US tax form (illustrative).
(photo credit: INGIMAGE)
The Israel Tax Authority recently issued a tax ruling that supersedes earlier guidance on when an individual who relocates TO Israel becomes an Israeli resident for Israeli tax purposes (Ruling 6830/17 of October 2, 2017). This ruling complements a separate ruling this year on Israelis who relocate FROM Israel (Ruling 2519/17). These issues arise because the definition of residency in the Israeli Income Tax Ordinance (ITO) are not sufficiently clearcut.
The onset of residency matters, because new residents and senior returning residents enjoy a 10-year Israeli tax holiday for foreign-source income and gain from that point.
Residency – tax law definition
Subject to any tax treaty, an Israeli resident is defined in the ITO as an individual whose center of living is in Israel, taking into account the person’s family, economic and social links. This is a subjective test.
A rebuttable presumption of Israeli residency will apply in either of the following objective circumstances: (1) the individual is present in Israel at least 183 days in a tax year ending December 31, or (2) the individual is present in Israel at least 30 days in the current tax year and 425 days cumulative in the current and two preceding tax years.
Aside from the number of days’ presence in Israel, the center-of-living criteria listed in the law are: location of permanent home; place of residence of the individual and his or her family; place where the individual regularly works or is employed; location of active and material economic interests; place where the individual is active in various organizations, associations or institutions; employment by certain official bodies.
No concepts of domicile or ordinary residence exist for Israeli tax purposes. Also, citizenship is not listed in the center-of-living criteria mentioned above. A person’s tax status is normally unconnected to his immigration status.
Residency – tax circular
Since the center-of-living test is mostly subjective, the ITA has published additional objective criteria (Circular 1/2011). These criteria deem Israeli fiscal residency to start at the earliest of the following times: (1) the date stamped on the certificate issued by the Aliya and Integration Ministry; (2) the date the individual started living in a permanent home in Israel; (3) the date any member of his family (spouse, children under 18) started living in a permanent home in Israel (see below regarding “permanent home”).
The ITA has published a Circular (8/2002) regarding “permanent home” that says the intention is a place where a person lives for long periods. It is a place where a person lives on an ongoing basis, as opposed to temporary or chance presence, such as in a hotel, etc.
Relocation to Israel – ruling
The above residency criteria still do not deal with all the borderline cases that arise in practice. The ITA has issued a series of rulings over the years. The above new ruling (6830/17) supersedes an earlier ruling and clarifies the circumstances in which the ITA may issue confirmations of Israeli residency. This is frequently of interest to taxpayers, banks and tax authorities around the world.Facts of the ruling:
The ruling describes in a general way an individual who is involved in international trade between Israel and other countries and resides in a country that has a tax treaty with Israel. In the years 2003-2015, the individual spent no more than 44 days per year in Israel, and in 2016 this rose to 77 days. He stays in Israel in his own apartment. The individual wants to spend longer periods in Israel and shift his center of living to Israel.What the ruling decided:
The ruling states that commencing after the end of 2019 (i.e. after three years), the tax assessing officer closest to where the individual lives may issue a residency confirmation pursuant to the relevant tax treaty regarding 2017 onward if all the following conditions are met: the individual spends at least 142 days each year in Israel; the individual spends more days in Israel than any other country each year; the individual has a permanent home in Israel (see above); the individual did not elect to be a foreign resident for a “settling in year”; the individual has no foreign-resident spouse; the individual presents an opinion from an accountant in the old country that the individual ceased to be fiscally resident there in 2017 (the first year) onward; the individual declares that he met the above requirements and intends to continue doing so.Comments
The ruling is helpful but still leaves some open issues. What about flight days? What if an individual lives mainly in Israel with his wife and kids but works more days abroad? As always, consult experienced tax advisers in each country at an early stage in specific cases.
firstname.lastname@example.org The writer is a certified public accountant and tax specialist at Harris Consulting & Tax Ltd.