Relocation From Israel to Thailand

Thailand has become an attractive destination for Israelis considering relocation abroad, whether for work, investments, studies, retirement, or improving quality of life. The relatively low cost of living, tropical climate, rich culture, and stunning landscapes make Thailand particularly appealing.

 However, relocating to Thailand 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.

What Does the Relocation Process to Thailand Involve?

The relocation process consists of several essential steps. 

First, conduct a thorough review of employment opportunities in Thailand, the cost of living (which varies significantly between Bangkok and smaller cities),  the Thai 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. In Thailand, the public healthcare system is typically not available to foreigners under the same conditions as local citizens, so private health insurance is essential.

In this regard, one of the main challenges in relocating to Thailand is obtaining the appropriate residence visa. Each visa type has different requirements, such as age, education, income, minimum investment, employment contract, health insurance, and more. It is essential to select the visa that best suits your circumstances and to arrange it in advance.

What are the important things to know about relocation to Thailand?

 

Residence Visas

One of the main challenges in relocating to Thailand is obtaining an appropriate residence visa. If you are planning to arrive in Thailand and wish to stay for more than 60 days, you will need to arrange a residence visa. It is recommended to secure a residence visa in advance according to your reason for relocation. Each type of visa has different requirements, such as age, income, minimum investment, employment contract, health insurance, and more. It is important to choose the most suitable visa for your personal circumstances.

Property in Thailand

If you wish to purchase property in Thailand, it’s important to know that there are significant restrictions on foreign ownership of real estate. Foreigners cannot directly purchase land in Thailand, but can buy condominium units as long as foreign ownership in the building does not exceed 49%.

Other options include long-term leases (up to 30 years with extension options) or establishing a Thai company (provided the company also has Thai ownership, and foreign ownership is 49% or less). Professional advice is recommended before any real estate investment in Thailand.

Tax Aspects of Relocation to Thailand

Whenever moving to a foreign country, the question arises whether you will still have tax obligations in Israel after the move. The answer usually depends on whether you have terminated your Israeli tax residency.

Termination of Tax Residency

One of the main issues in the relocation process is determining your residency for tax purposes. In Israel, Israeli residents are taxed on their worldwide income, while non-residents are taxed only on income sourced in Israel. Residency status is determined according to your “center of life,” which is examined using both qualitative and quantitative tests.

If you intend to settle in Australia for the long term, it may be preferable to sever your residency from Israel (for both income tax and National Insurance). Note that Israelis who sever their residency are required to pay 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:

• The center of life test – this is a substantive test, in which all personal, family, economic, and social ties are examined. These include a permanent place of residence, a place of economic activity, a location of economic interests, and more.
• Days test –an individual is considered an Israeli resident if they spent 183 days or more in Israel in a single tax year, or if they spent 30 days or more in the current tax year and a total of 425 days or more in Israel during the current tax year and the 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.

Anyone who meets the days test, i.e., is considered an Israeli resident under this test, must file Form 1348 – “Declaration of Residency” – with the Israel Tax Authority (“ITA) to declare the termination of Israeli tax residency and detail the circumstances supporting that their center of life is not in Israel.

It is important to note that terminating tax residency is usually not a one-time event but an ongoing process, and the 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 Australia, 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 (which cannot be rebutted) based on the number of days that define an individual as an Israeli resident, and 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 in future years, since, in many cases, the number of days they spent in Israel will be sufficient.

Double Taxation Treaty between Israel and Thailand

Israel and Thailand have a double taxation treaty intended to prevent individuals from being taxed twice on the same income. The treaty sets out clear rules for determining tax residency in cases of dual residency, establishes the applicable tax rates for passive income (such as dividends, interest, and royalties), and governs the taxation of employment income.

Under the treaty, employment income earned by an Israeli resident who works in Thailand is generally subject to tax in Thailand, provided the work is physically performed there. However, there may be situations where you will need to pay tax in Israel as well (with credit for tax paid in Thailand) if you have not terminated your residency.

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

1. 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);
2. 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;
3. 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;
4. If the individual is a national of both States or of neither of them, the competent authorities of the Contracting States shall endeavour to resolve the question by mutual agreement.

To read the Double Taxation Convention between Israel and Thailand in English – 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 latent gain in 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.

Exit tax applies to certain assets when an individual ceases to be an Israeli tax resident. This tax is levied on unrealized capital gains of various qualifying assets at the time of departure, though some assets like Israeli real estate may be exempt as they remain taxable in Israel regardless of residency status.

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.

How Will Terminating Tax Residency Affect Taxation of Income?

If the move to Thailand is temporary, you remain an Israeli resident for tax purposes and cannot terminate your tax residency. This means you are liable for Israeli tax on your worldwide income and must report all income, including income from Thailand to the Israeli tax authorities.

If tax residency is not terminated, it is often possible to claim a tax credit for taxes paid in Thailand in accordance with the tax treaty between Israel and Thailand.

If the move to Thailand 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 Thailand.

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

Tax System in Thailand

In Thailand, an individual is considered a Thai tax resident if they stay in Thailand for 180 days or more in a calendar year. Thai residents are taxed on income from work or businesses conducted in Thailand, employment with Thai employers, and assets located in Thailand. As of January 1, 2024, residents are also taxed on foreign-source income if it is remitted to Thailand. Non-residents are taxed only on income sourced within Thailand.

Thailand has a progressive personal income tax system. The tax brackets in Thailand for taxable income are:

• Up to 150,000 Baht – Tax exempt.
• 150,001-300,000 Baht – 5
• 300,001-500,000 Baht – 10
• 500,001-750,000 Baht – 15
• 750,001-1,000,000 Baht – 20
• 1,000,001-2,000,000 Baht – 25
• 2,000,001-5,000,000 Baht – 30 percent.
• Over 5,000,000 Baht – 35 percent.

The basic corporate tax rate is 20%, but there are significant tax benefits for small companies with low profits.

In Thailand, with few exceptions, capital gains are classified under the same income tax brackets. Capital gains include profits from investments such as interest, dividends, and capital gains from transfers of cryptocurrencies and digital tokens. However, profits from the sale of shares listed on the Thai stock exchange are exempt from income tax, making it attractive to investors.

Thailand does not impose a significant inheritance tax, but there is a 10% tax on especially large inheritances exceeding 100 million baht. There are exemptions and reliefs for inheritance tax; for example, first-degree relatives are subject to a reduced inheritance tax rate of 5%.

National Insurance

An Israeli resident staying abroad is required to pay National Insurance (Bituach Leumi) contributions, but if tax residency is terminated, there is no obligation to pay National Insurance, and you are not entitled to health or social security benefits in Israel.

Between Israel and Thailand, there is no social security agreement, and therefore, there is no regulation of social rights between the countries. This means you need to arrange private health insurance in Thailand, as in most cases, you will not be entitled to public health services.

Transferring Funds from Israel to Thailand

You should review the various options for transferring funds abroad – bank transfers, international credit cards, etc. Each option has its advantages and disadvantages in terms of fees, transfer times, exchange rates, amount limits, and regulations. Pay attention to reporting requirements for authorities and banks, following anti-money laundering laws and international regulations (FATCA, CRS). It is also advisable to open a Thai bank account in advance.

According to Section 170(a) of the Ordinance, when making a payment from Israel to a foreign resident that constitutes taxable income, withholding tax applies. There are several exceptions to this obligation that do not require applying to the tax authority for an exemption from withholding tax.

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

Opening a Bank Account in Thailand

Opening a bank account in Thailand is possible for foreigners, but the process may be more complex than in Israel, and bank policies vary from branch to branch. Generally, the requirements for opening a bank account in Thailand typically include: a valid passport, a long-term visa, a residential address in Thailand, proof of income, etc.

Returning to Israel

Upon returning to Israel, you should consider the various legal, tax, and social implications. If you have terminated your tax residency, you may be entitled to benefits as a regular or veteran returning resident (depending on the length of your stay abroad), including tax exemptions on income and capital accumulated abroad.

You should also consider the waiting period (up to 6 months) for the renewal of National Insurance rights and possible benefits from the Ministry of Aliyah and Integration.

 In short, relocation to Thailand offers many opportunities – a high quality of life at a relatively low cost, pleasant climate, rich culture, and diverse business opportunities. However, 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 Thailand.

Nimrod Yaron & Co. specializes in terminating tax residency and providing comprehensive advice for relocation to foreign countries, including Thailand. Our team of experts will assist you in optimal tax planning and residency. For an initial consultation, click here.

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