On October 7, 2023, the “Operation Iron Swords” war broke out. The war is currently still going on without an end date, according to the IDF and home front command. As a result of the war, many Israeli citizens residing abroad have returned to Israel under emergency orders such as ” Tzav 8″ (emergency summons) or for regular mandatory military service.
The Israeli Tax Authority has enacted special regulations allowing individuals to maintain their non-resident tax status, even if they exceed the usual time spent in Israel or don’t meet all standard criteria. Furthermore, all those who have returned under “Tzav 8”, will receive an extension for their declaration, allowing them to declare at a later date that these days should not be counted towards residency for Israeli tax purposes.
How is an Individuals Tax Residency Determined?
To determine whether an individual is a resident of Israel or to terminate one’s residency, the location of their “center of life” must be examined. In accordance with section 1(2) of the Israeli Income Tax Ordinance (referred to as ‘the Ordinance’), various tests are applied. A detailed explanation of these tests can be found here.
In some cases, when a resident relocates to a country with lower tax rates than those in Israel or where specific tax benefits are offered, they may prefer to terminate their residency in Israel and be classified as a non-resident for tax purposes.
How Can an Individual Maintain a Non-Residency Status Despite Extended Stays in Israel?
As mentioned, the tests for determining the “center of life” are outlined in the Ordinance and case law (previous precedents). However, in addition to these tests, there are Income Tax Regulations (determination of individuals considered as residents of Israel and determination of individuals not considered residents of Israel) that expand on the criteria for determining individuals as foreign residents.
Included in these regulations is section 3(3) which states that an individual who came to Israel for military service in the IDF may be considered a non-resident, provided they request not to be classified as an Israeli resident.
An explanation of full regulations can be found here.
An individual who came to Israel for military service in the IDF will be considered a non-resident until the end of their military service, provided the following three conditions are met:
- The individual is not a new immigrant (oleh chadash).
- The individual was a non-resident during the five years preceding the tax year.
- The individual requested not to be classified as an Israeli resident.
These conditions are considered definitive, however, due to the war, the Israeli Tax Authority recently announced a relief on this matter under section 8 of the Reserve Service Law (Tzav 8). Among other measures, the relief allows for a more lenient interpretation of the conditions, granting an individual to be classified as a non-resident even if they previously immigrated to Israel less than five years ago. In addition, individuals wishing to apply to this regulation may submit their request to the Tax Authority at a later date.
In other words, the unique circumstances of the wartime situation will be considered if the number of days spent in Israel exceeds the limit allowed for a foreign resident.
Our firm specializes in tax laws and tax reporting for returning residents, including tax regulation changes due to the current security situation. To speak to a representative from our office, click here.
