Under the new tax changes, new immigrants are accorded a cameo role. As mentioned, all Israeli resident individuals will enjoy standardized tax rates of 20 percent or 25% for most types of investment income derived in 2006 onwards. Therefore, the separate tax rates of 15% or 25% for new residents who are "privileged individuals" will be repealed after 2005. The definition of "privileged individual" is long and complex. This status was useful for certain new residents who did not qualify for a capital gains tax exemption in Israel -- i.e. they are resident in Israel over 10 years or they acquired an investment after becoming resident in Israel. Returning residents were not eligible for this status. Unfortunately, the repeal of "privileged individual" status means that the pre-2003 portion of capital gains from foreign publicly traded securities may become taxable at rates of up to 49% instead of 15% under the old law. Consequently, immigrants are advised to review their situation and check whether to sell foreign publicly traded securities before the end of 2005 under the old law, if worthwhile. Also under the new law, foreign investors will not forfeit certain tax benefits if they migrate to Israel. This will apply to immigrants who invested in Israeli holding companies that enjoy the "participation exemption" regarding dividends and capital gains from certain shareholdings in foreign business affiliated companies. This also will apply for 10 years to immigrants and returning residents (after living three years abroad) who qualify for the Israeli capital gains tax for investments in Israeli securities. The main conditions are that they invest between July 1, 2005 and the end of 2008; they reside for at least 10 years preceding the date of acquisition of the investment in a country that has a tax treaty with Israel; and they inform the Israeli Tax Authority of their acquisition within 30 days. This will apply to securities of both publicly traded companies and private companies. Therefore, intending immigrants and returning residents should consider investing in new or existing Israeli companies BEFORE taking up residence in Israel. New immigrants who are settlers or beneficiaries of a trust will be well advised to check the impact of the new trust tax regime in Israel - some will be better off, some won't - specialist advice should be obtained. With regard to share option plans and share purchase plans, the minimum vesting periods required for employee plans approved under Section 102 of the Income Tax Ordinance have been shortened, as shown in the table below. The trustee and the plan must be pre-approved by the Israeli Tax Authority and additional detailed rules and scenarios exist. Clarification is awaited regarding the effective date of the new vesting periods - do they apply on January 1, 2006 to existing plans? The Israeli Tax Authority has announced that clarifications in this regard will need to be legislated soon. To sum up, the new tax reform may be welcomed by immigrants, returning residents and participants in share option/purchase plans but professional advisors should be consulted in all cases, especially where trusts are involved. firstname.lastname@example.org The writer is an International Tax Partner at Ernst & Young Israel.