Shekel money bills.
(photo credit: REUTERS)
With problems mounting for the Chosen People in the UK, France, Belgium, South Africa and elsewhere, now is a good time to contemplate immigrating to Israel. Below are some brief general answers to frequently asked tax questions.
What are the main tax benefits?
New residents and senior returning residents (who lived abroad 10 years) enjoy a 10-year Israeli tax holiday (exemption) regarding all non-Israeli sourced income and gains. They also receive immunity from rules regarding “control and management,” “controlled foreign companies” and “foreign professional companies.”
Israeli-sourced income is not exempt, but increased personal credits are available for 3.5 years. Patach interest on foreign currency bank deposits of three months or more is tax-exempt for five to 20 years, but the interest may be low.
Capital gains from a sale of securities in an Israeli company may be exempt in Israel indefinitely if the securities were acquired before becoming an Israeli resident…What about my business?
If you conduct part of an overseas business while physically in Israel, the foreign company concerned may be deemed to have a taxable “permanent establishment” in Israel. This can lead to double tax. Consider using a separate Israeli company or business. Income for days worked abroad may be exempt in Israel. Check all countries. What about national insurance (social security)?
There is a one-year exemption from national insurance for passive income. But unreportable foreign active income may escape national insurance assessment.When do I become a resident?
An individual becomes resident for Israeli tax purposes when his or her center of living is in Israel, taking into account the person’s family, economic and social links. A rebuttable presumption of Israeli residency applies if:
• The individual is present in Israel at least 183 days in a tax year, or,
• The individual is present in Israel at least 30 days in the current tax year, and 425 days in the current and two preceding tax years.Does citizenship matter?
Citizenship is usually not relevant for Israeli tax purposes (unlike the USA). What if I’m not sure?
New and senior returning residents may elect, within 90 days after arrival in Israel, to be treated as non-residents for one year. This does not give them an 11-year tax holiday. Suppose I arrive in Israel as a student?
If you study at least half a course without making aliyah, you can elect to remain a foreign resident for up to three years.I’m expecting a performance bonus or stock option gain. Should I receive it before or after moving to Israel?
Perhaps before. The Israeli Tax Authority now taxes such items if received after moving to Israel, so compare the taxes in each country.Do I have to report overseas assets?
Overseas-related assets do not need to be reported to the Israel Tax Authority for the entire 10-year tax holiday. What about trusts?
Trusts settled by a new or senior returning resident may enjoy the 10-year Israeli tax holiday regarding overseas income, so long as the settlor and beneficiaries are all in their 10-year tax holiday or are foreign residents. Specialist advice is necessary. Will these benefits last?
Past proposals to require disclosure of exempt income derived in the 10-year tax holiday were rejected by the Israeli cabinet.What about year 11?
After 10 years, you become taxable on worldwide income. But a partial exemption may apply to capital gains on assets acquired before the 10-year exemption expires. Advance planning is vital. What if I sell overseas property inherited from overseas relatives?
After the 10-year tax holiday, you pay Israeli capital gains tax on your sale consideration, minus their cost price years ago. But you can ask the Israeli Tax Authority to “step up” the cost to market value as of the donor’s death.Will my old country let me go?
Check the implications with advisers in the old country, including: income tax, capital gains tax, estate/inheritance tax, e.g. for UK immigrants, timing matters. For South African olim, the Teudat Oleh (immigrant booklet) matters. For Canadian olim, a departure tax may apply. US citizens file US tax returns wherever they live, but a Section 911 exclusion may help, and double social security sometimes applies.Why are the banks playing up?
Israel, like other countries, has made tax evasion a predicate money-laundering offense. The banks are required to check that money remitted to or from Israel is clean. Does Israel have a gift or estate/inheritance tax?
No. But gifts of non-cash assets to foreign residents are liable to capital gains tax.As always, consult experienced tax advisers in each country at an early stage in specific cases. The writer is a certified public accountant and tax specialist at Harris Horoviz Consulting & Tax Ltd. Leon@h2cat.com.
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