Tax Authority Clarifies Rules for Israelis Abroad

The Israeli Tax Authority has issued a clarification of the rules governing taxable income by citizens living abroad, though the guidelines remain complicated and are likely to generate controversy.

The central question pertains to the duration of residence outside the country required before an Israeli citizen can be exempt from Israeli taxation.

Writing in The Jerusalem Post, tax specialist Leon Harris said that according to the ITA, in a statement made to an unnamed large corporation inquiring about its employees’ tax status, the guidelines are as follows:

To qualify for an exemption, one must be resident in one of the 56 countries that has a tax treaty with Israel (for example, the U.S., U.K., Canada, China [not Hong Kong], Singapore and South Korea).

The basic condition is that the employee resides in the other treaty country at least three years, and his family lives there with him for at least 30 months. That would qualify as the “clean break” (nituk) that would put the person out of the reach of the ITA. All must be fully documented by the person and the employer.

Other issues, such as family members, ownership of a home in Israel, return trips, re-establishing residence in Israel, and more are covered in a lengthy ITA circular.

Harris noted that certain provisions — notably 74- and 84-day limits — on trips to Israel “are not popular and not reflective of the law. And the discretion that the ITA grants itself to consider exceptions raises eyebrows.”

In addition, an Israeli living abroad could be vulnerable to double taxation if the other country does not cooperate with the ITA.

Israelis living or working abroad are advised to consult tax specialists to ascertain exactly how to comply with the ITA.