Israel

The following are considered to be resident in Israel:

• A company incorporated in Israel.
• A company whose business is managed and controlled from Israel.

In the absence of a definition of the term ‘management and control’ either in Israeli legislation or a direct discussion of this term by the Israeli courts, it may be difficult to determine whether a company that is incorporated outside of Israel shall be viewed as managed and controlled from Israel. This is a complex subject that needs to be addressed on a case-by-case basis. When an entity is both an Israeli tax resident and a resident of a foreign jurisdiction that is party to an income tax treaty with Israel, most treaties provide a tiebreaker test in the determination of an entity’s tax residency.

Permanent establishment (PE)

Foreign resident entities might be exempt from corporate tax to the extent that its activities do not constitute a PE under the tax treaty applicable between Israel and the foreign resident’s country of residency.

Whether a non-resident has a taxable presence under Israeli domestic tax law is far less clear than the definition of PE under a relevant tax treaty. There is no detailed legislation or Israeli court decisions that directly address this issue. In general, where there is no tax treaty protection, a non-resident is subject to tax on income accrued or derived in Israel, which is a taxation threshold lower than the PE criterion.

Permanent Establishment Exemption for Limited Period of Time

In the case of a new immigrant to Israel or a senior returning resident (i.e. an Israeli citizen becoming an Israeli tax resident following a period of at least 10 years during which the individual was a foreign tax resident) who becomes an Israeli tax resident between November 5, 2025, and December 31, 2026, the business income of a foreign resident body of persons in tax years 2026-2030 that is produced in Israel as a result of the work of the aforementioned new immigrant or senior returning resident shall be exempt from tax in Israel, unless the body of persons requests otherwise, so long as other business income was not produced in Israel by the body of persons (e.g., through work of others in Israel who did not become new immigrants to Israel or senior returning residents between November 5, 2025, and December 31, 2026).

This exemption shall not apply if the new immigrant or senior returning resident is a substantial shareholder (generally speaking, one who holds at least 10% of one or more of the means of control) in the body of persons, or, in the case of a transparent body of persons, with respect to the portion of the income in question that is allocated to a rights-holder in the body of persons that is an Israeli resident.

In addition, this exemption shall be cancelled retroactively (i.e. no benefits should apply for any of the years in this period) if the new immigrant or senior returning resident ceases to be an Israeli tax resident in tax year 2028 or 2029 and spends less than 75 days in Israel during one of those years.