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Israeli Exit Tax – from Enforcement Difficulties to Extensive Obligations on Taxpayers

25 August 2022

Herzog’s Chairman Meir Linzen together with Partner Guy Katz and Associate Sophie Matatyaho, shared their overviews of the Israeli exit tax in the recent “Chambers Global Practice Guide”.

“Under the Israeli Income Tax Ordinance (the “Ordinance”), when an Israeli tax resident (including a company and, in certain cases, a trust) ceases to be an Israeli resident for tax purposes, its assets are deemed to have been sold one day before it ceases being an Israeli resident.

As a default rule, the taxpayer is viewed as choosing to defer the date of payment of exit tax until the date of the actual sale of its assets. This default rule makes it difficult to enforce the application and payment of the exit tax in practice, as many taxpayers who cease to be Israeli residents do not pay the applicable exit tax or paid minimal tax upon the sale of the assets.

Recent court ruling and Israel Tax Authority (“ITA”) publications shed some light on the implementation of the existing exit tax regime and on the ITA’s interpretation of the law. In addition, proposed extensive changes to the existing exit tax regime were recently submitted to the Director of the ITA. These changes, once adopted by the legislator, will improve the enforceability of the exit tax, as well as imposing substantive reporting and administrative obligations on taxpayers who are no longer Israeli residents.”

For the full chapter >> click here

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