Personal Finance Strategies: How do the new aliya tax laws affect you?

There are certain potential pitfalls inherent in the new tax law, and it is imperative that people be aware of them.

By PHILIP BRAUDE
taxes good 88 (photo credit: )
taxes good 88
(photo credit: )
The Knesset recently passed a law that will impact on the lives of immigrant families for years to come. In summary, it grants new olim and returning residents a 10-year period of exemption on reporting their overseas assets and income, as well as being exempt on taxes on income earned overseas. This law indicates Israel's commitment to encouraging the repatriation of people with skills; by doing so, it enhances itself as the destination of choice for the Jewish people. The law allows some interesting financial-planning opportunities for those who made Israel their home since January 1, 2007, as it applies retroactively. Previously, such olim would have had to structure their affairs before they arrived in Israel; now the door is wide open for them to restructure. I can see many people who fall into in this category making full use of this benefit. Potential pitfalls Unfortunately, there are certain potential pitfalls inherent in the new tax law, and it is imperative that people be aware of them to avoid being adversely affected:
  • The definition of residency is ambiguous. You must be careful about how much time you spend in Israel before inadvertently triggering Israeli residency and start the 10-year clock ticking.
  • The definition of pensions has been left undefined. This may mean that personal retirement plans, such as US IRAs and 401s, UK SIPPs and Australian Superannuation funds, could miss the 10-year exemption, as they are only drawn down at a later stage in life, and possibly even double-taxed after the 10-year exemption period has expired.
  • Although overseas work income enjoys the 10-year tax exemption, it will not apply if the work was actually performed in Israel. This could impact the "tele-commuters" who are performing overseas jobs via the Internet. This fact could encourage commuting, which would disrupt the family life of the immigrant families. Where to keep assets From a practical perspective, a person must hold his assets out of Israel in a jurisdiction that does not impose taxes at source to actually benefit from these exemptions. This would enable such a person to enjoy tax-haven status due to the fact that he has moved to Israel. US nationals would not be so lucky, as they would still have to report their unearned income in America. I would advise US nationals to hold their investments in the United States, which is the most user-friendly solution. For those "old-timers" who do not qualify for these new tax exemptions, our only option is to structure our affairs to be subject to the lower tax brackets. I hope that future olim will continue to come to these beautiful shores for religious, idealistic and quality-of-life issues rather than solely being tax-driven. These tax benefits are the cherry on the top. pbraude@anglocapital.com Philip Braude is an accountant, personal financial planner and licensed investment marketer. He is CEO of Anglo Capital Limited.