By KTA Team |

In today’s interconnected society, the concept of “relocation” has gained significant traction. Often, this refers to extended migrations between countries driven by reasons ranging from employment opportunities, academic pursuits, family dynamics, and more. The consequences of relocation span across various life dimensions, and comprehensive preparations can aid in averting future complexities.

While many focus on prerequisites like obtaining work visas or citizenship, a critical yet often overlooked element is income tax – particularly in avoiding redundant taxations. Not addressing this could lead to accumulating tax liabilities in Israel, facing double taxation in both the origin and destination countries, or even being tagged as a tax defaulter.

Understanding Tax Liabilities in Israel

Since 2003, Israel’s Income Tax Ordinance differentiates between an “Israel resident” and a “foreign resident” concerning tax obligations.

An “Israel resident” is taxed on both domestic and international income, while a foreign resident only on the former. This distinction is pivotal for individuals who’ve moved abroad but still qualify as “residents of Israel.” Failing to delink their Israeli residency might subject them to excessive taxations in both countries on their global income.

Determining “Residency” in Israel

The ordinance identifies an “Israel resident” based on where the individual’s primary life center is situated. This assessment considers an individual’s entire family, economic, and social ties. While the subjective view of where an individual perceives their life center plays a role, it must be supported by tangible evidence.

Two significant factors in determining one’s personal life center are:

1. The location of the individual’s “primary residence,” where they predominantly live and can access freely.
2. The residence of the individual’s immediate family.

The economic life center hinges on various factors, such as the main place of employment, location of major and minor financial assets, and the primary location of daily financial operations.

Additionally, the social life center incorporates memberships in clubs, associations, local friendships, and engagements with local communities. To successfully sever ties with Israel, the majority of an individual’s life center should be evident in their new country of residence.

A secondary, yet essential, measure is the “days test.” If an individual spends over 183 days in Israel within a tax year or spends more than 30 days and accumulates over 425 days in three consecutive tax years, they are presumed to be residents. However, this presumption can be challenged with the life center test.

International tax treaties further complicate these determinations. They address potential double-taxation scenarios for individuals who might be deemed residents in two countries. Such treaties supersede national laws, which means an individual considered a resident in a treaty-signing country will only be taxed in that country, even if Israel’s national law identifies them as a resident.

Shifting Regulations?

A recent legislative proposal suggests stricter rules. It aims for a definitive presumption of Israeli residency if an individual stays in Israel beyond certain specified days, even if the life center test indicates otherwise. See this previous post

Concluding Thoughts

To prevent exorbitant tax payments or potential legal repercussions, individuals contemplating or undergoing relocation should proactively strategize their residency severance from Israel. Staying updated with legislative changes and meticulously planning the duration of stays in Israel is also imperative.