Israel is reforming the concept of a tax resident

28.07.2023 The Israeli Ministry of Justice has published a bill radically changing the definition of tax residency for personal income tax purposes.

The residence of an individual is currently determined in accordance with the Income Tax Ordinance 5721-1961 (hereinafter referred to as the Ordinance). It is based on the center of vital interests of an individual located in Israel, which is similar to the "vital interests location test" used in bilateral tax agreements. This criterion is supported by a rebuttable presumption that a person is a resident of Israel if he has been in the country for at least 183 days during the relevant tax year or at least 30 days during the relevant tax year and a total of 425 days during a three-year period including this year and the two preceding tax years.

The decree also contains the definition of a "foreign resident", which means a person who is not a resident of Israel, or who lives outside of Israel for at least 183 days during the tax year and the subsequent tax year, while the "center of life" of this person was outside of Israel for two subsequent years after the above two years.

The new bill proposes to reduce the role of the "center of life" test to a secondary one. Instead, the main test will be based on a number of irrefutable presumptions of tax residency, based mainly on the number of days spent in Israel.

Such irrefutable presumptions of residency include: 183 days spent in Israel during any two-year period; 100 days spent in Israel during a tax year, and 450 days during three tax years, except for cases of residence in a state with which Israel has a tax agreement; or 100 days spent in Israel during the year and if the spouse has Israeli residency.

The proposed bill also introduces conditions according to which some persons will be considered foreign residents regardless of any factors of the "center of life". In addition, the bill explicitly states that it is possible to be a tax resident for part of the year and a non-resident for another part of the same year.

Link to source: https://herzoglaw.co.il/en/news-and-insights/important-update-on-proposed-israeli-tax-residency-legi...