new 50 shekels.
(photo credit: COURTESY OF THE BANK OF ISRAEL)
Following the horrifying events in Paris last month and perhaps influenced by Prime Minister Benjamin Netanyahu, who in the aftermath called on French Jews to immigrate to Israel, a large number of French Jews are expected to make aliya in the near future.
Aliya of French Jews is already growing; according to the Jewish Agency and the Immigrant Absorption Ministry the past year saw an increase in aliya from France with the arrival of approximately 6,000 new olim, compared to 2,700 the previous year. For the first time, France provided the largest number of new immigrants.
Economic analyses have already started at the macro level. Such analyses include how the expected aliya from France will affect real estate prices in Israel, the Israeli labor market etc., but how will it affect the new olim on the personal level? What is certain is that beyond personal security considerations, aliya will improve new immigrants’ taxation and economic situations in light of the tax benefits granted to new olim. Aliya will open a wide window to optimization with respect to assets and revenue from France and abroad. These are taxed currently – income tax and social security – at rates of up to 60 percent, in addition to tax on capital of up to 1.5% on assets exceeding 1.3 million euros.
In 2008, as part of the celebration of Israel’s 60th year of independence – and to encourage immigration as well as the return of those who left Israel – far-reaching reform was instituted by the Israeli tax authority. The reform significantly expanded the tax benefits granted to new olim.
As part of the tax reform it was determined that new immigrants would be exempt from tax in Israel on all income and assets from abroad for 10 years from their date of aliya – regardless of the date of acquisition of the asset or the nature of income (business, passive or capital).
For example, a new oleh from France who holds a Swiss bank account which generates annual yield is exempt from tax in Israel for 10 years, as opposed to an Israeli resident who has similar assets in an overseas bank account.
Capital gains derived from the sale of assets abroad after the 10-year exemption will be subject to tax on a linear basis only for the years exceeding the 10-year exemption period.
New immigrants are not only exempt from paying tax on their foreign-sourced income, in accordance with existing law today they are not even required to report their foreign-sourced income to the tax authorities for a period of 10 years. This reduces the chance of potential issues being asserted by the ITA.
Another benefit granted to new immigrants is that foreign companies controlled and managed by new immigrants shall not be deemed as Israeli companies (vs. the status of such for Israeli residents).
Thus the aliya of a business owner in France will not result in a tax liability of the French business in Israel, as long as the income is not generated in Israel.
One of the significant changes made in the framework of the reform is an exemption for new immigrants on their active income derived abroad, such as income from work, services and more. The ITA grants a full tax exemption in Israel on such income – usually according to the actual number of work days spent abroad. For example, a French doctor who makes aliya can reach an agreement with the French hospital which currently employs him whereby he will continue to work in the hospital for two weeks every month and benefit from a tax exemption in Israel for all the days he works in France.
Moreover, the ITA allows new olim to select the first year in Israel as an “adaptation year” in which one is not deemed an Israeli resident.
By the end of the first year, the oleh will be able to decide whether to stay in Israel or go back to France without being deemed an Israeli resident during that year.
It should be noted that the French tax authority does not “give up” easily on its residents and in fact imposes an “exit tax” which is a notional tax on accumulated profits and shares in French and foreign companies at aliya date.
In light of the above, new olim from France should examine their financial situation with an eye to advance preparation and planning for the best options to benefit from the significant tax benefits they are entitled to from the ITA.
Eli Alice, CPA, is a partner in the International Taxation Department of BDO Israel. Michael Goldberg, CPA (Isr.), is expatriate tax manager at BDO Israel.