Benefits for residents of tax priority areas in Israel

Tax priority areas are communities on the confrontation line in Northern and Southern Israel, either communities which are close to the demarcation line and communities defined as on the periphery of Israeli society. According to the Income Tax Code, a tax priority area is among the beneficiary communities listed in advertisements of the Ministry of Finance and official sites by the State of Israel, which detail the communities for which residents are eligible for income tax benefits. This article will present that updated list of communities.

Not every resident of a tax priority community is eligible for a tax reduction or refund. Here are the conditions for eligibility:

A resident must live in one of the communities located on the published list by the tax authority for a period of more than 12 months. In each tax year, this eligibility will be calculated in accordance with the number of months of residence, so that a taxpayer who moved to an eligible community in the middle of the tax year will be eligible for half of the annual benefit.

After 12 months of residence, there is a retroactive tax benefit, and therefore, this almost always creates eligibility for a tax refund.

Note that:

1. The tax benefit applies to personal income only (from employment), rather than on other types of income (such as rental income from an apartment). You may submit a request for a tax refund retroactively for up to 6 years. Individuals living on a confrontation line are entitled to additional benefits and it’s worth taking advantage of these to their fullest (such as grants for building a shelter and the like).
2. The community must be defined as the center of life of the individual applying for a reduction, rather than as a community in which their parents live or one in which they spend their weekends. “Center of life” means an area where the services are provided which they make use of on a daily basis.
3. In past years, the list of beneficiary communities has varied and it is updated periodically. Even if you do not currently live or have not lived in the past in a beneficiary community according to the current list, it is worth checking previous community lists to increase your chances of receiving an income tax refund.

For example:

Leora began living in a beneficiary community on March 1, 2020 and completed her 12 months of residence there on March 31, 2021. Leora will be entitled to request this benefit only beginning on April 1, 2021 (after she has completed 12 full months of residence in the community).

Leora can file to apply this benefit retroactively even for the year 2020, and since during the year 2020, she spent only 9 months living in the community (3/4 of the year), she is eligible for ¾ of the annual credit provided for that community for the given tax year.

Additionally, since the tax year 2020 is over, Leora can receive the tax benefit only by filing a request for a tax refund.

Communities whose residents are eligible for tax reductions and income tax refunds are divided by the Ministry of Finance into a number of groups, distinguished by the amount of the refund. Individuals who are eligible for a tax refund must submit a return in order to receive the money to which they’re entitled.

Here is a list of beneficiary communities as of 2020. The following link lists communities which provided this entitlement for previous years.