Two Permanent Homes and a Double Life – Problematic

The taxpayer didn’t manage to make a clean break from Israeli fiscal residency. What are the lessons?

The Israeli District Court has ruled that an individual with a double life and two permanent homes, one in Israel, one abroad (Nigeria) was resident and taxable in Israel on worldwide income. This followed a detailed examination by the court of his center of living indicators over many years (Chaim & Yona Zach Vs Large Enterprises Assessing Officer 62960-01-23 et al of June 1, 2026, Judge Y.Seroussi).

The case reads like a text-book on Israeli fiscal residency and hence Israeli taxability. What’s in the text book?

Main facts:

The case mainly concerns a husband who was born in Israel in 1948 and travelled to England in 1985 and on to Nigeria in 1993 where he set up successful agricultural and chicken breeding companies. He had a home in Nigeria and a home in Israel. He allegedly separated from his wife. He filed tax returns for 2009-2017, the years in question, showing no income as he claimed to be foreign resident. The Israeli Tax Authority (ITA) disagreed and claimed Israeli tax on his worldwide income.

Israeli residency:

For Israeli tax purposes, an Israeli resident is defined as an individual whose center of living is in Israel, taking into account the individual’s overall family, economic and social links. A rebuttable presumption of Israeli residency applies if: (1) the individual is present in Israel at least 183 days in a tax year ending 31 December, or (2) the individual is present in Israel at least 425 days in any 3 years including 30 days in the last year.

The overall center of living links include: permanent home; place where the taxpayer and his family live; regular or fixed place of business or employment; economic interests; activity in organizations;

The Judgement:

The Court ruled the taxpayer was Israeli resident in all the years in question.

The taxpayer’s days in Israel exceeded both the 183 day annual threshold and/or the 425 day threshold for periods of 3 years by a wide margin.

Therefore, the taxpayer needed to rebut the presumption of Israeli fiscal residency by reference to his overall center of living. The court ruled he failed to do so. Why?

First – pattern of visits: He frequently visited Israel, for more than half of each month (except May and June) throughout 2003-2017.

Second, the court ruled he had a permanent home in each country. Having a permanent home abroad is insufficient on its own to make him foreign resident.

Third, he only had a Nigerian residency permit which he had to renew annually.

He told Acres Africa magazine after 22 years: “Yes, Nigeria is practically my second home” implying Israel was his first home.

Fourth – family & regular home: the taxpayer and his wife jointly bought two adjoining houses, one for him, one for her. But no evidence was presented that she refused to live with him. They have two daughters. He supported his family financially.

Fifth. he claimed he “adopted” two children of his Nigerian CFO. The Court ruled he was merely like a godfather to them. He gave his own Israeli children far more money.

Sixth, his business interests were only in Nigeria. But due to instability, he moved as much cash as possible out of Nigeria, meaning less economic interests there.

Seventh – economic ties: overseas bank accounts (some in Switzerland and Lichtenstein) reflected his Israeli home address and Israeli cell phone number, rather than those of, say, his parents or brother in Israel.

Eighth – social: His social ties to friends were stronger in Israel. He and his wife entertained people in Israel and travelled with Israeli friends on holidays abroad.

He had a Maccabee Tel-Aviv basketball subscription. He had an Israeli driving license and two luxury cars in Israel. But he had a driver and chef in Nigeria. He donated to Israeli and Nigerian causes. He couldn’t remember if he voted in Israeli elections.

He had valuable works of art at his Israeli home. In Nigeria he had more art in his office but not his home there.

Ninth, he had medical treatment and surgery in Israel.

Lastly, the taxpayer never made a clean break with Israel – he never became foreign resident, he retained links to Israel.

Comments:

In short, the Court ruled that the taxpayer had closer family and social links to Israel, even though his business was in Nigeria and he had permanent homes in both Israel and Nigeria.

The moral is do your homework in good time, especially if you have more than one home and lead a double life.

As always, consult experienced professional advisors in each country concerned at an early stage in specific cases.

Next step:

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