The issue of residency termination for tax purposes and the timing of its effect is one of the more complex and disputed topics between taxpayers and the Israeli tax authorities. An individual's residency depends on various factors and is evaluated based on the specific circumstances of the taxpayer's life. Therefore, it is highly recommended to seek individual consultation. Below are key points on this matter in light of Israeli law. If the departure is to a "treaty country," the provisions of the treaty regarding residency also hold significant importance.
A taxpayer will be considered a foreign resident if their "center of life" is outside Israel. This includes evaluating where their permanent home is located, where the permanent residence of the taxpayer and their immediate family (spouse and minor children) is situated, where their permanent place of employment or business is, where their economic ties are established, and additional ties such as social connections and affiliations with various organizations or institutions. Typically, the Israeli tax authority will not be satisfied merely by the taxpayer severing ties with Israel and will require proof that substantial connections have been established ("put down roots") in the new country of residence. The longer the stay in the foreign country, the easier it will be to substantiate a claim of residency termination, and vice versa.
The Israeli tax authority does not generally recognize the termination of residency immediately upon leaving Israel. However, there have been court rulings that have recognized residency termination upon departure, depending on the specific circumstances of the case.
Additionally, if the taxpayer stays outside Israel for 183 days or more during two consecutive tax years and in the subsequent two years (besides staying outside Israel for 183 days or more), their center of life will be deemed to be outside Israel. They will be considered to have ceased being an Israeli resident from the date of departure in the first year during which they stayed 183 days (or more) outside Israel.
It is important to note that a taxpayer may still be considered an "Israeli resident" even after, in their view, they have left Israel. This is due to a legal presumption under the definition of "Israeli resident" found in Section 1 of the Israeli Income Tax Ordinance. In such a case, the taxpayer is obligated to report their position and provide supporting documents and data.
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