In 2023, more Israelis left the country for extended periods and did not return, the Central Bureau of Statistics (CBS) reported the last week of September. Most of those who left were men, predominantly single, and between the ages of 25 and 44.
Those who have already left or are planning to do so might not be aware that emigrating from Israel for a long period carries legal and financial implications in areas such as the National Insurance Institute (NII), income tax, health fund services, medical rights, remote work, bank account maintenance, and renting out property in Israel.
Additionally, there are implications for residency status when returning to Israel. Residency for the purpose of paying national insurance is key to maintaining eligibility for NII benefits. Even if a person leaves Israel, as long as they are considered a resident, they are required to continue paying national insurance premiums.
Someone who leaves the country for a significant amount of time and does not maintain economic and social ties with Israel may cease to be considered a resident. In that case, their obligation to pay national insurance and health tax will also end.
Who qualifies as a resident?
An Israeli resident is defined as someone whose "center of life" is in Israel. This is determined based on various criteria, including place of residence, occupation, family, and income. A person who no longer meets the criteria for residency will not be entitled to benefits from the NII, such as allowances.
If someone living abroad wants to return to Israel, they will need to re-establish their eligibility for national insurance and health fund services. In certain cases, there is a waiting period of several months, or even up to six months, before being able to reinstate eligibility.
It is important to note that an Israeli resident living abroad for an extended period may lose their entitlement to health fund services, including state health insurance. However, the waiting period can be avoided by making special national insurance payments while abroad.
Income tax on foreign income
As long as an individual is considered a resident of Israel, they are liable to pay taxes on their income, even if they are residing abroad. To stop tax liability in Israel, one must prove to the Tax Authority that they are no longer an Israeli resident, according to the "center of life" test mentioned above.
In some cases, there may be a tax treaty between Israel and the country where a person resides, regulating the distribution of tax on income between the two countries. These treaties help prevent double taxation - both in Israel and in foreign countries.
Returning resident
Israelis who have lived abroad for six years or more are considered returning residents and may be eligible for various benefits, such as tax relief on foreign income, discounts on personal imports, and other benefits from the Aliyah and Integration Ministry.
Those who have lived abroad for at least ten consecutive years may qualify for "long-term returning resident" status, entitling them to additional tax benefits, primarily concerning the reporting of income and assets from abroad.
Bank accounts for Israelis abroad
Israeli residents who emigrate abroad can continue to maintain a bank account in Israel and manage it remotely, provided they have access through online services, apps, or bank representatives abroad. Some banks may require customers to update their residency information. In certain cases, the bank may request documents verifying residency status or the move abroad, and there may be tax implications, such as international tax reporting.
Additionally, the bank may report to the tax authorities of the country where the individual resides. It is advisable to consider opening a foreign currency account and appointing a power of attorney in Israel to handle banking and mortgage matters in the country.
Mortgage payments
Anyone with a mortgage in Israel is required to continue making monthly payments even if they live abroad. Mortgage payments can be made from an Israeli bank account or through international transfers from a foreign bank account.
It is essential to consider exchange rates and fees, which could impact the total payment amount.
Taxation on rental income from Israeli property
If, while living abroad, an Israeli resident rents out their property, they must report the rental income to the tax authorities in Israel and, in some cases, to the tax authorities in their new country of residence.
Remote work as an employee
It is important to have a clear agreement with the employer regarding remote work conditions, especially if the work is being performed in a foreign country.
The agreement should include details such as working hours, salary, and arrangements for leave and social benefits. The employer may also require the working conditions to be updated in accordance with the labor laws of the country where the employee resides.
An employee working remotely for an Israeli employer is still subject to Israeli income tax if they are considered an Israeli resident under the "center of life" test.
If the employee becomes a resident of a foreign country, they may be liable to pay taxes in that country, depending on local laws and any international tax treaties between Israel and the new country. In cases of double taxation, mechanisms to prevent double taxation usually apply.
Remote work as a freelancer
Freelancers working remotely can provide services to clients in Israel or abroad. They must manage their business regularly while maintaining communication with authorities, such as the Tax Authority, VAT, and National Insurance. Like salaried employees, a freelancer who is still considered a resident of Israel must pay Israeli taxes on their worldwide income and report all income to the Tax Authority, even if it comes from abroad.
At the same time, if the freelancer works in a foreign country and is also considered a resident there, they may be required to pay local taxes in that country.
Freelancers, like salaried employees, must continue paying National Insurance premiums as long as they are Israeli residents. If they move abroad and are no longer considered Israeli residents, they may be required to pay social security or a similar tax in their new country.
Freelancers should be aware of local regulations - if they are providing services in a foreign country, there may be local laws requiring them to register the business there, pay local taxes, and comply with local business regulations.
National Insurance
An employee is still required to continue paying National Insurance premiums in Israel as long as they are considered an Israeli resident. If they lose their Israeli residency, they may need to pay National Insurance in the country where they reside and update their residency status with the Israeli authorities.
To work from abroad or perform remote work outside of Israel, some countries require work permits or special visas.
The author, CPA Aryeh Rotem, is the owner of an accounting and tax consulting firm.