(photo credit: courtesy)
There have been a few changes to the Israeli tax rules for new immigrants and
returning residents. The changes relate only to Israeli-source
The basic rule is unchanged. If you become a new
Israeli resident, the country grants you a 10-year tax holiday (exemption) – BUT
only for non-Israeli-source income and capital gains.
This applies to new
residents who became resident on or after January 1, 2007. This also applies to
senior returning residents who resume Israeli residency after residing abroad at
least 10 years.
Exempt income and related assets do not need to be
reported to the Israel Tax Authority for the same 10 years. All types of income
and capital gains are covered by the exemption if they are derived from
non-Israeli sources, such as income from salary, business, pensions,
investments, etc. However, if you work in Israel for anyone at all, you
generate Israeli-source income and you will pay Israeli tax from day
one.New tax credit for returnees
The recently reported proposals
regarding credit points have just been enacted. In 2011 each credit point
reduces the tax bill by NIS 209 per month. In the case of a married working
couple, the husband usually receives 2.25 credit points and the wife usually
receives 2.75 points.
But olim get more in their first 3.5 years in
Israel: three more credit points for 18 months, followed by two more credit
points for 12 months, followed by one extra credit point for 12
Until recently, the extra credit points only applied to someone
who holds a Teudat Oleh (immigration certificate) under the Law of Return, or
someone eligible for this with a temporary resident’s visa.
“returning residents” will also get the extra credit points according to
Amendment 181 to the Income Tax Ordinance, commencing January 1, 2011. This
applies to people who return to reside in Israel between May 16, 2010, and
September 30, 2012, after living abroad six years continuously. This can be
confirmed in a Returning Resident Certificate from the Immigration Absorption
: Unfortunately, this tax saving for living and
working in Israel is not big enough to encourage people to get up and make
Exemption for ‘Privileged Residents’
The newly enacted Economic
Policy for 2011 and 2012 (Legislative Amendments) Law includes a new exemption
for people classified as “Privileged Resident.” This refers to someone who first
becomes an Israeli resident in the years 2011-2015, or who returns to reside in
Israel in those years after residing outside Israel six consecutive
If a non-Israeli resident is invited to live and work at a
recognized Israeli academic institution or hospital, that individual will now be
exempt from Israeli tax on royalty income received from an “application company”
belonging to that institution for five years starting in the year such income is
first received. This applies commencing January 1, 2011, subject to various
conditions, as discussed below.
An application company is a subsidiary of
an academic institution or hospital that engages in the development of products
discovered or developed by the institution or hospital. The individual must
enter into an agreement with the applications company within two years after the
end of the year in which he/she moved or returned to live in Israel. And tax
avoidance must not be a motive! The agreement should relate to the development
of a product in consideration for, among other things, royalties for the usage
of the product.
The product should be a tangible or intangible derived
from research and development according to a plan approved by the Chief
Scientist’s Office under the Industrial R&D Encouragement Law.
that the above exemption only applies to the portion of such royalties paid to
the applications company by a foreign resident that does not have a “permanent
establishment” in Israel. A permanent establishment is not defined here, but it
is usually taken to mean a fixed place of business.
Unfortunately, this looks like an exemption for a privileged few? As always,
consult experienced tax advisers in each country at an early stage in specific
Leon Harris is a certified public accountant and tax
specialist at Harris Consulting & Tax Ltd.