The Israeli court system has just ruled again that a couple can be happily
married but fiscally resident in different countries. This was a District Court
decision handed down by the Judge Magen Altuviah (Michael Sapir vs Kfar Saba
Assessing Officer, Income Tax Appeals, May 21, 2013). The Supreme Court already
ruled that happily married spouses can live apart, but the Israel Tax Authority
(ITA) has always begged to differ.
Who is an Israeli resident? Since
2003, an individual has been defined by the Income Tax Ordinance (ITO) to be an
Israeli tax resident if his or her center of living is in Israel, taking into
account the individual’s family, economic and social links. Residence is
presumed, unless challenged by the taxpayer or by the ITA, in either of the
following circumstances: (1) the individual is present in Israel for at least
183 days in a tax year ending December 31; or (2) the individual is present in
Israel for at least 30 days in the current tax year and 425 cumulative days in
the current and two preceding tax years.
Additional criteria listed in
the ITO that indicate residence are: location of a 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.
facts of the latest case In the Sapir Case, the taxpayer was sent to work in
Singapore in the years 1994-1998 for an Israeli group. On June 1, 2001, he
returned to live and work in Singapore as an engineer for another party, without
his wife who continued living and working in Israel.
His children were
The individual had some links to Israel. His wife
continued living in an apartment in Israel that the couple owned. A second
apartment they jointly owned was rented out. His pension for past service in the
IDF was paid into a joint bank account of the couple.
The individual also
had strong links to Singapore. He claimed he fell in love with Singapore almost
from the first glance. He rented an apartment in central Singapore for more than
10 years. He was a permanent resident of Singapore entitled to carry out any
work there he chose, or none at all. He started his own business in Singapore
through a Singapore company. He had a private bank account with checking, forex
and credit-card facilities. His company had similar bank facilities.
paid money into the mandatory Singapore retirement-fund system. He took out
medical and other insurance in Singapore.
He built up a circle of friends
and contacts there. He played tennis and golf there several times a week at
sports clubs and participated in tournaments. He played bridge and regularly
went to a pub to drink beer and watch sports, especially English soccer. Once he
reached age 60, Singapore allowed him transportation perks.
individual was also active in the Singapore Jewish community and central
Synagogue, had Friday evening meals with other congregants there, helped with
festival activities and special activities for children, was elected to the
managing board of the Synagogue and was chairman of its computer
For Singapore tax purposes, the individual was classified as a
Singapore resident from the date he arrived to live there (June 1, 2001) and
duly reported and paid Singapore taxes from that time onward.
why Singapore, the individual replied that he is happy to be there, the place
encourages enterprise and is a business paradise.
He did not regard
himself as resident anywhere else socially either.
When asked about his
wife not joining him to live in Singapore, he explained that they decided, after
long conversations, to live in a way that would let each one realize their own
ambitions and abilities and have their own center of living.
What was the
issue? The issue in the case was whether the individual was fiscally resident in
Israel in the years 2001-2005, as claimed by the ITA, given that his wife lived
in Israel in those years. The ITA claimed that the individual’s absences from
Israel were all temporary and not permanent and ongoing.
decision As for 2001-2002, the court followed the decision in the Arye Gonen
case in the Supreme Court as allowing the “center of living” test of residence
to be applied as accepted practice in Israel even before it was enacted in
Therefore, the court ruled that the individual was resident in
Israel in 2001 because he was present in Israel 224 days. As for the years 2002
onward, the court came down firmly on the side of the taxpayer. It ruled that
most of his ties were to Singapore: The individual testified that he chose to
live in Singapore; he lived in a permanent home more than 10 years; he continued
to live there even after his initial employment there terminated in 2005, as
part of his business renaissance.
All that and the Singapore Jewish
communal and social life show that notwithstanding his wife’s decision to
maintain her center of living in Israel, he chose to maintain his center of
living in Singapore and did so for a very long period. The degree of
togetherness that the couple chose shows that the individual’s center of living
is in Singapore. That they are married cannot weigh against all the other ties.
The same applies to his trips to Israel; they don’t make Israel his center of
living instead of Singapore.
Therefore, the court ruled that the
individual had proved his center of living was in Singapore, and he was a
Singapore resident for tax purposes in 2002-2005.
Comments A number of
comments come to mind.
First, the case shows that a couple can be
fiscally resident in different countries if they have different centers of
Second, the court upheld the precedent in the earlier Supreme
Court case of Arye Gonen, which the ITA had tried to ignore for a number of
Third, the case shows it is not enough to to be a nonresident of
Israel; it is necessary to prove another country of residence – in this case
Therefore, Israelis who become globetrotters with no fixed
abode anywhere are likely to remain fiscally resident in Israel. The same
applies to business people who work abroad Sundays to Thursdays but flock back
to their spouse and kids every weekend and festival.
Finally, if you do
succeed in moving your fiscal residence away from Israel, beware of the Israeli
exit tax; this is really capital-gains tax at rates of 25 percent to around 50%
on your assets as if you sold them one day before your departure.
always, consult experienced tax advisers in each country at an early stage in
specific email@example.com Leon Harris is a certified public accountant
and tax specialist at Harris Consulting & Tax Ltd.