If you spend part of your time both in Israel and the US, whether as an expat or a digital nomad of the post Covid economy, it can be difficult to ascertain whether you are a resident of Israel or not. So, how do you know if you are an Israeli resident and liable for local taxation? Let us delve into the key factors and considerations.
Before we get started, we’ve written these blogs about moving to and living in Israel which you may enjoy.
What to do when you get kicked out of your US brokerage account
Can one use a US Power of Attorney in Israel, (and vice versa)?
Checklist for moving to Israel
Financial planning for US citizens living abroad
Selling a house in Israel as a US citizen
Why US Expats should look before they leap into a Roth 401k
Compliance with reporting of foreign assets: tips for US expats to avoid stress
What expats need to know about Brokerage Accounts for non-US residents
And now let’s get into the blog!
Understanding Israeli Residency
Israeli residency is not based solely on citizenship, but on whether your “center of life” is in Israel. This can be rather murky, as there is no definition of residency given by the National Insurance Law. Therefore, the determination of resident status is left up to the interpretation of the courts, using two “tests” to verify center of life:
- Objective Test: looks at the tangible ties one has to the state of Israel such as your place of residence, family, work, and various assets.
- Subjective Test: this test has no official stipulations or guidelines but has more to do with the individual’s personal view of their ties to Israel, and can vary from court to court. However, it holds less weight than the objective test.
All this is relevant only if an individual can legally stay in Israel and holds one of the following visa types that allow residency: Israeli citizenship, Permanent Residence permit, visa of category A/1, A/2, A,4 and A/5.
It is also important to note that if one spends more the 183 days of the tax year in Israel, he or she is considered an Israeli resident, unless proven differently.
Some Tips While Establishing Residency Status
So how can you make this process go smoothly for yourself?
- Keep Detailed Records: maintain accurate records of your time spent in Israel and abroad, including travel dates, employment contracts, rental agreements, and utility bills.
- Consult with Experts: establishing residency can be tricky, and can have different tax implications for the individual. Seeking guidance from tax professionals and legal advisors specializing in international taxation and residency may provide you with
The Future of Residency Laws
The Israeli residency laws have been widely criticized over the years, with many arguing that the criteria are not clear and leave the law open to numerous interpretations. Therefore, the Israeli Tax Authority has recently established an internal committee to re-evaluate these residency tests, with the expectation that the law will change drastically and “toughen up” in the upcoming year.
Previous attempts to change the law have failed, so the actual impact of the committee’s recommendations remains uncertain; however, the committee may propose changes with serious implications on the individual such as:
- fewer days in the year or over three years than present to determine Israel residency, e.g. reduction of 183-day objective tax residency test to 100 days per annum.
- less tax benefits for returning and new citizens,
- changes to the exit tax imposed on individuals terminating Israeli residency, and much more.
These recommendations can affect one’s tax status, immigration decisions, and the overall tax landscape in Israel – so keep an eye out!
With all the hurdles and intricacies involved in Israeli Residency, we hope that these tips help you understand the requirements better as you navigate your life or impending relocation to Israel.
Wealth management for US expats
We are expat financial advisors located in Israel and the US, serving expats globally.
If you are moving to Israel or another country and don’t know where to start when it comes to the financial side of things, or hold US or foreign assets and need help figuring out your retirement as an expat, please contact us.
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Disclaimer
Nardis Advisors LLC (“Nardis”) is a Registered Investment Advisory Firm regulated by the U.S Securities and Exchange Commission in accordance and compliance with applicable securities laws and regulations. Registration does not imply a certain level of skill or training. Nardis does not render or offer to render personalized investment advice through this medium. The information provided herein is for informational purposes only and does not constitute financial, investment or legal advice. Investment advice can only be rendered after delivery of the Firm’s disclosure statement (Form ADV Part 2) and execution of an investment advisory agreement between the client and Nardis.
