Tax Residency in Israel
1. Criteria for Determining Tax Residency in Israel
According to the Israeli Income Tax Ordinance (ITO), an individual is considered a tax resident of Israel if they meet any of the following criteria:
- Physical Presence Test: Residing in Israel for at least 183 days in a calendar year.
- Center of Life Test: Having a permanent home in Israel and spending most of their time there.
- Domicile Test: Having a permanent home in Israel and intending to reside there indefinitely.
Entities are considered tax residents of Israel if they are incorporated or managed and controlled in Israel.
2. Impact of International Tax Treaties on Tax Residency
Israel has entered into numerous tax treaties with other countries to prevent double taxation and promote cross-border trade and investment. These treaties may modify or provide exceptions to the standard criteria for tax residency as defined in domestic law.
For example, the Israel-US tax treaty modifies the physical presence test for individuals. Under the treaty, an individual is considered a resident of Israel if they are present in Israel for at least 120 days in a calendar year.
Another common provision in tax treaties is the "tie-breaker" rule. This rule is used to determine the tax residency of an individual who is considered a resident of both countries under their respective domestic laws. The tie-breaker rule typically considers factors such as the individual's permanent home, family ties, and economic interests.
Conclusion
The criteria for determining tax residency in Israel are complex and can be influenced by international tax treaties. It is important to consult with a tax professional to determine your tax residency status and the potential implications of any tax treaties that may apply.
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