Gov't to sharply cut taxes for olim

Planned bonus for olim, returning Israelis: No taxes for 10 years on overseas income of all types.

By HAVIV RETTIG GUR
French Olim 224.88 (photo credit: Ariel Jerozolimski [file])
French Olim 224.88
(photo credit: Ariel Jerozolimski [file])
If you're thinking of making aliya, or you're an Israeli living abroad who is thinking of returning home, the move is about to get a lot cheaper. As part of the initiative to entice people to come back to Israel, a new government plan, developed jointly by the Immigrant Absorption and Finance ministries, seeks to dramatically lower taxes for olim and returnees. The plan will simplify the complicated tax breaks offered today from overseas income. Currently, the law offers five years of no taxation for "passive income," such as stipends, dividends and rent, along with four years of breaks for overseas businesses over which the oleh had ownership for more than five years before making aliya. The law also includes 10 years free of taxes on the sale of investments or properties that were the sources of the overseas income. The new plan values simplicity: All overseas income of all types will be tax-free for 10 years, the government revealed on Thursday. The plan was developed by the Tax Authority and the Absorption Ministry, and was recently approved by Finance Minister Ronnie Bar-On. It will need to be legislated in order to go into effect, but an Absorption Ministry representative predicted Thursday that it would easily pass into law in the current Knesset session. "Within three months, by the end of this [Knesset] session, this will be law," the representative said. Absorption Minister Ya'acov Edri expects the plan to double the number of returnees, noting that it "creates a combination of the Zionist incentive and the economic incentive." For Ronnie Bar-On, the plan is an investment in Israel's human capital, and "the removal of a bureaucratic obstacle that hampers our economic development." The plan also improves conditions for ex-pat Israelis and business owners. According to the plan, Israelis who have been abroad for over 10 years will be placed in a new tax bracket called "oleh for tax purposes," which will include all the tax benefits offered to olim. To encourage ex-pats to move to Israel during the country's 60th anniversary year, the government plan recommends giving those who return in 2008 and 2009 five years of the special tax status. Other tax breaks will target businesspeople. An overseas company owned by an oleh will remain an overseas company for tax purposes, as long as its income is earned outside Israel for the duration of the 10-year tax-free period, correcting the uncertainty in the current law regarding the status of the oleh-owned company when the owner moves to Israel. The new plan will even remove the requirement to report non-taxable overseas income.