Abandonment of Israeli residency
Abandonment of Israeli residency – how and when is it done? The process of abandoning resident status is a complex legal procedure, which is performed mainly in cases of relocation or a permanent move to another country for the purpose of work, starting a family, etc. Abandonment of residency is necessary in order to be released from tax obligations and National Insurance payments. It requires submitting applications and declarations both to the Tax Authority and to the National Insurance Institute. Attorney Michael Decker, a partner in our firm and an expert in international taxation, will elaborate on this important issue in the following article.
The decision to move to another country is a fateful one, and it may stem from various reasons. Sometimes it is due to an employment or business opportunity in another country, which grants an improvement in the standard of living. Sometimes it is due to a marital relationship, starting a family with a spouse overseas, or a desire to live near other relatives. Sometimes it is due to the existence of a foreign citizenship or the need to acquire such citizenship, and sometimes the move is made simply out of a desire to live somewhere else. Whatever the reason, moving to another country will always have tax consequences.
If the move to another country becomes permanent and constitutes a real “center of life” relocation, it is usually necessary to carry out a procedure of abandoning resident status. This is a procedure that must be carried out both with the Tax Authority and with the National Insurance Institute, in order to cease obligations to report and pay income tax, health tax and National Insurance payments in Israel. This abandonment of residency will not usually be initiated by the authorities, and certainly not right near the time of the relocation. Accordingly, it is important to know how the procedure is carried out, what the legal tests are for deciding that an abandonment of resident status and transfer of “center of life” to another country is indeed occurring, and how you should act within this framework. We will explain this and more below.
How is the date of abandonment of residency determined for tax purposes?
The process of moving to another country is rarely done in one day, and not even in a short time; it usually stretches over a long period of time, sometimes even several years. Accordingly, the process of abandoning residency is also not usually carried out immediately after the move. However, there is a difficulty in determining the specific point in time at which residency is actually cut off, and therefore when the exemption from reporting and paying taxes begins. The specific point in time at which the abandonment of residency goes into effect is determined according to rules established both in the definition of the term “resident of Israel” in the Income Tax Ordinance and in court rulings over the years.
The test to decide on the question of abandoning residency consists of an objective portion and a subjective one. The objective test is based on a quantitative assessment, according to which someone who resides in Israel for a cumulative period of 183 days or more in a calendar year will usually be considered a resident. The main subjective test used to decide the issue of abandoning residency focuses on the question of the “center of life”. As part of this test, various factors and characteristics are examined, including the permanent place of residence, the period of stay overseas and its continuity, the existence of family members and their place of residence, income and the place (or places) where it is generated, bank accounts in Israel or abroad, possession of assets (such as real estate, cars, etc.), the existence of pension savings, medical insurance, and more.
It is important to note that the courts have emphasized over the years that the list of factors and characteristics of the aforementioned subjective test is not definitive, and that each case will be examined individually. More often than not, the tests mentioned above will lead to a ruling that there is no abandonment of residency, even among those who wish to be seen as having abandoned their residency. In order to contradict this decision, it is possible to submit a residency declaration form (known as form 1348), detailing the facts supporting the claims of someone who has abandoned or intends to abandon their residency. After that, the question of abandoning the residency will be examined according to the details mentioned above.
How do you abandon residency with the National Insurance Institute?
In general, the test for abandoning residency at the National Insurance Institute is the same as the test mentioned above. However, procedures for abandoning resident status are carried out separately through the Tax Authority and through the National Insurance Institute. For the purpose of abandoning residency at the National Insurance Institute, a questionnaire for determining residency for people residing abroad must be filled out (known as form 627). It is important to note that different results and decisions are often obtained for the same tests when the Tax Authority and the National Insurance Institute examine an application for abandonment of residency. This is because the two authorities take different approaches in evaluating the issue. Accordingly, it is advisable not to conduct the process without prior familiarity with both the process and the relevant laws, and therefore is recommended to enlist the services of an attorney specializing in the subject.
Contact an attorney specializing in immigration law and international taxation
In this article, we have described the procedure required for abandoning resident status, which results in the cancellation of tax reporting obligations and payments and National Insurance payments. You should know that apart from abandoning residency, it is important to ensure compliance with the tax laws of both the State of Israel and the country to which you are moving, in order to avoid exposure to various sanctions for non-reporting or lack of tax payments. Accordingly, it is highly recommended to seek legal advice and guidance throughout the process. For any additional question on the subject, you can contact an attorney specializing in immigration and taxation law from our office, who will be glad to provide you with comprehensive and professional assistance. Our office, in Jerusalem and Tel Aviv, specializes in immigration law for a variety of countries and destinations, and deals with legal advice and representation before the authorities and law courts on taxation issues in Israel and abroad.
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