Tax Residency Severance

Severing tax residency marks the date from which you are no longer considered an Israeli resident, and from which Israel taxes you only on income generated within its borders. The test is the center of life (Section 1 of the Income Tax Ordinance), not the date of your flight. Anyone who stays in Israel for 183 days in a year, or 30 days in a year and 425 days over three years, is presumed to be a resident, and to rebut this presumption, Form 1348 is attached to the tax return. Exit tax applies on the day before severance. Tell us when you are relocating and what assets you hold, and we will prepare your file before departure.

Most inquiries come before departure — and that is the best time. These are the most common situations:

• You are relocating abroad for work or business and want to know from which date you will be considered a foreign resident.

• Your spouse and children are staying in Israel until the end of the school year, or will join you later.

• You are keeping an apartment in Israel, for visits or for rental.

• You own a company in Israel, shares, or stock options, and want to know how much exit tax will apply to them.

• The assessing officer sent you a questionnaire about days of stay, or did not accept the Form 1348 you attached.

• You have been living abroad for two years or more and have not filed a tax return in Israel for the year of departure.

Based on the center of life, examined separately for each tax year. The definition of "Israeli resident" in Section 1 of the Ordinance requires an examination of the totality of family, economic, and social ties, including:

• Location of the permanent home.

• Place of residence of the individual and family members.

• Place of regular occupation or employment.

• Location of active and substantial economic interests.

• Place of activity in organizations, unions, and institutions.

Day-Count Presumptions

An individual who stayed in Israel for 183 days or more in the tax year, or 30 days or more in the tax year and 425 days or more in that year and the two preceding years, is presumed to be a resident. Even part of a day counts as a full day. The presumption can be rebutted, and the assessing officer may also rebut it in the opposite direction — that is, determine that someone who spent only a few days in Israel remains a resident.

Date of Severance

The flight date is not necessarily the severance date. Income Tax Circular 1/2012, published on January 29, 2012, lists the considerations for determining the date: number of days in Israel and abroad, a permanent home in each country, when family members joined, whether the move is an assignment by an Israeli employer, National Insurance and health tax payments, and a certificate of residency from the new country.

The Definition of "Foreign Resident"

Under an additional definition in Section 1, an individual who stayed outside Israel for at least 183 days in each of two consecutive tax years, and whose center of life was not in Israel in the two years following them, is a foreign resident. This can only be demonstrated retroactively, after four years.

Tax Treaties

When the new country also considers you a resident, the tax treaty resolves the matter for treaty purposes. Under the treaty with the United States, for example, the tiebreaker tests, in order, are: permanent home, center of vital interests, habitual abode, citizenship, and finally mutual agreement between the tax authorities (Article 3(2) of the Treaty).

The 2025 Draft Bill

A draft bill dated July 2, 2025 proposes conclusive presumptions based on days of stay — for example, residency for anyone who stayed in Israel 75 days or more in a year and exceeded a weighted day-count threshold over three years. As of September 2026, the draft has not been enacted, and existing law applies.

An individual who meets one of the day-count presumptions but claims not to be a resident must file a return detailing the facts on which the claim is based and attach supporting documents (Section 131(a)(5E)). The return is filed on Form 1348, as an appendix to the annual tax return. This obligation does not apply to the spouse or children, and it does not exempt from filing a regular return anyone who had taxable income in Israel.

The form asks about days of stay in the tax year and the two preceding years, tax residency in another country, home, spouse and children, employment, health fund membership, bank accounts, and National Insurance payments. That is why you should start collecting documents in your first months abroad: a lease agreement abroad, children's school enrollment, an employment contract, and a certificate of residency from the local tax authority. Severance from the National Insurance Institute is a separate process, with its own test and forms.

On the day before severance, your assets are deemed to have been sold (Section 100A(a)). You may pay the tax on the accrued gain at that time; anyone who does not pay is treated as having elected to defer payment until the actual sale. Under deferral, Israel taxes the "taxable portion of the gain": the real capital gain on the date of sale, multiplied by the holding period up to severance, divided by the total holding period. Linkage differentials and interest are added only from the date of sale (Section 100A(b)).

An asset whose sale is taxable in Israel in any event is taxed on the full capital gain upon sale (Section 100A(c)). For employee options and shares, the Tax Authority allocates the gain based on working days in each country during the vesting period, as detailed on the Employee Stock Option Taxation page and in the article on Exit Tax on Options in Relocation. A family trust may be reclassified when the settlor or beneficiary moves abroad (Trust Taxation and Family Trusts).

Income generated in Israel. A foreign resident is liable for tax on income produced or accrued in Israel (Section 2 of the Ordinance) — for example, rental income from an apartment in Israel or salary for work performed here during visits — and anyone who had taxable income in the tax year must file a return (Section 131(a)(4)).

After 6 consecutive years as a foreign resident, you return as a returning resident, and after 10 years as a veteran returning resident, with various exemptions on foreign income and assets. Details are on the Taxation of New Immigrants and Returning Residents page.

1. Before departure, you provide us with entry and exit dates from the last three years, a list of assets and accounts, an employment contract abroad, and your plans for the family and the apartment.

2. We determine the expected severance date, check whether a day-count presumption will apply, and review what the tax treaty with the new country provides.

3. We calculate the exit tax for each asset and compare payment at the time of severance with deferral until sale.

4. We give you a checklist of evidence to document during the first year, and prepare the tax return for the year of severance with Form 1348 when required.

5. If the assessing officer does not accept the severance, we represent you in assessment proceedings, in the objection, and on appeal. We wrote about this process on the Objection and Appeal Against an Income Tax Assessment page.

Tax residency severance cases at the firm are handled by Adv. & CPA Shlomi Vaknin and his team. Shlomi, the firm's founder, has been a certified public accountant since 2000 and an attorney since 2008, and served for nearly a decade as a national inspector in the professional division of VAT at the Israel Tax Authority. In a severance case, he reviews the exit tax calculation and the evidence supporting the severance.