Under Israeli tax law, New Immigrants are entitled to various tax benefits, including an exemption from taxation with respect to non-Israeli sourced income. Due to these benefits, many taxpayers have argued that since they immigrated to Israel, they are entitled to Israeli tax residency certificate, even though they have not taken the required steps to actually move the center of their life to Israel. Accordingly, in recent years, the Israeli Tax Authorities (the "ITA") have exercised a growing degree of caution with respect to the provision of residency certificates.
On October 8, 2017, the ITA published a new private tax ruling, with far reaching implications, describing the minimum conditions that must be fulfilled in order for an individual to receive an Israeli residency certificate and be regarded as an Israeli resident for tax purposes (both for the purpose of Israeli local tax law as well as under Israel's double taxation treaties).
This new Private Ruling sheds light on the ITA's policy with respect to the issuance of residency certificates and provides guidelines which, if followed, may provide a certain degree of certainty for potential new immigrants.
The Factual Background of the Private Ruling
The taxpayer who received the tax ruling is a businessman who was not a resident of Israel, but of a country that signed a double taxation tax treaty with Israel ("Country A"). Although the taxpayer did not spend many days in Israel in the years 2002-2016 (inclusive), he was expected to spend more time in Israel as of 2017 onwards.
The ITA agreed to provide a Residency Certificate, provided that all of the following conditions are met:
- The taxpayer shall stay in Israel for more than 142 days in each tax year;
- There is no other country in which the taxpayer spent more days than in Israel in the relevant tax year;
- The taxpayer would have a permanent residence in Israel;
- The taxpayer did not elect to benefit from an “Acclimatization Year” (i.e., a year in which the individual chooses to be considered as a non-Israeli resident even though he should be considered as an Israeli resident under Israeli tax laws);
- The taxpayer does not have a non-Israeli resident spouse;
- The taxpayer shall provide an opinion from a local CPA in Country A, confirming that he should not be regarded as a tax resident of Country A; and
- The taxpayer shall declare that the above conditions were met with respect to tax years 2017-2019 and are also expected to be met in the next two tax years.
There are three more important determinations in the Private Ruling –
- The ITA will consider notifying the tax authorities of Country A if the taxpayer failed to meet the above conditions, and the Certificate should be annulled retroactively.
- The Ruling Clarifies that even if the ITA refuses to issue a Residency Certificate, it can still argue that the taxpayer is indeed a resident of Israel for the relevant tax year as the center of his life was in Israel.
- The issuance of a Residency Certificate does not force the ITA to protect the position that taxpayer is indeed an Israeli resident in a Competent Authorities procedure with Country A.