Minister of Finance Bezalel Smotrich has published the draft of a new Knesset bill, which would redefine residency for tax purposes. This is the first part of a major reform in Israel’s international tax rules. The bill would breathes new life into an “exit tax” for Israelis relocating abroad, which so far has hardly been collected, and extend the obligation to report to the Israel Tax Authority on digital currencies as well.
The main focus of the bill is to redefine Israeli residency for tax purposes. Today, individuals are considered Israeli residents, if their center of life is in Israel and this includes the location of their permanent home, place of residence of themselves and their family members, the place of employment and the center of their economic interests.
Alongside these qualitative criteria, there are also quantitative criteria relating to the number of days the individual stays in Israel during each tax year. However, the determination based on the number of days of stay in Israel can be contradicted, based on the quality criteria of the center of life factors.
The new legislation proposes to settle one of the main areas of dispute with the Israel Tax Authority by relying on numbers that cannot be argued with. Put simply, if the individual, or the individual’s spouse, stayed for a large number of days in Israel within a period of several years – the individual will be deemed an Israeli resident, while if they stayed for a very few days in Israel over several years, the individual will be deemed a foreign resident.
A person who stays in Israel for two consecutive tax years 183 days or more each year will be deemed an Israeli resident, even if they have a permanent home and family abroad. On the other hand, a person who stays in Israel for less than 30 days in each tax year for four years in a row will be deemed a foreign resident, even if they have a permanent home and family in Israel.
Published by Globes, Israel business news – en.globes.co.il – on July 24, 2023.
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