On July 2, 2025, a draft bill was published for the public’s comments, concerning an amendment to the definitions of “Israeli resident” and “foreign resident” in the Income Tax Ordinance. As is known, an individual’s residency is determined according to a qualitative test, under which the entirety of the individual’s family, economic, and social ties must be examined on a particular basis, with the assistance of several rebuttable presumptions.
The existing law is complex to apply and does not create the certainty required in tax law, resulting in increased friction between taxpayers and the Tax Authority, and the Tax Authority is concerned that taxpayers may adopt aggressive tax positions. Therefore, the draft bill proposes to adopt conclusive numerical presumptions based on the individual’s and spouse’s days of stay in Israel, aiming to increase certainty and reduce the risks mentioned above.
According to the amendments proposed in the bill, two types of conclusive presumptions will be established: presumptions under which an individual will be deemed an Israeli tax resident (where the individual spent a significant number of days in Israel during a certain period, and taking into account the residency status of their spouse), and conclusive presumptions under which an individual will be deemed a foreign tax resident (where their presence in Israel is below a minimal number of days). If one of the conclusive presumptions applies, the individual will be deemed a resident of Israel or a foreign resident, without the need to examine the “center of life” test. However, if no conclusive presumptions apply, the “center of life” test, as it exists today and interpreted in Israeli court rulings, will be applied. Since the proposal establishes conclusive presumptions based on the individual’s days of stay in Israel, the bill proposes to eliminate the current rebuttable presumptions based on days of stay in Israel. Nevertheless, the number of days spent in Israel could still serve as an indicator to be considered when applying the substantive center of life test.
In this context, the draft bill states that the existing Residency Regulations, which provide that under certain circumstances, despite a prolonged stay in Israel or a foreign country, individuals to whom the regulations apply are not to be deemed residents of the country in which they are staying, will continue to apply and will override the proposed conclusive presumptions.
The draft bill also clarifies that since double taxation treaties prevail over domestic law, if, according to the provisions of a relevant tax treaty, an individual is deemed a resident of the treaty country due to ties with that country, that individual will be deemed a resident of the treaty country and be eligible to the reliefs provided in the treaty, even if the proposed conclusive presumptions setting Israeli residency apply.
For the sake of completeness, it should be noted that on July 24, 2023, a similar draft bill was published for the public’s comments, based on the recommendations of the Committee for the Reform of International Taxation from November 2021. The previous draft bill proposed amendments that were designed to achieve the same objectives. Still, following a re-examination of the issue, this new draft bill has been published, establishing different provisions, to reduce the number of cases in which it will be necessary to examine the substantive “center of life” test.
The proposed conclusive presumptions are based on several principles: First, since in the current era of global mobility of human capital, a change in an individual’s place of residency may extend beyond a single tax year, the days of stay are examined over several tax years using a multi-year test. Second, the spouse’s place of residence is considered as a key parameter in determining the individual’s place of residence. Third, the further back in time the days of stay in Israel are from the tax year under review, the less weight they are given to determine residency in the tax year under review. Fourth, a stay of part of a day in Israel will be considered a full day in Israel, and the remaining days in that year will be attributed to a stay outside of Israel.
The conclusive presumptions that the draft bill seeks to establish in the Income Tax Ordinance are as follows:
Conclusive Presumptions – Israeli Tax Resident
If any of the following situations occur, the individual will be considered a resident of Israel:
1. The individual stayed in Israel for 75 days or more in the tax year and a cumulative 183 weighted days1 of stay in one of the three-year periods2.
2. If the individual’s spouse, including a common-law partner (“spouse”), is a resident of Israel, and the individual stayed in Israel for 30 days or more in the tax year and a cumulative 140 weighted days of stay in one of the three-year periods.
Conclusive Presumptions – Foreign Tax Resident
1. The individual stayed in Israel for 74 days or less in the tax year, and no more than a cumulative 110 weighted days of stay in each of the three-year periods.
2. The individual and their spouse stayed in Israel in the tax year for 90 days or less, and the total period of stay of each of them in Israel in each of the three-year periods is a maximum of 125 weighted days.
Since the date of commencement or detachment of residency may occur during the tax year (even if one of the conclusive presumptions is met in that year), rules have been established to regulate this date: in the first tax year in which the individual became a resident of Israel, they will be considered a resident for only part of the tax year – starting from the first day in that year on which they stayed in Israel; in the last tax year in which the individual was a resident of Israel, they will be considered a resident until the last day in that year on which they stayed in Israel.
However, in a case where an individual intending to become a resident of Israel stays in Israel for a short visit before the actual move, for social reasons or in preparation for the move, or in a case where an individual who has ceased to be a resident of Israel returns for a visit after the severance, for personal reasons or to finalize arrangements, the draft bill proposes that a stay in Israel for a period not exceeding 21 consecutive days will not be taken into account when examining the date of commencement or severance of residency, provided that the total cumulative days of stay in Israel do not exceed 21 days during the tax year before or after the visit, as the case may be.
The draft bill proposes that the legislative amendment will apply to determining an individual’s residency in the tax year following the tax year in which the commencement date falls and thereafter. However, in applying the conclusive presumptions in the said tax year, the factual conditions that existed in the tax year in which the commencement date falls or in the tax year preceding it may be considered.
It is clarified that this is only a draft bill published for the public’s comments, so the provisions described above may still change during the legislative process (if completed).
1 “Weighted days of stay” are calculated according to the following mechanism:
Days in the tax year under review – each day (including part of a day) is counted as a full day;
Days in an adjacent year (before or after the tax year) – each day (including part of a day) is counted as one-third (1/3) of a day;
In the second year before or after the tax year – each day (including part of a day) is counted as one-sixth (1/6) of a day.
2 “Three-year period” is defined in the draft bill as one of the following options:
(a) The tax year and the two preceding tax years;
(b) The tax year, the preceding tax year, and the following tax year;
(c) The tax year and the two following tax years.
