What is the definition of an Israeli resident for tax purposes? According to planned new legislation, anyone who stays in Israel for 75 days or more in a tax year, and whose total stay in Israel over three years is at least 183 days, will be considered an Israeli resident and will pay tax on all income to the Israel Tax Authority, including overseas income.
The memorandum for a new law states that criteria will be set in which an individual will be defined as an Israeli resident or foreign resident, based mainly on the number of days spent in Israel, without the need to examine all family, economic and social ties. On the other hand, anyone who has stayed in Israel for less than 74 days in each tax year for three consecutive years will be considered a foreign resident.
The purpose of the new law, which the Tax Authority published for public comment, is to increase certainty regarding the determination of residency for tax purposes, reduce friction between the Tax Authority and taxpayers and their representatives, and reduce damage to the state coffers from tax planning.
In recent years, the Tax Authority has been conducting dozens of disputes with Israelis who have traveled or lived abroad for certain periods and have not reported their income there, claiming that they were not residents of Israel. At the center of the most famous tax case in recent years was international supermodel Bar Refaeli, who was convicted along with her mother Tzipi Refaeli of a series of tax offenses, including concealing her income abroad. Another case that made headlines was poker player Rafi Amit, who paid tax as an Israeli resident despite spending most of his time abroad.
But disputes with tax authorities over whether those leaving are still considered residents are not reserved only for the rich and famous. This is an issue relevant to tens of thousands of Israelis who choose to travel to work abroad for fixed periods, ranging from a few months to several years. The legislation will have a significant impact on the decision-making process of all Israelis who wish to relocate or leave the country for a certain period of time.
The center of life criterion
According to the Income Tax Ordinance, Israeli residents are required to pay income tax in Israel on all their worldwide income, while non-residents are required to pay tax in Israel only on income sourced in Israel. Thus defining if a person is an Israeli resident is very significant. Today, an individual is considered a resident of Israel if their “center of life” is in Israel. In examining the location of an individual’s “center of life,” various qualitative characteristics are examined, including the place of their permanent home, their place of residence and that of their family members, their place of usual occupation or place of usual employment, and the center of their economic interests.
RELATED ARTICLES
Israel Tax Authority set to publish voluntary disclosure plan
Alongside these qualitative criteria, there are also quantitative criteria relating to the number of days the individual spends in Israel during each tax year. However, the determination based on the number of days spent in Israel can be adjusted, based on the qualitative criteria of the center of life test.
About two years ago, following the recommendations of a Tax Authority joint committee, the State Revenue Administration, and representative organizations, which dealt with the issue of international taxation, a memorandum for a new law was published, which was never enacted. The bill sought to define clear cases in which counting the days of stay is sufficient for setting residency, and in which there is no need to examine all the other components of the center of life test to determine whether the individual was an Israeli resident or a foreign resident in any specific year. The current proposed law sets a similar mechanism but establishes different assumptions that increase certainty relative to those in the previous memorandum, and leaves a smaller number of cases in which it will be necessary to examine the center of life test, following a re-examination and public comments.
Setting residency based on the number of days only
The memorandum proposes to establish absolute assumption (non-rebuttable assumptions) based on the days of stay of the individual and his family in Israel, which, if fulfilled, will see the individual as a resident of Israel or as a foreign resident, as the case may be. According to the proposal, two types of absolute assumptions will be established – the first type, assumptions that, if fulfilled, will see the individual as a resident of Israel, and the second type, absolute assumptions that, if fulfilled, will see the individual as a foreign resident.
These assumptions will apply only in cases where the individual, or the individual’s spouse, has stayed in Israel for a large number of days within a period of several years (in which case the individual will be considered a resident of Israel) or if they have stayed in Israel for a small number of days over a number of years (in which case the individual will be considered a foreign resident). These are clear cases in which counting the days of stay is sufficient for setting residency, and there is no need to examine all the other components of the center of life test to define if the individual was an Israeli resident or a foreign resident in that year.
In other cases, which do not fall within the scope of these clear cases, the existing law, which will be changed, will continue to apply, which includes the center of life test, as interpreted by the courts.
According to the memorandum, an “Israeli resident” is someone who stayed in Israel for 75 days or more in the tax year, and whose total period of stay in Israel in one of the three-year periods is at least 183 days of stay calculated according to the following formula. A person who stayed in Israel for 30 days or more in the tax year and whose total period of stay in Israel over the three years is at least 140 days of stay, and whose spouse, including a common law spouse, will also be considered an Israeli resident for tax purposes.
On the other hand, someone who stayed in Israel less than 74 days in each tax year for three consecutive years and whose total period of stay in Israel did not exceed 110 days – will be considered a foreign resident, even if they have a permanent home and family in Israel.
Anyone who together with their spouse, including a common law spouse, stayed in Israel for 90 days or less in the tax year, and whose total period of stay in Israel for each of the three-year periods is a maximum of 125 days will also be considered a foreign resident.
Published by Globes, Israel business news – en.globes.co.il – on July 2, 2025.
© Copyright of Globes Publisher Itonut (1983) Ltd., 2025.
