Severing Israeli residency is a significant step for anyone leaving Israel for an extended period or relocating to another country. The cessation of Israeli residency can affect tax liability, reporting obligations to the Israel Tax Authority, National Insurance and health insurance contributions, and eligibility for healthcare services in Israel. Anyone planning to relocate should therefore examine their residency status before moving, rather than assume that leaving the country will automatically resolve the matter.
Tax residency and residency for National Insurance purposes are determined separately. In both cases, where a person’s life is actually centered is important, but each authority applies its own rules and the consequences differ. Recognition as a nonresident for tax purposes does not automatically terminate residency with the National Insurance Institute, and vice versa.
How Is an Individual’s Israeli Tax Residency Determined?
Under Section 1 of the Israeli Income Tax Ordinance, an individual whose center of life is in Israel is generally considered an Israeli tax resident. The center-of-life determination is based on the totality of the individual’s family, economic and social ties. The Ordinance also establishes presumptions based on the number of days spent in Israel, but these do not replace an examination of the person’s actual circumstances.
The Substantive Test: Center of Life
The center-of-life test seeks to identify where an individual’s most significant connections are located. Relevant considerations include:
- The location of the individual’s permanent home;
- Where the individual and their family members reside;
- The individual’s regular place of work or occupation;
- The location of the individual’s active and material economic interests; and
- Where the individual participates in organizations, associations and institutions.
This list is not exhaustive, and no single factor is decisive in every case. For example, a spouse and children’s continued residence in Israel may carry considerable weight, but it must be assessed alongside the length of time spent abroad, housing and employment overseas, economic and social ties, and the individual’s overall pattern of conduct.
The Quantitative Test: Day-Count Presumptions
The Ordinance provides two presumptions under which an individual’s center of life is considered to be in Israel during a tax year:
- The individual spends 183 days or more in Israel during the tax year; or
- The individual spends at least 30 days in Israel during the tax year, and the total number of days spent in Israel during that year and the two preceding tax years reaches 425 days or more.
For counting purposes, any part of a day is treated as a full day in Israel. These presumptions may be rebutted by the individual or by the assessing officer on the basis of all the relevant facts. Even where neither presumption applies, it remains necessary to determine where the individual’s center of life is located.
Reporting Obligations to the Israel Tax Authority
An individual who meets one of the Israeli day-count presumptions but maintains that their center of life is outside Israel must report the facts supporting that position. Form 1348 (Declaration of Residency) is used for this purpose and is attached to the annual tax return. Other reporting obligations may apply even where the day-count presumptions are not met, including in relation to Israeli-source income.
There is no form that, simply by being filed, terminates Israeli tax residency. Likewise, failing to file a form does not, in itself, determine residency status. Residency is established by law and by the facts, rather than by departure from Israel alone. Accordingly, the individual’s reporting obligations should be reviewed separately for each tax year, based on the forms and rules in force at the relevant time.
In complex cases, it is advisable to review the facts and relocation documentation in advance with a lawyer or accountant specializing in international taxation. A professional opinion may assist in assessing exposure and developing a defensible reporting position, but it does not guarantee that the Israel Tax Authority will accept that position.
Does a Short Stay Abroad Prevent the Cessation of Tax Residency?
The Income Tax Ordinance does not prescribe a minimum period of residence abroad as a condition for ceasing to be an Israeli tax resident. The outcome depends on whether the center of life has actually moved abroad and on the circumstances as a whole. Nevertheless, a longer period abroad may strengthen the position that Israeli tax residency has ended. Wherever possible, relocation should therefore be planned for a meaningful period.
Returning to Israel after one or two years does not necessarily negate the cessation of tax residency, but it may prompt a reassessment of the period spent abroad. The date on which tax residency ends is determined by the facts and is not necessarily the date of departure from Israel.
For further information, see our article: Severing Israeli Tax Residency Before Relocation.
The Difference Between Tax Residency and National Insurance Residency
The National Insurance Institute (NII) assesses residency independently of the Israel Tax Authority. As long as a person is considered an Israeli resident for National Insurance purposes, they may continue to be liable for National Insurance and health insurance contributions while living abroad. The liability depends on their status, the type of income they receive and the circumstances of their employment. Paying contributions does not, by itself, establish residency; conversely, failing to pay them does not terminate residency and may result in debt and collection proceedings. Before stopping payments or changing status, individuals should clarify their reporting and payment obligations with the NII.
Where a social security agreement exists between Israel and the country of residence, its applicability to the individual and the relevant type of insurance should be examined, along with its effect on the individual’s obligations and entitlements.
In addition to contribution obligations, continued residency may preserve social insurance entitlements and eligibility for healthcare services in Israel, while termination of residency may affect those rights. Eligibility remains subject to statutory conditions and is not preserved merely through payment. It is therefore important to consider medical needs and the possibility of returning to Israel, and to clarify in advance with the NII the individual consequences of a change in status. These may include waiting periods or restrictions on healthcare eligibility following a return, depending on the circumstances and the rules then in effect.
Someone who has fully transferred their center of life abroad may ask the NII to terminate their residency before five years have elapsed, by submitting a Declaration of Cancellation of Residency (Form 629). According to NII guidance, in most cases termination takes effect from the date the notification is submitted, subject to review of the request. Form 627, by contrast, is a questionnaire for determining the residency of a person staying abroad; it is not the form used to request termination of residency.
Generally, a person who leaves Israel remains registered as an Israeli resident for the first five years. However, the NII may review their residency earlier if information indicates that their center of life has moved abroad. While the person remains recognized as a resident, eligibility for healthcare services and benefits is subject to the conditions applicable to each entitlement. Registration as a resident does not, in itself, guarantee payment of benefits abroad.
At the end of five years, residency is generally terminated. It is possible, however, to challenge that determination or seek continued recognition as a resident by submitting the Questionnaire for Determining Residency of a Person Staying Abroad (Form 627), together with documents demonstrating that the stay abroad is temporary and that the center of life remains in Israel.
When reviewing an application to terminate residency, the NII considers the family unit as a whole. Under its guidance, an application will not be approved if the spouse and children remain in Israel. Because transferring one’s center of life can be a gradual process, particularly during a temporary relocation, the implications for healthcare and social security rights should be considered carefully before applying.
Approval of a request does not prevent a subsequent retroactive reassessment. If, following a return to Israel, the NII determines that the center of life was not fully transferred abroad and that the stay overseas was temporary, it may treat the person as an Israeli resident even for the period during which residency had been terminated and assess contributions accordingly.
In appropriate cases, a person may continue to be recognized as a resident beyond five years. This may apply, for example, where the stay abroad is for study or employment, the family remains in Israel, and the overall circumstances indicate that the center of life remains in Israel. For older individuals, the NII also takes into account the years of Israeli residency accumulated and may continue to recognize them as residents even if they spend most of their time abroad, provided their center of life has not moved there.
Why Does Residency Status Matter?
1. Tax Liability on Income Earned Outside Israel
As a general rule, an Israeli tax resident is subject to Israeli tax on worldwide income, whether earned or accrued in Israel or abroad. A nonresident, by contrast, is generally subject to Israeli tax only on income earned or accrued in Israel.
A person who continues to be treated as an Israeli tax resident may face double taxation on foreign income if that income is also taxable in another country. It should not be assumed that a double tax treaty will always eliminate double taxation in full, or that all tax paid abroad will be available as a credit against Israeli tax. The applicable domestic law and the relevant tax treaty, if any, must therefore be examined in each case.
Exit Tax
Residency status is also important for Section 100A of the Income Tax Ordinance, commonly referred to as Israel’s “exit tax.” As a general rule, an asset owned by an individual who ceases to be an Israeli resident is deemed to have been sold on the day immediately preceding the cessation of residency. The law provides a mechanism for deferring payment of the tax until the asset is actually realized, subject to its conditions. This provision may be relevant, among other things, to shares, financial assets and certain rights, and should therefore be considered before relocating.
For more information, see Exit Tax Under Section 100A: What to Know Before Severing Israeli Tax Residency.
2. Returning Residents and Veteran Returning Residents
Whether Israeli residency has in fact ceased can also affect the tax treatment of a subsequent return to Israel. Under the current provisions of the Income Tax Ordinance, tax benefits may be available to returning residents and veteran returning residents, subject to statutory conditions. These include the period of nonresidency and the circumstances in which the individual ceased to be an Israeli resident.
Read more about the benefits available to returning residents and veteran returning residents.
3. National Insurance Status
A person whose NII residency has ended must regularize their status upon returning to Israel. Even after they are once again recognized as a resident, a waiting period for healthcare services may apply. In certain circumstances, this waiting period can be redeemed by making a special payment. It is advisable to examine the position before returning, particularly if uninterrupted medical care is needed.
What Should Be Reviewed Before and During Relocation?
Before relocating, individuals should map their income and assets in Israel and abroad; review tax and reporting obligations in both countries; and assess the consequences of any change in residency, including the possible application of the exit tax under Section 100A. Separately, they should clarify their status with both the Israel Tax Authority and the NII, their expected status in the destination country, and the applicability of any tax treaties and social security agreements.
Those seeking to cease Israeli residency should take genuine steps to move their center of life abroad and reduce their ties to Israel, having regard to their circumstances. Relevant factors include the location of their permanent home, where family members live, where they work and conduct business, and whether they have established economic and social connections in the destination country.
The Bottom Line
The cessation of residency is not determined solely by a person’s intentions, the number of days spent in a country, or the submission of a form. For tax purposes, the assessment depends on the center of life, the statutory day-count presumptions and the overall facts. The process with the National Insurance Institute is separate and may affect insurance contribution obligations and healthcare eligibility.
Nimrod Yaron & Co. advises individuals and families on tax residency and on planning relocations abroad or returns to Israel. Our services include reviewing tax consequences and reporting obligations and tailoring the planning process to each client’s personal, family and financial circumstances.
Frequently Asked Questions
Does Moving Abroad Automatically End Israeli Residency?
No. For tax purposes, the authorities assess the center of life, the number of days spent in Israel and the full range of family, economic and social ties. The NII examines residency separately, so leaving Israel does not automatically terminate residency with either authority.
Is Spending Fewer Than 183 Days in Israel Enough to Cease Being a Tax Resident?
Not necessarily. The additional day-count presumption must also be considered: at least 30 days in Israel during the tax year and at least 425 days in total during that year and the two preceding years. In addition, the substantive center-of-life test considers the individual’s overall family, economic and social connections. Even where neither day-count presumption applies, a person may still be considered an Israeli tax resident if their center of life remains in Israel.
Can Residency Be Terminated If the Family Remains in Israel?
For tax purposes, a family’s continued residence in Israel is a significant consideration, but the outcome depends on all the circumstances. For National Insurance purposes, NII guidance provides that a voluntary application to terminate residency will not be approved where the spouse and children remain in Israel.
Must a Form Be Filed to Terminate Israeli Tax Residency?
No form automatically ends tax residency merely because it has been filed. However, an individual who meets a day-count presumption and claims that their center of life is abroad must report the facts supporting that position on Form 1348, attached to the annual tax return. Other reporting obligations may apply even where no day-count presumption is met.
Can NII Residency Be Terminated Before Five Years Have Passed?
Yes. Someone who has fully transferred their center of life abroad may submit a declaration requesting termination of residency using Form 629. The application is subject to NII review and, in most cases, termination takes effect from the date of notification. Before applying, it is important to examine the implications for healthcare and social security rights.
Does Paying National Insurance Contributions Guarantee That Residency and Entitlements Are Preserved?
No. Payment alone does not establish residency or guarantee eligibility for any particular benefit or service. Stopping payment also does not terminate residency and may lead to an outstanding debt. Individuals should clarify their status and contribution obligations with the NII.
Can Someone Remain an NII Resident After Five Years Abroad?
In appropriate cases, yes. The person must demonstrate that the stay abroad is temporary and that their center of life remains in Israel, using Form 627 and supporting documentation. This may be relevant, for example, to study or employment abroad. For older individuals, accumulated years of Israeli residency are also considered, provided their center of life has not moved abroad.
What Happens If Someone Returns to Israel After One or Two Years?
Such a return does not necessarily invalidate the cessation of tax residency, but it may trigger a reassessment of the period spent abroad. The NII may also retrospectively examine whether the center of life genuinely moved overseas. If it concludes that residency continued, National Insurance contributions may be assessed for that period.
Does Ceasing to Be an Israeli Resident Remove All Israeli Tax Obligations?
No. A nonresident may still be liable for Israeli tax and reporting in relation to Israeli-source income. In addition, ceasing Israeli residency may trigger exit tax under Section 100A of the Income Tax Ordinance, subject to the conditions of that provision.
What Documents Should Be Kept During Relocation?
It is advisable to retain records of entries into and exits from Israel, accommodation, employment, where family members live, and economic ties, together with tax filings, correspondence with the authorities and official confirmations. Contemporaneous documentation helps support a residency position and meet reporting obligations.
Must an Israeli Apartment Be Sold to End Israeli Tax Residency?
Not necessarily. It is important to consider whether the apartment remains available for the individual’s personal use, as well as their other ties to Israel. The outcome depends on the overall circumstances, not solely on ownership of the apartment.
Does Keeping an Israeli Bank Account Prevent the Cessation of Residency?
An Israeli bank account is one of the economic connections that may be considered. Its existence alone does not determine whether the individual’s center of life has moved abroad.
