Your Taxes: Social security for returning Israelis

Israel is celebrating its 60th anniversary with passion - even in tax matters.

taxes good 88 (photo credit:)
taxes good 88
(photo credit: )
Israel is celebrating its 60th anniversary with passion - even in tax matters. Last week we reviewed a bill that hopes to encourage 60,000 people to make aliya or return to Israel by allowing them a blanket 10-year tax exemption for all types of foreign source income and capital gains derived personally or via a foreign resident company. Now here comes a National Insurance Institute (social security) break for returning Israelis. First, the background. According to Section 20 of Special Provisions Regarding National Insurance Institute Payments, 1972, as amended, a person (not receiving early pension) who pays national insurance and health insurance while abroad for more than six months, only needs to pay the rates applicable to a person who is not employed, not self-employed. If that person has no taxable income, he or she is required to pay national insurance and health insurance based on the minimal income, resulting in a monthly payment due of NIS 141. Failure to pay on time will result in arrears and impact eligibility for old-age support and medical services in Israel under the Health Tax Law. The NII has determined that staying abroad more than five years makes a person a non-resident for social security purposes and ineligible to receive old-age support and medical services in Israel. If a person lives abroad on an ongoing basis for a period of two consecutive years and doesn't keep paying social security on time, and then returns to Israel, that person will face a waiting period before receiving medical services (unless he or she arranges private coverage). A year's absence is 12 consecutive months abroad if the person is present in Israel for less than 183 days in the tax year. Before receiving services from the Israeli medical system, a person has to wait two months per year of absence from Israel or arrears in paying social security (this doesn't apply to children under 18). And a month only counts in the waiting period if you are in Israel at least 25 consecutive days. Note that the minimum waiting period is four months and the maximum is 18 months. However, you can buy your way back into the medical system sooner by paying an amount to the NII - currently NIS 8,880 (in six monthly installments) - and receive medical coverage at the end of the six months. It can be worthwhile to pay the installments before returning to Israel. So what's new for returning residents? The Immigrant Absorption Ministry is offering a package of benefits and assistance for returning residents, including: aid for entrepreneurs setting up a business in Israel; aid for special sectors, such as artists, sportsmen and single soldiers; employment assistance and placement; income support grants for employment seekers for up to three months. In addition, it is now possible to receive a refund of the NIS 8,880 paid to receive medical services in Israel. The refund is obtainable from the Immigration Absorption Ministry only after returning to Israel, obtaining a Returning Resident's Certificate from the Immigration Absorption Ministry and paying the NIS 8,880 in six monthly installments to the NII. When does this initiative begin? The offer is available to Israeli citizens who moved back to Israel after November 1, 2007, or who began to pay the six monthly installments to the NII after that date. The last date to start paying the installments is December 30, 2008. You should consider starting to pay the installments six months before returning to Israel to enjoy medical services immediately after your return. No refunds will be made to people who return to Israel after August 31, 2009. How do you participate in this initiative? By filling out a form that can be found on the Immigration Absorption Ministry's Web site (http://www.moia.gov.il/Moia-he/ReturningHomeProject/MoiaPidyonForm.htm). New and returning residents will find more information on that site regarding the range of benefits available to them during Israel's 60th year. What will they think of when Israel reaches its 70th anniversary? As always, consult experienced advisors in each country at an early stage in specific cases. leon.harris@il.ey.com Leon Harris is an international tax partner at Ernst & Young Israel.