The Israeli Ministry of Finance has published a new draft bill aimed at changing the way residency is determined for individual taxpayers. The proposed change includes a shift from a purely qualitative test (the “centre of life” test) to a quantitative test with conclusive presumptions that would clearly determine whether an individual is considered a resident or non-resident of Israel for tax purposes.
Current Legal Situation
Currently, residency is determined based on a qualitative assessment of the individual’s “centre of life” — where they live, work, maintain family and economic ties, etc. In addition, there are rebuttable presumptions based on the number of days spent in Israel.
The problem: These presumptions are open to interpretation and challenge, creating uncertainty and frequent disputes between taxpayers and the Tax Authority.
The Proposed Law
The new law proposes setting irrefutable (conclusive) presumptions, based on the number of days an individual (and their spouse) spends in Israel over a three-year period.
An individual will be deemed an Israeli tax resident if:
- They spend 75 days or more in Israel in the tax year, and have spent at least 183 weighted days in Israel over the preceding three years
OR - They spend 30 days or more in Israel, and their spouse is also in Israel, with a combined total of at least 140 weighted days in the prior three years.
An individual will be deemed a non-resident if:
- They spend fewer than 75 days in Israel, and 110 weighted days or fewer over the previous three years
OR - Together with their spouse, they spend fewer than 90 days in Israel, and their combined total over three years is 125 weighted days or fewer
Weighted days are calculated using a formula that takes into account adjacent years (before and after the relevant tax year), with different weightings, similar to the method used in the United States.
Qualitative Test Still Applies in Some Cases
In cases where the conclusive presumptions do not apply, the classic “centre of life” test will still be used. This includes an evaluation of factors such as residence, family, occupation, and economic ties.
Why Residency Status Matters
Residency is a critical issue because:
- An Israeli resident is subject to tax on worldwide income
- A non-resident is taxed only on Israeli-sourced income
The new clarity is expected to reduce disputes and strengthen legal certainty for taxpayers, advisors, and investors.
Who Should Pay Attention?
- Israelis who emigrated but still visit Israel frequently
- New immigrants or returning residents
- Business people and investors with international activities