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International taxation

International taxation in Israel underwent a significant change in 2003 with the adoption of the personal tax system, replacing the previous territorial tax system. This change, implemented in Amendment 132 to the Income Tax Ordinance, required Israeli residents to pay taxes on all income, whether earned or accrued in Israel or abroad. Non-residents, on the other hand, are only taxed on Israeli-sourced income.

A notable aspect of the personal tax system is the potential for double taxation, which can occur when a person is considered a resident of two different countries or when income is earned in one country for a resident of another. One solution to this issue is to provide a credit for foreign taxes paid on income that is also taxable in Israel. This prevents double taxation in many cases and is particularly relevant for Israeli residents earning income abroad.

The definition of an 'Israeli resident' depends on where a person's life center is located, but the definition also states that staying in Israel for more than 183 days in a tax year makes a person an Israeli resident (although this can be contested). A company, on the other hand, is considered an Israeli resident if it was incorporated in Israel or is controlled and managed from Israel.

To further address the complexities of international taxation and frequent double taxation, Israel has signed tax treaties with about 53 countries. These agreements, which override local tax laws in case of conflict, aim to prevent double taxation and facilitate businesses operating on the global stage.

Our office specializes in international taxation and offers guidance in this complex area. We provide comprehensive services tailored to the unique needs of each client, whether it involves understanding tax obligations for citizens with dual residency or planning the structure of overseas investments.

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