Israel: New Israeli Tax Ruling Regarding Israeli Residence Certificates For New Immigrants

Last Updated: 10 January 2019
Article by Dave Wolf and Mirit Hoffman

Israeli resident individuals are subject to Israeli tax on their worldwide income and capital gains. Effective January 1, 2007, "New Residents" and "Senior Returning Residents" (Israelis who have lived abroad for at least 10 years) are both entitled to the same package of tax benefits, which include a 10-year exemption from reporting and payment of tax from all non-Israeli sourced income and capital gains, even if the foreign assets were acquired after moving to Israel. Due to these benefits, many immigrants request to be considered new Israeli tax residents, by requesting residency certificates from the Israeli Tax Authority (ITA), even if they have not actually moved to Israel permanently.

On October 8, 2017, the ITA published tax ruling 6830/17, that sets out the conditions for new immigrants to receive Residency Certificates, in order to be considered Israeli residents for Israeli tax purposes.

Facts:

The new ruling was given to an individual who conducts business in Israel and abroad, who is going through divorce proceedings and who is a resident of a country that signed on a tax treaty with Israel (country "A"). The individual owns a home in Israel and has been spending more time in Israel since 2016, than he had done in previous years. The individual intends to transfer the center of his life to Israel, to increase the number of days he stays in Israel and to live in his apartment in Israel from 2017 onwards. The individual intends to continue his business activity abroad, and for this purpose, he will be spending a significant amount of time outside of Israel every year.

The Ruling:

The ITA will issue the individual a Residency Certificate provided that all of the below conditions will be met cumulatively:

  1. The number of days the individual stays in Israel is 142 days or more;
  2. The number of days the individual stays in Israel in any relevant tax year, is greater than his stay in any other country;
  3. The individual must have a permanent home in Israel;
  4. The individual did not choose an adjustment year as defined in clause 14 of the Israeli Income Tax Ordinance (a year in which he elects to remain a foreign resident for Israeli tax purposes);
  5. The individual does not have a non-Israeli resident spouse;
  6. The individual shall submit a tax opinion from a local CPA in country A stating that according to the substantive law of country A, the individual is not considered a "resident of country A" since 2017, and;
  7. When applying for approval for a Residency Certificate at the end of each tax year commencing from the end of 2019, the individual shall declare that the above conditions were met with respect to tax years 2017-2019, and are also expected to be met in the next two tax years.

Clarifications:

In the event that the ITA realizes that the terms stated above have not been met after the individual received a Residency Certificate, it will consider notifying country A's tax authorities of retroactively revoking the certification.
In the event that the individual did not comply with all the conditions mentioned above in any given year, the ITA can still claim that his center of life is in Israel for Israeli tax purposes even if the individual is not eligible to receive a Residency Certificate.
In the event that the above conditions are met, the individual will be considered an Israeli tax resident for the purpose of internal Israeli law and the double taxation treaty between Israel and country A. However, the issuance of a Residency Certificate does not force the ITA to protect the position that the individual is indeed an Israeli resident in a Competent Authorities Procedure with country A if the latter wants to oppose this position.

We hope that this new ruling helps clarify the ITA's policy regarding the criteria needed for issuing a Resident Certificate and that the above provides some helpful guidelines for potential new immigrants.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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