Moshe Kahlon .
(photo credit: EMIL SALMAN/POOL)
Last Thursday, the Knesset finally passed the budget for 2015-2016 after reportedly addressing thousands of objections. Two laws were passed: Amendment 207 to the Income Tax Ordinance and a so-called Economic Efficiency Law. Here are some of the tax measures.
What was not enacted First, which proposals were NOT passed? A proposal to require olim to disclose exempt foreign income and gains arising in their 10-year Israeli tax holiday did not make it past the cabinet and was therefore not enacted by the Knesset.
Also, a proposal to require disclosure of all written tax advice was debated by the Knesset Finance Committee and dropped; the proposal was roundly criticized as deterring taxpayers from finding out what tax they owe! It remains to be seen if any of these proposals will reappear later.
Overview of what was enacted So what’s in the new legislation? The government is empowered to sign information-exchange agreements “with a foreign state” with effect from January 1, 2016. This will enable Israel to formally sign a FATCA intergovernmental agreement with the United States.
It seems unclear whether this covers multilateral information- exchange agreements like the one currently being developed by the OECD.
The information may be supplied spontaneously or upon request by the foreign country; in either case it must be needed for enforcing tax laws in the foreign country and not for use by anyone else in that country or in a third country. The Israel Tax Authority must be allowed to make use of the information for enforcing tax law in Israel. The relevant treaty must require the foreign tax authority to secure and keep secret the information supplied. The information may not be supplied if this would be harmful to the security, public order or other vital interests of the State of Israel or if the other country does not reciprocate or keep other terms of the treaty.
Significantly, the ITA must provide Israeli residents with 14 days advance notice before any information exchange, unless the tax authority of the other country requested that no such notice be given.
Individuals may enjoy a 25 percent land-appreciation tax rate on real (inflation adjusted) gains upon a sale of certain land rights in 2016-2018 that result in the construction of at least eight homes, subject to various conditions.
Tax breaks for deposits in pension contributions will not be allowed on income exceeding 2.5 times the national average salary (NIS 23,150 per month apparently), instead of four times the national salary (NIS 37,040 per month) at present.
Online reporting is to be extended for income tax, VAT, land-appreciation tax and National Insurance Institute obligations.
Oil and gas taxation was extensively amended, so it remains to be seen whether a deal will shortly be finalized between the government and the gas-field concessionaires.
Specials tax reliefs will be allowed for real estate bought or sold in places where 80% or more of the residents are not Jewish. This is apparently to address issues of undocumented ownership (affirmative discrimination for Israeli Arabs and Druze?).
There is even a measure for children. The NII will transfer NIS 50 per month to a savings plan for each child for which a child allowance is paid. The child may withdraw the money at age 18 if a parent confirms the withdrawal. Alternatively, the child may withdraw the money at age 21 and receive an extra NIS 500. The money may be withdrawn sooner for medical reasons.
No Israeli income tax applies to such savings. US citizens residing Israel will need to check US tax and reporting requirements.
The above measures generally become effective January 1, 2016, with some exceptions.
Measures enacted previously According to earlier legislation, the VAT rate decreased from 18% to 17% on October 1, 2015.
Measures still to be enacted The standard rate of company tax is scheduled to decrease from 26.5% to 25% on January 1, 2016. A proposed bill regarding this is expected to be debated by the cabinet and the Knesset shortly.
Comments At the end of the day, these are important but not dramatic measures. Information-exchange agreements are unavoidable in the new transparent world order.
Limiting tax breaks for pension contributions does not seem too reasonable now that people live longer. We are not robots.
As always, consult experienced tax advisers in each country at an early stage in specific cases.
email@example.com Leon Harris is a certified public accountant and tax specialist at Harris Consulting & Tax Ltd.