Israel’s proposed tax changes: your days are numbered

Spending Pesach in Jerusalem; making a few business trips to Tel Aviv; or celebrating the chaggim with your Israeli family over Sukkot? Those frequent visits of more than 75 days a year could now make you an Israeli tax resident, whether you planned it or not.

The Israeli Ministry of Finance has put forward sweeping proposals that will fundamentally change how Israeli tax residency is determined. For South African families who regularly visit children living in Israel, travel for business, or maintain vacation homes, these policy changes could have significant financial consequences.

Until now, residency in Israel was assessed using the “centre-of-life” test – a qualitative evaluation of where your family, social, and economic ties are strongest. Time spent in Israel mattered, but it was not decisive. Those days are ending. The proposed legislation removes much of that flexibility, introducing clear numerical thresholds based on days spent in Israel over rolling three-year periods.

Under the draft, Israeli tax residency will automatically apply if an individual spends at least 75 days in Israel in a tax year and has at least 183 weighted days over three years, or spends at least 30 days with 140 weighted days if their spouse is already a resident. Weighted days are calculated by counting each day in the current year in full, one-third of a day in the adjacent year, and one-sixth of a day in the second adjacent year.

This leaves no room for argument. Spend on average more than four months a year in Israel? You’re likely to be classified as an Israeli tax resident. Have a spouse who is already an Israeli resident? Three months a year on average could be enough. That’s on average, but in some scenarios, depending on how you distribute your time over a three-year period, as few as 75 days in a single year could trigger automatic residency, or just 30 days if your spouse already qualifies.

For South Africans who have formally made aliya, these changes may actually be welcome. Olim can now access Israel’s generous 10-year tax holiday while spending fewer days in Israel than ever before.

Consider David and Rachel, a retired Cape Town couple who made aliya but retained their Sea Point apartment to remain close to their South African grandchildren. Under the new rules, they could spend just four months a year in Israel yet still qualify for a decade of tax-free treatment on their South African pensions, interest income, and foreign investments.

With proper financial emigration from South Africa, they could effectively earn tax-free income for 10 years. Moreover, their non-South African assets would pass to heirs free of estate duty.

However, to unlock these benefits, it’s essential to cease South African tax residency formally by financially emigrating with the South African Revenue Service. Without this step, South Africa continues to tax worldwide income, nullifying the Israeli advantage.

For those who have not made aliya, the situation is far less favourable. Take Moshe, a Johannesburg entrepreneur whose children live in Israel. His wife, Sarah, insisted on buying a small apartment in Netanya so they could visit regularly and help with the grandchildren. Although Sarah spends at least 18 weeks a year in Israel, neither she nor Moshe intends to leave South Africa permanently. Under current rules, Sarah’s “centre of life” remains clearly in Johannesburg. Under the proposed rules, however, she risks automatic classification as an Israeli tax resident, liable for tax on her worldwide income without access to any tax holiday.

The double taxation agreement between South Africa and Israel may mitigate some exposure, but navigating it is complex and entails substantial reporting obligations.

While the legislation is still under consultation, the direction is clear: the Israeli tax authority is moving toward a system where every day in Israel is counted, weighted, and potentially decisive for your tax status. South Africans who visit Israel frequently must assess their travel patterns, understand the implications, and, if necessary, restructure their arrangements before the rules take effect.

These proposed changes are more than a technical adjustment; they represent a fundamental shift in how cross-border taxpayers will be treated by Israel. For South Africans with strong ties to Israel, the window to act is now. Proper planning, including making aliya and formal financial emigration from South Africa where appropriate, is essential to ensure that families can continue to maintain their cross-border lives while taking full advantage of Israel’s tax incentives and avoiding the costly trap of falling into multiple tax nets.

• Michael Kransdorff is an international tax practitioner writing on behalf of the Institute of International Tax and Finance. Visit: https://www.intltax.org/