When starting a new life abroad, many Israelis find themselves needing to terminate their Israeli residency due to tax issues. Termination of residency is a legal and economic process aimed at ending tax obligations in Israel and relocating one’s life abroad. This process is complex and requires a thorough understanding of laws and regulations, as well as checking eligibility for tax benefits and a proper preparation of documents. In this article we will review the criteria for terminating residency, the stages of the process, and the financial consequences of expatriation in terms of taxation. 

What is termination of Residency and Expatriate Tax?

Termination of residency is a process in which an Israeli citizen moves outside of Israel and requests to cease being a resident of Israel in terms of tax. The decision to terminate residency can be complex and affect a person’s tax obligations both in Israel and abroad. This process includes many stages and requires a thorough understanding of the required laws and criteria.

Criteria for Termination of Residency

In order to terminate Israeli residency, one must meet the following criteria:

Duration of Stay Abroad

One of the main criteria for terminating residency is the duration of time a person remains abroad. In order to prove the prolonged stay abroad and the intention not to return to Israel in the near future, documents such as an Israeli passport showing the entries and exits from the country must be presented. Usually, being abroad for at least one year is required in order to meet this criterion.

Center of Life

Another criterion is a person’s center of life, which should be relocated abroad. A center of life is measured by:

• ● Workplace.
• ● Residence.
• ● Whether one’s family moves there too.
• ● Information about one’s social life.

Documents indicating settlement abroad must be presented, such as:

• ● Proof of employment.
• ● Lease contract.
• ● Electricity bills, water bills etc.

Other than that, the assets and investments abroad are usually also taken into account.

Intent to Settle Abroad

In order to prove intent to settle abroad permanently, additional documents must be presented which indicate that intent. For example, long-term rental contracts, a local bank account, registration of children in academic institutions, permanent employment, etc. It must be shown that the center of the person’s life has indeed relocated abroad in a clear and absolute way.

Summary of Criteria for Termination of Residency

Tests to determine center of life

There are several legal and economic tests for determining a person’s center of life:

• ● The personal test: where the immediate family members reside.
• ● The economic test: where assets and economic activity are collected.
• ● The social test: where one’s main social connections reside.

Termination of Residency – What are the steps?

First step: preparing the documents

Before submitting the application for termination of residency, all the necessary documents must be prepared:

• ● Israeli passport: a passport showing the entries and exits from the country must be presented to prove the duration of stay abroad.
• ● Proof of employment abroad: documents that indicate employment abroad, such as an employment contract or a paycheck.
• ● Declaration of residence abroad: documents proving residence abroad, such as: lease contract, electricity bill and water bill.
• ● Additional documents: any additional document showing the intention of settling abroad, such as a local bank account, registration of children in academic institutions, etc.

Second step: Submitting an application to the Tax Authority

In order to terminate residency, a proper application must be submitted to the Tax Authority:

• ● Filling out form 1348: This form must be submitted to the Israeli Tax Authority. All personal details and income from Israel and abroad must be filled in.
• ● Declaration of income: a complete breakdown of income outside of Israel with supporting documents.
• ● Center of life statement: a statement explaining why the center of life has relocated abroad with documents attesting to settlement abroad.
• ● Additional documents: documents such as bank statements, rent payments, and current living expenses.

Third step: processing the documents and approving the application

After submitting the application, the Tax Authority will examine the submitted documents:

• ● Examination of the documents by the Tax Authority: The Tax Authority will examine the documents. However, they have the authority to conduct further investigation if needed.
• ● Obtaining approval to terminate residency: After examining the documents, the Authority will approve or deny the application. If the request is denied, an appeal can be filed.
• ● Tracking the status of the application: It is important to check the status of the application regularly and make sure that all the required documents have been submitted completely and accurately.

Tax implications in the expatriation process

Obligation to report

Even after termination of residency, there is an obligation to report to the tax authorities in Israel:

• ● Reporting income from abroad: The person must continue to report income from abroad to the Israeli Tax Authority in order to meet the law requirements.
• ● Reporting income from abroad: The person must continue to report income from abroad to the Israeli Tax Authority in order to meet the law requirements.
• ● Annual report: Annual reports detailing the income from abroad and the taxes paid in the destination country must be submitted.

Eligibility for tax exemption

In some cases, you can get a tax exemption on certain incomes:

• ● Exemption on work income: in some cases, it is possible to get tax exemption on income from employment abroad in accordance with the tax treaty.
• ● Exemption on passive income: the possible exemptions for passive income such as interest, dividends and investments should be examined.
• ● Eligibility check: You should check with a tax advisor for the eligibility for tax exemptions and leniencies in accordance with the treaty between the countries.

Tax Comparison Between Israel and Different Destination Countries

So that you know what you are getting into, we have provided you with a table that covers taxes in 3 destination countries:

Further details on taxation in different destination countries:

• ● The USA: The progressive taxation system, which includes federal tax, state tax and city tax. The tax laws of each state should be checked separately. יש לבדוק את חוקי המס של כל מדינה ומדינה בנפרד.
• ● Great Britain: includes national income tax and national insurance tax. Income tax is calculated in a progressive manner according to income.
• ● Germany: includes income tax, solidarity tax and church tax (if the person is associated with a church). Income tax is calculated according to income and includes various credits.

Tax Management and Compliance with the Law

Professional Consultation

It is recommended to consult with a tax advisor and a lawyer who works in the field so that they can help ensure that you meet all the legal requirements and thus avoid fines and legal problems:

• ● Tax planning: Proper tax planning can help reduce tax liability and thus avoid double taxation.
• ● Tax planning: Proper tax planning can help reduce tax liability and thus avoid double taxation.

Regular Conduct

It is necessary to ensure a proper and transparent reporting of all income from abroad to the Tax Authority on time:

• ● Management of accounting books: it is important to maintain proper and accurate accounting books to avoid problems with the tax authorities.
• ● Retaining document: Keep all documents related to income and expenses for future tax audits.

Additional tax benefits

• ● Tax credits and discounts: Many countries have additional tax benefits that can be taken advantage of, such as credits on investments or medical expenses.
• ● Checking double tax treaties: double tax treaties between Israel and the destination country can provide additional credit in taxation.

Why Should You Plan Ahead?

Success in the process of terminating residency depends on early planning and proper management of all steps:

• ● Preparing documents in advance: preparing all the required documents in advance will help speed up the process and prevent delays.
• ● Proper monitoring of the laws: It is important to keep up to date with all the changes in the laws regarding taxation and termination of residency.
• ● Consultation with a professional: a tax advisor and a lawyer can help you to properly manage the process and prevent future problems.

Why Do This Process with a Ministry of Foreign Affairs Apostille?

The Ministry of Foreign Affairs apostille offers a professional and reliable service that will assist you in all stages of the residency termination process. We provide support and close professional guidance to make sure you meet all the requirements and avoid unexpected tax problems. With our help, you can carry out the process smoothly, quickly and worry-free. Let us help you focus on moving to a new life abroad, and we’ll take care of the rest. Do not hesitate to contact us with any question or request – we are here for you!

In Conclusion

The process of termination of residency is complex and requires a thorough understanding of the relevant laws and criteria. You must prepare in advance, submit all the required documents and consult professionals to ensure that everything goes smoothly and without problems.