The ITO defines an Israeli resident as a person whose ‘centre of life’ is in Israel. Various factors are analysed in determining where the individual’s centre of life is located.
In addition, the following are refutable (by either the tax officer or the taxpayer) presumptions regarding the determination of an individual’s ‘centre of life’:
- Any individual who has been present in Israel during a certain tax year for 183 days or more shall be presumed to have their centre of life in Israel (and consequently be an Israeli tax resident) in such tax year.
- Any individual who has been present in Israel during a tax year for 30 days or more, and a total of 425 days or more during such tax year and the two previous tax years (on aggregate), shall be presumed to have their centre of life in Israel in such tax year.
It should be emphasised that the main defining test under the ITO remains the ‘centre of life’ test. The presumptions mentioned above (regarding the length of stay in Israel) will merely assist in reaching a conclusion. Even if the ‘days tests’ provided by these presumptions are not met, it may still be concluded that the individual is an Israeli tax resident.
Should an individual be deemed to be an Israeli resident while at the same time resident of another country, the tie-breaker tests set out in the applicable treaty will determine in which country the individual will be viewed as resident. Generally, the treaties focus on factors relating to where the person’s permanent home is maintained, in which country the person’s personal and economic relations are closest (‘centre of vital interests’ test), and in which country the person is a national.
A ‘foreign tax resident’ is generally defined in the ITO as anyone who is not considered an Israeli tax resident and also includes an individual who has met the following tests:
- The person has spent at least 183 days outside of Israel in both the tax year in question and in the following year.
- Such person's centre of life had not been in Israel in the following (third and fourth) years.
Therefore, when an individual will meet the 183 days test for the first two years (without necessarily meeting the centre of life test during the first two years) and the centre of life test during the next two years, the person would be regarded as a foreign tax resident for this entire period.
In order to allow individuals moving to Israel to reach an informed decision about where they wish to live, a new immigrant and a returning resident (following ten years of foreign residency) are entitled to a one-year acclimation period from the date of their arrival. During this year, these individuals can request not to be considered a resident of Israel for income tax purposes. This election request requires the person to notify the Israel Tax Authority (ITA) within 90 days of arriving in Israel. Detailed rules apply.
When an Israeli tax resident ceases to be an Israeli resident for tax purposes, exit tax provisions apply (see Exit tax in the Income determination section for further information).