Changes in Definitions of Israeli Resident and Foreign Resident

Newsletter July 2025

Changes in Definitions of Israeli Resident and Foreign Resident – The End (?)

Since 2003, Israeli law has defined the tax residency of individuals determined based on a facts and circumstances “center of life” test which supersedes the physical presence presumptions included in the Income Tax Ordinance.

In recent days, a new proposal was published that simplifies the definitions of “Israeli Resident” and “Foreign Resident” for individuals. The proposal aims to reduce the scope of disputes regarding the residency of individuals, by establishing absolute quantitative presumptions which are likely to provide a clear answer in many cases of disputed residency.

Note, that this is not the first time that a similar proposal was advanced by the ITA. In August 2023, a legislative proposal was published aiming to reform the criteria which also included a strong emphasis on quantitative presumptions. However, this proposal was never legislated into law.

Proposed Amendment:

The proposed amendment establishes absolute presumptions that cannot be refuted. If these tests are met, the individual will be considered an Israeli resident or a foreign resident and will not be able to argue that his “center of life” leads to a different conclusion. However, it should be noted that even if the amendment is legislated, there will be cases where none of the absolute presumptions apply. In such cases, the residency of the taxpayer will be examined according to the current “center of life” test as developed by Israeli case law.

The examination of the quantitative presumptions will be both for the tax year in question and for a “Three-Year Period” which will be defined as one of the following:

The tax year and the two preceding tax years.
The tax year, the preceding tax year, and the following tax year.
The tax year and the two following tax years.

For the purposes of determining the number of days spent in Israel in a “Three-Year Period”, the proposal uses a “weighted average”.

A day in the tax year will be considered a full day.
A day in the year before/after the tax year will be considered a third of a day.
A day in the two years before/after the tax year will be considered a sixth of a day.

The amendment does not change the rule established in case law that a part of a day spent in Israel is considered a full day.

Absolute Presumptions of Israeli Residency:

The amendment proposes that an individual will be irrefutably determined to be an Israeli resident in one of the two following situations:

If the individual stayed in Israel for at least 75 days in the tax year and at least 183 days of stay, calculated as per the weighted average above, in any of the Three-Year Periods (i.e. the tax year and the two preceding years, the tax year and the two following years, or the tax year and the year before and after it).
An individual who stayed in the tax year for at least 30 days and at least 140 days of stay calculated as per the weighted average above in any of the Three-Year Period and whose spouse is an Israeli resident.

Proposed Amendment Absolute Presumptions – Foreign Resident:

The amendment proposes that an individual will be irrefutably determined to be a Foreign Resident in one of the two following situations:

An individual who stayed in Israel for 74 days or less in the tax year and 110 days or less of stay, calculated as per the weighted average above, in each of the Three-Year Period.
An individual and their spouse who stayed in Israel for 90 days or less in the tax year and 125 days or less of stay, calculated as per the weighted average above, in each of the Three-Year Period.

Example:

Oliver (who is single) stayed in Israel the following number of days:

We will examine whether Oliver is an Israeli resident or a foreign resident in each of the years 2027 – 2029.

Year 2027:

In tax year 2027 Oliver spent 60 days in Israel. Therefore, there will not be an absolute presumption that he is a resident of Israel. However, Oliver might be considered a foreign resident under the absolute presumption if the Three-Year Period day count is 110 days or less.

For tax year 2027 there are three possible Three Year Period, 2025 – 2027, 2026 – 2028, 2027 – 2029:

For the first Three Year Period (2025 – 2027) the calculation will be 0 + 0 + 60 or 60 days.

For the second Three Year Period (2026 – 2028) the calculation will be 0 + 60 + 1/3 * 90 or 90 days.

For the third Three Year Period (2027 – 2029) the calculation will be 60 + 1/3 * 90 + 1/6 * 100 or 106.6 days.

In 2027, Oliver will be considered a foreign resident according to the absolute presumption as he has spent less than 75 days in Israel and his Three Year Period calculation is 110 days or less in every alternative.

Year 2028:

In 2028 Oliver has spent 90 days in Israel so that he cannot be determined to be a foreign resident under the absolute presumption. However, he could be viewed as an Israeli Resident if his day count any of the possible Three-Year Periods amounts to 183 days or more.

Alternative 1 of the definition of the Three-Year Period = 1/6*0 (2026) + 1/3*60 (2027) + 90 (2028) = 110.

Alternative 2 of the definition of the Three-Year Period = 1/3*60 (2027) + 90 (2028) + 1/3*100 (2029) = 143.3.

Alternative 3 of the definition of the Three-Year Period = 90 (2028) + 1/3*100 (2029) + 1/6*300 (2030) = 173.3.

In 2028, Oliver does not meet the absolute presumptions of an Israeli resident and does not meet the absolute presumptions of a foreign resident. In this case, Oliver’s residency in 2028 will be examined according to the “center of life” test.

Year 2029:

In 2028 Oliver has spent 90 days in Israel so he cannot be determined to be a foreign resident under the absolute presumption. However, he could be viewed as an Israeli Resident if his day count any of the possible Three-Year Periods amounts to 183 days or more.

Alternative 1 of the definition of the Three-Year Period = 1/6*60 (2027) + 1/3*90 (2028) + 100 (2029) = 140.

Alternative 2 of the definition of the Three-Year Period = 1/3*90 (2028) + 100 (2029) + 1/3*300 (2030) = 230.

Alternative 3 of the definition of the Three Year Period = 100 (2029) + 1/3*300 (2030) + 1/6*300 (2031) = 250.

In 2029, Oliver will be considered an Israeli resident according to the absolute presumption.

Additional Issues

Establishing or Ending Residency during a Tax Year – For the first time, the proposal, if enacted will state that residency can commence or end mid-tax year. This issue was open to interpretation over the years and will now hopefully be resolved.
Tax Treaties – individuals who will be deemed residents under the new proposal but are also considered tax resident in a country which has signed a tax treaty with Israel, will still be able to argue that they should be viewed as non-residents in Israel under treaty tiebreaker tests.
Effective Date – it is not clear from the proposal, but it appears that the amendment if enacted will only be effective for determining residence in tax year 2026 and onward.

For more details, you can contact Adv (CPA) Doron Elmekiesse from our office.