Amendment to the Definition of an Individual’s Tax Residency

Dear Clients, Colleagues and Friends,

On July 2, 2025, the Israeli Ministry of Finance published a draft bill proposing significant changes to the definition of an individual’s tax residency. Currently, residency is determined by a qualitative “Center of Life Test” that considers personal, economic, and social ties, along with presumptions based on the number of days spent in Israel.

In light of the complexity and disputes arising from the current legislation, the proposed legislation aims to simplify this process by introducing conclusive presumptions for both Israeli residency and non-residency, primarily based on the number of days an individual and their family spend in Israel. In cases where these presumptions do not apply (i.e., borderline cases), the existing “Center of Life Test” under the current law will remain in effect.

Importantly, the proposed presumptions are subject to the provisions of the double tax treaties for the prevention of double taxation, allowing individuals to claim residency in a treaty country as applicable.

The draft bill published by the Ministry of Finance is subject to government approval and will then go through the full legislative process in the Knesset.

Below, we outline the key proposed changes for your awareness.

 

1. Conclusive Presumption of Israeli Residency

An individual will be deemed an Israeli resident (even if the conditions of the center of life test are not met) either one of the following applies –

1) The individual spends 75 days or more in Israel during the tax year, and accumulates at least 183 “weighted days of stay” in Israel during one of the following three-year periods:

“The three-year period” –

• • The tax year and the two preceding years;
  • The tax year, the prior year, and the following year;
  • The tax year, and the two subsequent years;

 

“Weighted Days of Stay” – a calculation method that assigns different weights to days of presence in Israel based on their proximity to the tax year under examination:

• • Each day in the relevant tax year = 1 full day
  • Each day in the year before or after the tax year = 1/3 of a day
  • Each day in the second year before or after the tax year = 1/6 of a day

 

2) The individual spends 30 days or more in Israel, accumulates at least 140 weighted days in one of the three-year periods described above, and their spouse or common-law partner meets the criteria for Israeli residency above.

 

2. Conclusive Presumption of Non-Residency

An individual will be deemed a non-resident for Israeli tax purposes if he is not considered an Israeli Resident and if either one of the following applies (even if their center of life was in Israel according to the new presumptions) –

1) The individual spends 74 days or fewer in Israel during the tax year and accumulates no more than 110 weighted days in each of the three-year periods described above.

2) The individual and their spouse or common-law partner spend 90 days or fewer in Israel during the tax year and accumulate no more than 125 weighted days in each of the three-year periods.

 

The definitions for “the three-year period” and “weighted days of stay” are the same as with those used for Israeli residency above.

 

3. Date of Residency Commencement and Date of Residency Termination

The bill clarifies when an individual’s residency begins and ends. Israeli residency begins on the first day of presence in Israel during the tax year in which residency is established, excluding visits of up to 21 days.

Israeli residency ends on the last day of presence in the final tax year of residency, with subsequent visits of up to 21 days excluded from calculations.

 

4. Reporting Obligations

Previously, individuals subject to residency presumptions had reporting obligations if claiming non-residency. Under the proposed bill, these presumptions and their associated reporting requirements will be eliminated.

 

5. Effective Date

The proposed law will apply to the tax year following the bill’s enactment. The explanatory notes indicate that factual circumstances from prior years may be considered.

 

Please Note: Tax planning in Israel is subject to both general and specific anti-avoidance rules. No tax planning should be undertaken without prior legal advice.

 

Our Tax Department has extensive experience in the matters discussed in this update. We would be pleased to assist you in analyzing the potential tax implications of these changes and exploring strategies to mitigate such tax implications.

 

Sincerely,

Tax Department

Herzog Fox & Neeman

 

This client update does not constitute legal advice and should not be relied upon as such without obtaining appropriate legal counsel.