On July 2, 2025, the Israeli Ministry of Finance published a draft bill for public comment proposing significant changes to the criteria for determining individual tax residency under the Income Tax Ordinance. Specifically, the bill introduces conclusive numerical presumptions to replace existing rebuttable presumptions, aiming to enhance certainty and administrative clarity in the definitions of "Israeli resident" and "foreign resident" in the Income Tax Ordinance.
Under the current law, individual residency is assessed based on a qualitative "center of life" test, which considers a person's familial, economic, and social ties to Israel. This test is supplemented by rebuttable presumptions based on days of physical presence in Israel. However, the subjective nature of this approach has created legal uncertainty and frequent disputes between taxpayers and the Israeli Tax Authority, especially in cross-border contexts.
To address these challenges, the draft bill proposes a dual-track approach:
- Conclusive presumptions based on days of presence in Israel and spousal residency, which if met, will definitively determine residency status without recourse to the "center of life" analysis.
- If none of the conclusive presumptions apply, the existing qualitative "center of life" test will remain the fallback method.
Key Elements of the Draft Bill
A. Structure of the Conclusive Presumptions
The proposed framework distinguishes between Israeli tax residents and foreign tax residents, based on weighted day-counts over a three-year test period, using the following methodology:
- Current tax year: Each day (including part of a day) = 1 full day
- Adjacent year (before/after): Each day (including part of a day) = 1/3 of a day
- Second year (before/after): Each day (including part of a day) = 1/6 of a day
The three-year period can be any of the following:
- The current tax year and the two preceding years.
- The current tax year, the preceding year, and the following year.
- The current tax year and the two following years.
B. Conclusive Presumptions for Israeli Tax Residency
An individual will be deemed an Israeli tax resident if either of the following conditions is met:
- Stayed in Israel for 75 days or more in the current tax year, and accumulated 183 weighted days over any of the defined three-year periods.
- Stayed in Israel for 30 days or more in the current tax year, has a spouse (including a common-law partner) who is an Israeli resident, and accumulated 140 weighted days over any of the defined three-year periods.
C. Conclusive Presumptions for Foreign Tax Residency
An individual will be deemed a foreign tax resident if:
- Stayed in Israel for 74 days or fewer in the current tax year, and accumulated no more than 110 weighted days over each of the relevant three-year periods.
- The individual and their spouse both stayed in Israel for 90 days or fewer in the current tax year, and each of them accumulated no more than 125 weighted days over each three-year period.
Additional Provisions
- The bill establishes clear rules regarding the start and end residency of an individual:
- Residency starts: from the first day of presence in Israel in the year.
- Residency ends: until the last day of presence in Israel in the year.
- Short visits (up to 21 days) before establishing or after severing residency (e.g., for preparation, family, or closure reasons) will be disregarded for residency determination, subject to a cumulative up to 21 days within the adjacent tax year.
- The bill proposes repealing the existing rebuttable presumptions but notes that number of days may still inform the "center of life" analysis where applicable.
- International tax treaties will continue to take precedence. Thus, even if the draft's presumptions assign Israeli residency, treaty tiebreaker rules may designate the individual as a resident of a treaty country, entitling them to treaty benefits and protection from double taxation.
Effective Date
The new rules will apply to residency determinations starting in the tax year following the year of enactment. However, when applying the conclusive presumptions, presence in the enactment year and the year before may also be considered.
Conclusion
The draft bill represents a significant shift in Israeli tax residency, moving from a subjective "center of life" framework toward an objective, day-count-based regime. While it enhances certainty and administrative clarity, it may raise concerns regarding fairness, global compatibility, and treaty interpretation.
Adv. Assaf Hasson is a Wealth Advisor, Tax and Private Client Lawyer.
He is a board member of the ESRA Executive and of the Financial Committee.
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