictions is how many days you spend in the country. You are a tax resident if you pass certain days – no matter your reasons. Many countries use the 183-day threshold. For example, in the UK, one condition of the residency test is that you spend 183 days in the country during a tax year.

But countries add a layer of complexity to day counting. You may need to meet several other conditions in the UK and elsewhere, aside from time spent.

Substantial Presence or Ties

Jurisdictions also look at your presence and ties within a country to determine tax residency. The criteria don’t count only the days you spend in the country but other factors. These can include things:

• • Where is your permanent home?

• • Where do you work?

• • How many family ties do you have to the country?

• • What other vital interests do you have in the country?

For example, the UK has a condition where you’re likely treated as a UK citizen if you own a home in the UK and no home overseas.

Double Taxation Rules

You might be considered a ‘treaty resident’ if you’re a resident in one or two double-taxation signatory countries. Tax treaties are in place to prevent double taxation. Your tax advisor can help you understand how double taxation rules may apply to you.

The main challenge in day counting is the different methods jurisdictions use to determine a ‘present’ day. Countries vary widely in their methodology, meaning that you need to be aware of the intricacies of the rule to get your day count right.

Let’s take the example of Ireland and the UK. In Ireland, you are considered to have been ‘present’ for a day if you were in the country at any point.

Suppose you are in Ireland on the 12th. The day would count as a day for residency calculations, even if you flew in or out of the country at any time during the day.

But UK’s legislation considers ‘present’ differently. A day only counts towards your tax residency days if you were in the UK at midnight. If you fly out on the 12th before midnight, the day won’t count.

Therefore, you can’t solely count days when considering your tax residency. You must know the specifics of what determines your status for each day.

You should also be aware of exceptional circumstances. For example, you’re not ‘present’ if you spend time in Ireland in transit – meaning you don’t leave the airport or port. Most jurisdictions consider exceptional circumstances when counting days. A day might not count as ‘present’ due to unforeseen circumstances such as an illness or natural disaster preventing you from leaving.

All this complexity shows that counting days can be difficult. We also believe the traditional solutions of day counting aren’t sufficient. Holding on to boarding passes, hotel receipts, and counting days in Excel can introduce risk to your accuracy.

There is a better way to navigate tax residency and day counting.

Daysium can help you with the following:

Set up Automated Systems Based on Your Personal Needs

Most tools might help you count days, but do they understand your situation? With Daysium, you and your tax advisor can set up parameters that matter to you. Your tax advisor can set the rules to make counting days accurate and designed around your needs.

Monitor Your Day Count Fast and Efficiently

Our platform’s app allows you to see your current day count in the palm of your hand. If you’re considering travel but are worried about overstaying, you can check your situation within seconds. You’ll have the confidence and freedom to make those travel decisions for business or leisure.

Prepare Your Records for Tax Inquiries

Jurisdictions employ different tests to check your residency status. Authorities also monitor whether day counting is accurate, especially for high-wealth, mobile individuals. Traditional record-keeping has its problems that we at Daysium want to change.

We log your data securely, creating a trail of proof to prepare your records for tax inquiries. The corroborating evidence is for your eyes only unless you want to share it with your tax advisor. The data can help when you need to prove you’ve counted the days correctly and spent time where you said you did.

Complexities can be solved, and we’re committed to helping you do that. We understand the intricacies of navigating the different jurisdictions. But we also know that clients and advisors are the experts in their situations. We want to empower you to make informed decisions and stay prepared for whatever the future brings – dealing with a tax inquiry or a change in residence.

We’d love to have you join this revolution in day counting. You can’t buy our app on the App Store, but you can register directly from our website.

If you’re a tax advisor and interested in how we can transform your clients’ compliance journey, we’ve recently opened our Partner Program. Click here to see if we’re a perfect match, and let’s transform tax compliance together!