Israeli Residence for tax purposes

It is important to determine the taxpayer's residency for tax purposes, as an Israeli resident is taxed on a worldwide basis, while a foreign resident is taxed only on income from an Israeli source.

The main test to determine residency, according to the Israeli Income Tax Ordinance, is the "center of life" test (as defined under Section 1 of the Israeli Income Tax Ordinance [New Version], 5721-1961).

Basically, Israeli tax law looks at the family, economic and social relations representing the individual’s “center of life”. To resolve this issue, various considerations will be taken into account, including the following considerations:

· The location of permanent home (even if the taxpayer's does not reside there).

· The location of an actual home of the taxpayer's and members of his family (actual place of residence).

· The location of fixed or permanent business or work of the taxpayer's.

· The location of active material economic interests of the taxpayer's.

· The location of the taxpayer's activity in organizations, associations or institutions.

In addition to the above qualitative criteria, the Israeli Income Tax Ordinance sets down technical assumptions, the existence of which provides evidences of the individual’s “center of life” in Israel.

The center of vital interests of an individual will be presumed to be in Israel:

(a) if, the individual was present in Israel for 183 days or more in a certain year;

(b) if, the individual was present in Israel for 30 days or more in a certain tax year, and total presence in Israel of 425 days or more during that tax year and the two previous ones.

This article is intended for informative purposes only and is in no way to be construed as tax advice or a legal opinion.