Relocation from Israel to France

France is one of the most popular countries for Israelis seeking relocation to Europe, whether for employment, investment, studies, retirement, or improving quality of life. The pleasant climate, high quality of life, rich culture, and established Jewish communities in cities like Paris, Lyon, and Nice make France a particularly attractive destination.

However, relocating to France requires thorough planning and a comprehensive understanding of the legal, financial, and tax implications associated with the move. This article outlines the key considerations to address before making the move.

The 5-Step process for relocating from Israel to France

1. Assess employment opportunities and living costs.
2. Consider terminating Israeli tax residency, taking into account matters such as exit tax.
3. Obtain an appropriate visa or residency.
4. Review your tax obligations under both Israeli and Argentine law, including potential double taxation and available reliefs.
5. Plan fund transfers and banking.

The following sections explain the main tax, legal, and financial considerations for Israelis relocating to France.

Key Considerations When Relocating from Israel to France

The relocation process consists of several essential steps. 

First, a thorough review of employment opportunities in France, cost of living which varies between cities and regions, the local tax system, educational options for children, available healthcare services, and other important factors. 

Second, consider whether you wish to terminate your Israeli tax residency and the numerous implications that come with it. It is important to plan how you will manage your finances and assets, as well as arrange for private health insurance, since the public healthcare system is not available to foreigners on the same terms as local citizens, or is primarily private. 

In addition, you need to arrange your legal status in France – obtaining a work permit, temporary or permanent residency, visa or citizenship, as applicable. You should choose the most appropriate visa for your specific circumstances.

Tax Aspects of Relocation to  France

When moving to a foreign country, the question of post-move tax obligations in Israel arises. The answer usually depends on whether you have terminated your Israeli tax residency.

Termination of Residency

One of the central issues in the relocation process is determining residency for tax purposes. In Israel, an Israeli resident is taxed on worldwide income, while a foreign resident is taxed only on income derived in Israel.

If you intend to settle in Spain for the long term, it may be preferable to terminate your residency in Israel (both for income tax and National Insurance purposes). Note that Israeli residents who terminate their residency are subject to an “exit tax” on certain assets.

According to Section 1 of the Israeli Income Tax Ordinance, residency is determined based on the center of life test, and a rebuttable presumption based on the number of days you stayed in Israel, as follows:

• Days test – An individual is considered an Israeli resident if they spent 183 days or more in Israel during a single tax year. A person may also be considered a resident if they spent 30 days or more in Israel during the current tax year. This applies when their total stay in Israel is 425 days or more over the current and two preceding years. This presumption can be rebutted if the individual proves that, despite their stay in Israel, their center of life is not in Israel.
• The center of life test – This is a substantive test, in which all personal, family, economic, and social ties are examined. These include permanent place of residence, place of economic activity, location of economic interests, and more.

Anyone who meets the days test, i.e., is considered an Israeli resident under this test, must file Form 1348 – “Declaration of Residency”. This form is attached an annex to the individual’s tax report. Its purpose is to declare the termination of Israeli tax residency and to describe the circumstances demonstrating that the individual’s center of life is no longer in Israel.

It is important to note that terminating tax residency is usually not a one-time event but an ongoing process. The Israeli Tax Authority (ITA) may review your residency status even years after leaving. Therefore, it is recommended to keep detailed documentation of all actions indicating the transfer of your center of life to France, and to avoid creating new ties to Israel.

These days, a dramatic bill to amend the Income Tax Ordinance regarding the definition of Israeli residency for tax purposes has been submitted to the Knesset.

According to the proposal, there will be absolute presumptions that determine the number of days defining an individual as an Israeli resident. These presumptions cannot be rebutted. The “center of life” test will serve only as a secondary tool in cases not covered by these presumptions.

As a result, there may be situations where an individual who has terminated their residency in Israel will still be considered an Israeli resident for tax purposes. This can happen when the number of days spent in Israel in subsequent years is high enough to meet the residency threshold.

To view the draft bill,  click here.

Exit Tax

Israelis leaving Israel may be required to pay an “exit tax” on certain assets. This tax is intended to capture the unrealized capital gains of assets held by Israeli residents.

According to Section 100A of the Income Tax Ordinance, an individual who ceases to be an Israeli resident is deemed to have sold their assets on the day before terminating the tax residency (“Exit Day”). The tax is calculated on the notional gain between the original purchase price and the value on the exit day. Note that some assets, such as real estate, may be exempt from this tax.

There are various methods for calculating and paying exit tax liability, each with different implications for the taxpayer. The timing and structure of these payments can significantly impact the overall tax burden. It is highly recommended to consult with an international tax expert before departing Israel to develop a tax strategy that best aligns with your specific circumstances and financial goals.

Double Taxation Treaty between Israel and France

Israel and France have a double taxation treaty. This treaty is intended, among other things, to prevent a situation where a person pays double tax on the same income. The treaty regulates issues such as determining residency in cases of dual residency, withholding tax rates on passive income (dividends, interest, royalties), and taxation of employment income. 

Under the treaty, employment income earned by an Israeli resident who works in France is generally subject to tax in France, provided the work is physically performed there. However, if the employee is present in France for less than 183 days in a 12-month period or if the employer is not a French resident,  Israel may retain the right to tax that income. Each case should be assessed based on its specific circumstances. 

In addition, the treaty also addresses dual residency. In cases where an individual is considered a resident for tax purposes in both countries, the treaty offers equalization rules for determining residency, as follows: 

a) The individual shall be deemed to be a resident only of the State in which a permanent home is available to that individual; if a permanent home is available in both States, that individual shall be deemed to be a resident only of the State with which the individual’s personal and economic relations are closer (centre of vital interests);

b) If the State in which the centre of vital interests is situated cannot be determined, or if a permanent home is not available to the individual in either State, the individual shall be deemed to be a resident only of the State in which that individual has a habitual abode;

c) If the individual has a habitual abode in both States or in neither of them, the individual shall be deemed to be a resident only of the State of which the individual is a national;

d) If the individual is a national of both States or of neither of them, the competent authorities of the Contracting States shall endeavor to resolve the question by mutual agreement.

To read the Double Taxation Treaty between Israel and France in French – click here. 

How will Terminating Tax Residency Affect Income Taxation?

If the move to France is temporary, you remain an Israeli tax resident and cannot terminate your residency status. This means you are liable for Israeli tax on your worldwide income and must report all income, including income earned in France, to the ITA.

If tax residency is not terminated, you may still be able to claim a tax credit in Israel for taxes paid in France. 

If the move to France is permanent and you have terminated your Israeli tax residency, you will only be liable for Israeli tax on income sourced in Israel, while all other income will be subject to tax in France. 

For more information on the termination of residency, click here. 

National Insurance

An Israeli resident living abroad is required to pay National Insurance (Bituach Leumi) contributions. However, once tax residency is terminated, there is no obligation to pay National Insurance, and the individual is no longer entitled to health or social security benefits in Israel.

Between Israel and France, there is a social security agreement The arrangement in the agreement with France is designed to prevent a situation where an Israeli resident is simultaneously subject to both countries and is required to pay insurance contributions in both, or alternatively, is not entitled to insurance in both countries.

France operates one of the world’s leading public healthcare systems. Foreigners who are considered residents of France may enjoy healthcare services. Others are required to arrange private health insurance.

Tax System in France

 To determine who is considered a resident for tax purposes in France, the French tax code establishes certain criteria according to which a person will be considered a French resident for tax purposes. A person will be considered a tax resident in France if they meet one of the following criteria:

1. Family residence or main residence: The person’s place of residence or that of their family is in France. That is, if a person’s spouse and children reside in France, they may be considered a French tax resident even if they frequently stay abroad.
2. Physical presence: A person staying physically in France for more than 183 days a year will be considered a tax resident. However, this rule is not decisive if the family test is met, meaning the presence of the family in France overrides the need to apply the 183-day test.
3. Professional Activity: A person is considered a French tax resident if they engage in a paid professional activity in France, unless that activity is secondary to their main professional activity carried out in another country.
4. Center of Economic Interests: The individual’s center of economic interests is located in France. This means that even if a person lives outside France, they will be regarded as a French tax resident if most of their income derives from investments or business activities in France.

In addition, the 2020 Budget Law introduced a criterion for executives in companies whose registered offices are in France and whose turnover exceeds 250 million euros. These executives are considered to be performing their main professional activity in France and are considered French tax residents under local law.

Income Taxation

The tax system in France is based on progressive taxation, with tax rates increasing with income growth. France is known for relatively high tax rates compared to other European countries.

Income tax rates in France

• Up to 11,497 euros: 0%.
• 11,497-29,315 euros: 11%.
• 29,315-83,823 euros: 30%.
• 83,823-180,294 euros: 41%.
• Above 180,294 euros: 45%.

The rates are progressive from 0% to 45%, plus an additional tax of 3% on the portion of income exceeding 250,000 euros.

Capital gains for individuals in France are generally taxed at a progressive rate, but there are cases (for example, substantial holdings in shares) where one can choose a flat tax of 12.8%. Capital gains from real estate are subject to a tax of 19% + social levies (usually 17.2%), with a reduced rate for residents of certain countries. It is always important to check the specific provisions and relevant tax treaties.

Capital gains for individuals in France are generally taxed at a progressive rate, but there are cases (for example, substantial holdings in shares) where one can choose a flat tax of 12.8%. Capital gains from real estate are subject to a tax of 19% + social levies (usually 17.2%), with a reduced rate for residents of certain countries. It is always important to check the specific provisions and relevant tax treaties.

For more information on the subject, read the article “Inheritance Tax Planning in France“

The standard corporate tax rate in France is 25%. Small companies have a reduced tax rate of 15% on the first 42,500 euros of taxable profits, provided that the company’s turnover is up to 10 million euros and it is at least 75% owned by individuals.

In addition, large companies (whose corporate tax liability exceeds 763,000 euros) are subject to an additional 3.3% on corporate tax, after deducting an exemption of 763,000 euros per year.

Transferring Funds from Israel to France 

You should review the different options for transferring funds abroad, such as bank transfers and international credit cards. Each option has its own advantages and disadvantages regarding fees, transfer times, exchange rates, amount limits, and regulations. Pay close attention to reporting requirements for authorities and banks, in accordance with anti‑money‑laundering laws and international regulations (FATCA, CRS). According to Section 170(a) of the Ordinance, when a payment from Israel to a foreign resident constitutes taxable income, withholding tax applies. Therefore, transfers of funds that do not constitute taxable income may not be subject to tax but could still require prior approval from the ITA.

For more information, see the article “Transferring Funds from Israel Abroad.” 

Opening a Bank Account in France

Opening a bank account in France is possible for foreigners, but the process varies and usually requires a valid passport, visa/residence permit, proof of address in the country, proof of income, and sometimes additional documents.

Returning to Israel 

When returning to Israel, it is important to carefully assess the potential implications. If you have terminated your tax residency, you may qualify for benefits as a regular  or veteran returning resident, depending on the duration of your stay abroad. These benefits can include tax exemptions on income and capital earned outside Israel.

You should also take into account the waiting period of up to six months for the renewal of National Insurance (Bituach Leumi) health coverage, as well as possible benefits available through the Ministry of Aliyah and Integration.

In short, relocation to France offers many opportunities, but it is a complex process that requires professional planning, personal guidance, and a thorough understanding of all legal and tax aspects. It is recommended to consult with international tax experts to ensure early and comprehensive planning for a smooth and successful transition to your new life in France. 

The firm of Nimrod Yaron & Co. has extensive experience advising on international relocation and Israeli tax residency termination.  For an initial consultation, click here. 

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