To be or not to be a resident, that is the question. There are many Israeli court cases, circulars, opinions and rulings on the subject of residency. This is because the Israeli tax law is vague and mysterious on the subject.
Now there is a new Israeli tax form – “Form 1348 Residency Declaration” – that looks like a matrix.
This matters because some people want to be foreign residents to help avoid Israeli tax on their foreign income and gains. This is the case for Israelis who relocate abroad. It is also the case for olim want to know if they can delay the onset of their 10-year Israeli tax holiday for foreign income and gains.
What the law says 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.
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 31 December, 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. A day includes part of a day i.e. the day of arrival and the day of departure.
Who must file Form 1348 Form 1348 must be filed in borderline cases when the taxpayer claims to be a foreign resident but visits Israel more than 183 days in a year, or 425 days in any three year period.
The form enables the ITA to focus on the individual’s center of living in considerable detail.
The requirement to notify the ITA existed in 2016, but the form was only recently issued for 2017 tax returns onward. It is no longer sufficient to rely on a professional opinion; the opinion should relate to the matrix in the form.
What’s in Form 1348 The form asks for factual information about the number of days the taxpayer spent in Israel and whether the taxpayer is a resident of any other country. If so, confirmation of foreign residency should be attached. Comment: the form does not stipulate that a foreign tax authority must confirm foreign residency – it may be enough for a foreign adviser to do so.
The form goes on to present a matrix of residency criteria to check (tick) as applicable. Supporting documentation must be attached.
The matrix has columns for: Israel, country of residence, other country, non-applicable and comments.
The matrix has rows for each of the residency criteria that interest the ITA. These are as follows.
Where you or your spouse own a home;
Where rent out a home you own (state the rental period);
Where you rent a home;
Where your permanent home is;
Where your spouse lives;
Where minor children live ;
Where children study;
Where your parents or siblings live;
Where your regular or fixed place of work is;
Place of employment and where the employer is resident;
Where you filed a tax return as a resident;
Where you pay tax on your income;
Where you hold citizenship or a passport;
Where you “possess” medical insurance;
Where you are a member of a Kupat Cholim;
Where you possess deposits or savings or pension plans;
Where you deposited money in deposits, savings plans or pension plans;
Where there are entities you are a shareholder in;
Where you received pension/other payments (children and/or annuity, social security payments and/or pension);
Where you have an “active” bank account;
Where you paid into the social security payments in the tax year (if you filled in an Israeli national insurance residency form, provide a copy);
Where you are a member of “social organizations” (undefined);
Where you and/or you spouse own a vehicle;
Whether you are a “new Israeli resident”, “returning resident” or “senior returning resident”;
Whether you requested a “settling in year” for the year;
Whether you received an annual residency confirmation.
Comments Some of the ITA criteria will stir controversy, e.g. where parents or siblings live – you may live far from them and stay in touch by WhatsApp, etc. Also, is an employee expected to know where his employer is resident? As for the medical policies – is the place of “possession” where it was issued? The location of shareholdings will be a nightmare for anyone with a securities portfolio – presumably check all countries? As for pensions – the country where you are or the country where the payer is? To sum up, even the ITA’s matrix has its mysteries.
Action needed If you are unsure about your fiscal residency, take advice.
Many other criteria are missing from Form 1348, for example, tie-breaker relief in Israel’s double tax treaty and OECD pronouncements.
Fans of The Matrix science fiction movie series know exactly where your center of living is – it’s where you brain is plugged in….
firstname.lastname@example.org The writer is a certified public accountant and tax specialist at Harris Consulting & Tax Ltd