Memorandum of Law Suggested amendment to the Israeli Tax ordinance regarding the definition of one’s residency

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What is the definition of an Israeli resident and foreign resident with regards to Israeli Tax law?

Current amendment suggests a change in view of individuals actual stays in Israel as supposed to the individuals center of life.

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Currently according to the definitions of “Israeli Resident” and “Foreign Resident” in article 1 to the income tax ordinance (hereinafter: “the ordinance”), one’s residency is determined according to a quality exam in which the individual is examined based on an ensemble of family, finance and social aspects with the aid of several of the contradictable presumptions.

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It has been suggested that two types of conclusive presumptions shall be determined; the first kind shall be presumptions which when are valid the individual shall be regarded as an Israeli resident, the second kind shall be conclusive presumption which when valid the individual shall be regarded as a foreign resident.

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Currently the definition of “Resident” or “Israeli Resident” in article 1 to the ordinance, an individual shall be regarded as an Israeli resident if his\her center of life is in Israel. When reviewing and determining the individual’s center of life different factors are examined including one’s permanent home, place of residential for him\her and their family, place of business or the usual place of work, center of the financial interest and the place of one’s participation in organizations\unions\institutions (Hereinafter: “The center of life test”).

On top of the quality examination reviewing the abovementioned characteristics to the definition portraits contradictable presumptions. These presumptions state that if an individual stayed in Israel 183 days or more in a particular tax year, or if he stayed in Israel during a tax year 30 days or more and the total of his staying in Israel during a tax year including the 2 previous years is 425 days, his center of life shall determine to be in Israel during that tax year.

Accordingly, and as we are dealing at the end of the day with a quality test which reviews one’s ensemble of family, finance and social ties, the center of life test alongside the contradictable presumptions includes uncertainty. Therefore, it is suggested to stipulate several conclusive presumptions based on actual staying days of the individual and his\her family in Israel, which will determine the individual as an Israeli resident.

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As suggested, there will be 2 types of conclusive presumptions;

1.?????? Conclusive presumptions which will determine the individual as an Israeli resident and;

2.?????? Conclusive presumptions which will determine the individual as a foreign resident

These presumptions will be applied only in such cases where the individual or spouse\partner has stayed in Israel many days during a period of several years or if they stayed few days in Israel during a period of a few years. These cases are clear enough that it would be sufficient to count the days of staying for the purpose of determining one’s residency, and with them there is no need for all the other factors in the center of life test in order to determine that an individual has been an Israeli resident or a foreign resident during a certain year.

In other cases, which are not so clear the current rules will apply and it is not offered or suggested to change the center of life test and the contradictable presumptions as they were interpreted by the courts.

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Accordingly, it is suggested to stipulate the following presumptions that each of them will determine conclusively that one is an Israeli resident:

1.????? ? An individual that stayed in Israel during two consecutive tax years 183 days or more in every tax year shall be classified as an Israeli resident for each of those years.

2.?????? An individual that stayed in Israel during a tax year 100 days or more and the total of his stay during the tax year and the previous two years is 450 days or more shall be classified as an Israeli resident for that year. This presumption shall not be applicable as long as the individual has stayed for 183 days or more in a state which is an international agreement.

3.?????? An individual that stayed in Israel during a tax year 100 days or more and has a partner which is an Israeli resident according to each and every one of the paragraphs, i.e., according to the center of life test, according to one of conclusive presumptions or according to the residency regulations and all in considerations in the relevant international agreement.??

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It is also suggested to replace the definition of a foreign resident and to stipulate conclusive presumptions as follows:

1.?????? An individual that stayed in Israel less than 30 days in each tax year for 4 consecutive years, shall be classified as a foreign resident beginning his first year.

2.?????? An individual that stayed in Israel less than 30 days in each year for 3 years consecutive shall be classified as a foreign resident from his second year on.

3.?????? An individual and his\her partner which stayed in Israel less than 60 days in every tax year for 4 tax years consecutively shall be classified as foreign residents starting their first year.

4.?????? An individual and his\her partner that stayed in Israel less than 60 days in every tax year, for 3 consecutive tax years shall be classified as foreign residents starting their second year on.

5.?????? An individual and his\her partner that stayed in Israel less than 100 days in every tax year for 4 consecutive years, shall be classified as foreign residents from their first year on as long as they stayed in a reciprocating country in each and every one of those years, 183 days or more and have provided residency confirmation for tax purposes for each year in the reciprocating country.

6.?????? An individual and his\her partner that stayed in Israel less than 100 days in every tax year for 3 consecutive tax years shall be classified as foreign residents starting their second year and as long as they stayed in a reciprocating country for each of those years 183 days or more and have provided residency confirmation for tax purposes for each year from that reciprocating country.

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