Israel is celebrating another democratic general election, which always reminds me of Winston Churchill's famous remark: "Democracy is the worst form of government, except for all those other forms that have been tried from time to time." While we are waiting for a new coalition government in Israel, let's consider a way to "vote with your feet" in terms of an important decision olim (both new immigrants and returning residents) need to make that has significant tax implications. We might call it the "settling-in year election." First, let's recap the background. Immigrants & returnees tax break Last September, the Knesset passed a tax reform intended to stimulate immigration (aliya) to Israel. People who became Israeli residents for the first time on or after January 1, 2007, may now enjoy a 10-year exemption from Israeli tax on income and capital gains accrued or derived outside Israel or from assets outside Israel, unless they request otherwise. Exempt income does not need to be reported on an Israeli tax return. Assets located abroad (not gifted by Israeli residents) do not need to be reported on any capital declaration requested by the Israel Tax Authority. "Senior returning residents" are treated the same as new residents. A senior returning resident is an individual who returned to reside in Israel after being a foreign resident for: (a) at least five consecutive years if they return to Israel in the tax years 2007-2009; (b) at least 10 consecutive years if they return to Israel after 2009. Settling-in-year election Notwithstanding the above, such people may elect within 90 days after arrival in Israel to remain a foreign resident for Israeli tax purposes in their first year in Israel - a "settling-in year." This can sometimes be advantageous, as discussed below. If they stay on in Israel, this "settling-in year" counts as part of the 10-year exemption period - they don't get an 11-year exemption. The election should be made on a form to be prescribed. As no form has yet been prescribed, some people have made the "election" by sending a letter to their local tax office. Others didn't. More time to file the settling-in year election: Fortunately, on December 17, 2008, the Israeli Tax Authority announced that according to data in its possession, more time is needed for olim and returnees to get organized. Therefore, a person who arrived in Israel by the end of 2008 who is interested in electing a "settling in year" may do so by March 31, 2009 and the election will be deemed to have been made on time. When is the settling-in year advantageous? First, the settling-in year may be helpful for people who want to enjoy Israeli exemptions available only to foreign investors, for example, upon a sale of public or private Israeli securities. A second example concerns trusts. Under a new Israeli trust regime introduced on January 1, 2006, as amended in June 2008, if a person moves to Israel after being the settlor (grantor) or beneficiary of a trust, the trust may change its status and become a potentially taxable "Israeli Residents' Trust" or an Israeli resident "Testamentary Trust" depending on the particular case. In many cases, the trust may receive a 10-year Israeli tax exemption on non-Israeli source income and capital gains, just like the resident himself. Furthermore, the individual may elect the "settling in year," thereby postponing the above change of status of the trust for a year. In fact, it seems that if an individual dies during his settling-in year, the trust may never change its status to an Israeli resident trust, depending on the circumstances (according to a position paper issued by the Israeli Tax Authority's Legal Department on December 9, 2008 to Tax Assessing Officers). This reminds me of another Churchill quote: "Although prepared for martyrdom, I preferred that it be postponed." As always, consult experienced tax advisers in each country at an early stage in specific cases. email@example.com Leon Harris is an international tax specialist.