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Israeli tax ruling restricts residency certificates for new immigrants

Thursday, 12 October, 2017

The Israeli Tax Authority (ITA) has published a new private tax ruling that sets out seven conditions for a recent immigrant to be regarded as an Israeli resident for tax purposes.

The country's tax law offers various useful tax benefits to new immigrants, in particular a ten-year exemption from taxation with respect to his or her non-Israeli-sourced income. These benefits have tempted many international individuals to apply for Israeli tax residency certificates, even though they have not actually moved to Israel permanently. Consequently, in recent years, the ITA has become much more cautious about granting these certificates.

Now it has set out in detail exactly what an individual must do, as a minimum, to earn residency, both under local tax law and for double taxation treaty purposes. In fact, the taxpayer who received the tax ruling is a businessman who was not a resident of Israel, but of a country that has signed a double taxation tax treaty with Israel.

The seven necessary conditions are that:

  • the taxpayer must stay in Israel for more than 142 days in each tax year;
  • there is no other country in which the taxpayer spent more days than in Israel in the relevant tax year;
  • the taxpayer must have a permanent residence in Israel;
  • the taxpayer did not elect to benefit from an initial 'acclimatisation year' in Israel, whereby he chooses to be considered as a non-resident even though he would normally have been considered as an Israeli resident;
  • the taxpayer does not have a non-Israeli resident spouse;
  • the taxpayer must provide an opinion from a tax authority in his other country of residence, confirming that he should not be regarded as tax-resident there; and
  • the taxpayer must declare that the above conditions are met for the current and next tax year, and are also expected to be met in the following two tax years.

If the individual fails to meet these conditions, the certificate can be annulled retroactively, and the Israeli authorities will reserve the right to notify the tax authorities in the taxpayer's other country of residence.