Relocation — Tax Guide for Residents Leaving Israel

What is Relocation and Who Does It Apply To?

Relocation — the term describing departure from Israel to work or live abroad — is not merely a personal choice. It is also a type of tax "reset" that must be executed correctly. If you are leaving Israel, the Tax Authority considers this a significant change in your tax residency status, and it affects everything related to reporting, advance payments, and entitlements.

This audience includes self-employed individuals who have opened exempt or licensed businesses, company and nonprofit organization owners, employees requiring tax refunds, and ecommerce business owners and startup founders planning to relocate abroad. Each must understand what happens to their tax status the moment they leave.

The critical point: if you are planning to leave, do not wait until the last minute. Early planning saves you headaches, potential penalties, and complicated reporting that could have been avoided. In this guide, we explain how the process works, what you must report, and when professional advice is advisable.

How Relocation Works — Step by Step

The process of leaving Israel is divided into several important stages. Each stage affects your tax status, and each one requires careful attention.

1. Checking your current tax residency status. Before you leave, it is important to understand whether you are considered a tax resident of Israel. It is not automatic — it depends on your departure date, the number of days you spent in Israel in the calendar year, and other connections such as family or property. The Tax Authority uses a specific test to make this determination.
2. Notifying the Tax Authority of a change in status. If you are leaving for an extended period (usually more than 183 days per year), you must notify the Tax Authority. If you are self-employed or a business owner, the notification is essential — it affects your reporting obligations.
3. Closing a business or updating company details. If you are self-employed, you must report the cessation of activity. If you are a partner in a company, you must report a change in status. This is not something that can be overlooked — it affects tax advance payments and future reporting.
4. Reporting abroad and in Israel. If you still have connections to business activities in Israel (income, property, bank accounts), you must report it. Abroad, you typically must file a tax return in your new country — and also inform Israel of foreign income if relevant.
5. Checking your entitlements — advance payments, refunds, national insurance. When you leave, you may be entitled to a refund of tax advance payments, national insurance, or other benefits. It is not automatic — you must apply, and sometimes you must prove your new status.

In short, it is not just "you left" — it is "you left and need to update your entire tax system".

What You Need to Know About Tax Residency and Foreign Reporting

Tax residency is the foundation of all tax reporting. In Israel, you are considered a tax resident if you are an Israeli resident during any calendar year. The test is practical: how many days were you here? Do you have family ties? Do you have property or a business in Israel?

When you leave, your tax residency changes on a specific date. Generally, if you leave mid-year, you are considered a tax resident in Israel only until your departure date. From that date onward, you may be considered a tax resident in your new country — or perhaps not at all if you are in extended transit.

The practical point: tax residency affects what you are required to report. If you are a tax resident in Israel for only half a year, you must report income only for that period. If you remain engaged in activity in Israel (self-employment, company, salary), you must report that separately. If you have foreign income, you generally must report that as well to the Israeli Tax Authority, subject to the laws of your new country.

Practical example: a self-employed person who left Israel in May. Until May, he is a tax resident in Israel and must report his income through that date. From June onward, he is not a tax resident in Israel — but if he still has income from Israel (for example, Israeli clients), he must report that in a special report. This is not automatic, and it is not simple — you need to understand the rules of two different tax systems.

Rights and Obligations — Advance Payments, Refunds, and Reporting

When you leave, you may be entitled to a refund of tax advance payments that you discussed while in Israel. If you are self-employed or a business owner, the Israeli Tax Authority collects advance payments in certain months. If you leave mid-year, you may be required to pay advance payments on income you will not receive. This means you are entitled to a refund.

Advance payment refunds are not automatic. You must request them, and typically you need to prove your departure status (such as a new passport, a foreign employment contract, or confirmation from your employer). The Tax Authority usually processes this within a few weeks to months, depending on workload.

National Insurance — this is an entirely separate matter. If you leave Israel, your national insurance coverage changes. You may be entitled to transitional benefits (such as a pension or foreign coverage), or you may cease to be insured. This depends on the country you are moving to and whether there is a bilateral agreement between that country and Israel.

Foreign reporting — if you have a foreign bank account, assets, or foreign income, you must report this to the Israeli Tax Authority. This is called FBAR reporting (if you have foreign accounts) or standard income reporting. If you are a tax resident of Israel, this obligation applies to you. If you are not a tax resident, it may be less relevant — but it depends on your circumstances.

Common Mistakes and How to Avoid Them

• "I'm leaving, so I don't need to report anything." This is incorrect. Even if you are leaving, you must report income up to your departure date, and if you have income from Israel after that, you must report it as well. If you are self-employed, you need a formal closure of your business. If you are a company shareholder, you need an update.
• Forgetting to notify the Tax Authority about business closure. This causes penalties, forced reporting, and advance tax payments that continue even after you leave. A simple notification to the Tax Authority saves months of bureaucracy.
• "I'll report next year when I know how much I earned abroad." This doesn't work. You must report by the deadline, even if you are still abroad. If you delay, it causes penalties and interest.
• Failure to report foreign income or bank accounts. If you are a tax resident in Israel (or even not), and there is an international reporting agreement in place, the Tax Authority knows about your foreign bank accounts. Incorrect reporting causes heavy penalties.
• "I don't need to refund advance payments because I'm leaving." You do need to. That's your money. You should request it the first time, otherwise it goes to the Tax Authority.
• Outdated tax residency status not updated in your file. If the Tax Authority doesn't know you left, it will continue collecting advance payments, sending notices to an Israeli address, and imposing irrelevant liabilities. Early updates prevent this.

When Should You Consult an Accountant?

If you find yourself in one of the following scenarios, it is advisable to seek professional consultation:

You are a business owner or self-employed. Closing a business correctly requires accurate reporting, updated advance payments, and approval from the Tax Authority. This is not something you can do alone and succeed — a small mistake causes problems years later.

You are a company owner or business partner. If you are leaving but still own or partner in the business, you need to update the company registry, report changes in classification, and settle tax calculations on profits generated until your departure. This is complex and requires knowledge of financial statements and corporate taxation.

You have foreign income abroad. International taxation is a field unto itself. If you work abroad or have a business there, you need to understand the rules of two tax systems, bilateral agreements, and the reporting requirements in Israel.

You are interested in obtaining a refund of advance payments or other tax benefits. If you want to receive money back from the Tax Authority, you need to submit a proper request with documentation. Without consultation, you may miss details that cause your request to be denied.

You are uncertain whether you are a tax resident of Israel or not. This is a determination that requires understanding tax rules and the exact number of days you were in Israel. A mistake here affects your entire tax report.

You have missed the reporting deadline. If you have already passed the deadline, you need to correct this as soon as possible. Interest and penalties accumulate quickly, and even if they are not collected, they will remain in your file with the Tax Authority.