Tax residency is a concept that applies both at the national level and in international terms, and it essentially determines which country has the right to tax you. The key question is: to which country do you belong for tax purposes? This can be a highly subjective issue. Each country has its own internal definition of tax residency, and there are also international agreements to address cross-border situations.
Generally speaking a country can consider someone a tax resident if he lives there for the majority of the year, or if he works there, or owns significant property in the country. Once a person is deemed a tax resident, he is typically subject to tax in that country, on his worldwide income.
But what happens when someone lives in one country and frequently travels to another for work, leading both countries to claim him as a tax resident? This is where international treaties come into play. These treaties, particularly the most common ones based on the OECD model, help resolve conflicts by determining which country has the right to tax specific types of income.
The OECD model is the most widely used framework for international tax treaties. Most developed countries, including Israel, use tax treaties to avoid double taxation. Israel has such agreements with many countries, including the United Kingdom, France, Belgium, Australia, South Africa, and the United States (though the treaty with the U.S. has some unique aspects).
Let’s now take a closer look at the OECD model from a general point of view.
According to the OECD model, a person is considered a resident only of the country where he has a permanent home. If you have a permanent home in both countries, the next factor to consider is your « center of vital interests »—a subjective assessment based on factors like family, employment, bank accounts, and property.
If it’s not possible to determine where your vital interests are, the next step is to look where you habitually live. If this still doesn’t clarify the issue, your nationality is considered. If neither of these factors resolves the question, the countries involved must settle it by mutual agreement.
This is particularly tricky for people who live between two countries, like retirees who spend six months in Israel and six months abroad. They might be regarded as residents of both countries, which creates a complicated and uncomfortable situation. Determining their tax residency becomes subjective and involves questions like, « When you meet someone on the other side of the world, which address and phone number do you give them? Where is your true home? »
In conclusion, the widely known 183-day rule—being in one country for over half the year—is only a guideline, not an absolute determinant of tax residency. It should be considered alongside other factors.
I would like to add a specific note regarding the United States:
In general, tax treaties focus on residency rather than citizenship. However, treaties with the U.S. often contain an exception, given the fact that the U.S. imposes taxes on the basis of citizenship, and not only residency. U.S. citizens are required to report their global income to the United States, even if they are not tax residents there. They must pay the difference between the taxes owed in their country of residence and the U.S., ensuring they are not taxed twice but still meet their U.S. tax obligations.
By consulting an expert lawyer or a CPA who is highly specialized in this field, you can be sure you can address all the issues that might arise according to you specific situation.
Yaël Hagege Maruani
Attorney-at-law in Israel and Notary
This circular is intended for general information purposes only and does not constitute a personal legal consultation.
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