Well, now we know the results of the March 28 general election but we don't yet know the exact composition of the coalition or its exact policy. It will be interesting to see whether tax policy will hit the headlines. The Tax Authority is an important body with the roar of a lion. Well, the tortoise just roared back! The Pensioners' Party won seven seats out of 120 in the new Knesset and this should not have been a surprise. The questions most frequently asked in my professional experience relate to the confusing Israeli tax treatment of pensions and retirement savings, especially of immigrants and of returning residents who lived and worked abroad for a continuous period of at least three years. Those people may have planned a blissful retirement in Israel and can't turn back the clock, but they can vote at the ballot box or vote with their feet. We will now make our pleas for these and other tax-related items we think are in need of a policy change. Before the 2003 tax reform, investment income first received abroad by Israeli residents was generally exempt from Israeli tax. Now, new residents and returning residents are exempt for the first five years after arrival on pensions, dividends, interest rent and royalties derived from assets held abroad before arrival; and exempt for 10 years on capital gains on such assets. So, if you took up residence in Israel before 2001 (five years ago) your foreign pension is taxable. But how much tax? That's a tough one. You can choose to take a 35% exemption and to pay Israeli tax (up to 49%) on 65% of your foreign pension, but only if you are have reached the prescribed retirement age (complicated - but age 67 in many cases). Alternatively, you can pay the Israeli treasury the same tax you would have paid if you had stayed put in your former country of residence - but it is unclear how you calculate this tax - as your first or last item of income? With or without personal deductions, credits and tax losses where applicable? And suppose you lived and/or worked in more than one country? That's not all. Is a payment by an American IRA (individual retirement account) a pension? Or is an IRA an investment which may not qualify for any the above benefits but may qualify for the new 20% tax rate on income it generated? (Ex-Canadians, Ex-Brits and others sometimes have similar problems). Then there's the question of claiming a foreign tax credit if you are taxed abroad on foreign pension income - this can be different under each of Israel's double tax treaties. If you are a US citizen resident in Israel, you need to fathom out whether the US government or the Israeli government take the "first bite" of the taxes under complex foreign tax credit rules in the US-Israel tax treaty. (Answer - every interpretation is possible). So, to sum up, the new government - of whatever color or persuasion - is kindly requested to sort out pension taxation, please. In addition, there are a few more tax matters that are upsetting the business community and do little to stimulate economic progress. Firstly, the Jewish people have always been good at international trade. However, the 2003 tax reform penalizes "foreign professional corporations" (FPCs) owned 75% or more by Israeli residents that derive the majority of their income or profit from agency or advisory activities or a whole host of other "special professional" activities. An FPC is deemed to be controlled and managed in Israel (even if isn't) making it resident and taxable in Israel on its worldwide income. This assumes that at least half the FPC's shareholders engage in those "special professional" activities (but counting only shareholders holding 10% or more, directly or indirectly). For example, Moshe and Aaron reside in Israel but travel the globe extensively and work for a corporation they own with 100 employees and 10 managers in Hong Kong to advise on and broker deals in China and across the world in return for fees. The Hong Kong company will be exposed to full Israeli tax on all its fees, but may credit any Hong Kong tax. Few other countries try to extend their jurisdiction by taxing genuine overseas trading and service operations in this way. Anyone in this situation should obtain immediate advice. The new government is kindly requested to abolish the FPC rules if it would like to increase Israel's invisible export earnings. A special complication applies to new and returning residents who were in business abroad for five years before arriving in Israel. Once they arrive, they may be exempt in Israel for four years on income they receive personally from the business. But if the business was conducted via a company, does the company instead pay tax under the FPC rules? There are two interpretations - yes and no. The new government can encourage the immigration of foreign professionals by eliminating contradictory legislation in such cases. Another issue relates to Israeli residents who stop being Israeli residents. They are subject to an "exit tax" - really capital gains tax at a rate of 20% to 49% - on the market value of their assets one day before they left Israel. They can pay this tax when they depart from Israel and if they don't, they are supposed to pay the tax on the date they actually sell the assets. This rule even applies to stock options held by Israelis who relocate abroad and triggers almost certain double taxation, again necessitating urgent advice. The new government is kindly requested to provide relief to Israelis who move abroad as they often do so to promote Israeli products. Other countries like the US, UK, France and Canada provide a combination of exemptions and foreign tax credits to their nationals who relocate abroad. And so the list goes on. We could mention, among others, the tax on transferring properties to a Real Estate Investment Trust (REIT); the complicated foreign tax credit system; or the capital gains tax upon a sale of inherited or gifted foreign assets with no credit for foreign estate or inheritance taxes. Let's hope the Israeli tax policy will soon undergo serious review as a matter of high priority. In any event, readers are advised to take appropriate professional advice to address the situations outlined above. Leon.firstname.lastname@example.org The writer is an International Tax Partner at Ernst & Young Israel.