Bill aims at ending double taxation for Israelis who earn income abroad

MK Cotler-Wunsh’s bill has support across political spectrum, but political infighting could prevent its advancement.

MICHAL COTLER-WUNSH: Being statesmanlike meant we had to hold ourselves accountable to the word that defines us. (photo credit: MARC ISRAEL SELLEM/THE JERUSALEM POST)
MICHAL COTLER-WUNSH: Being statesmanlike meant we had to hold ourselves accountable to the word that defines us.
A new bill advanced by the Knesset on Sunday would stop Israel from forcing its citizens to pay National Insurance Institute (NII) payments on income earned and taxed abroad, such as Social Security in the United States.
The bill, proposed by MK Michal Cotler-Wunsh (Blue and White), would limit double taxation to those sent abroad by Israeli companies. Those who earn income in Israel and abroad would still have NII (Bituah Leumi) payments on income earned for work in Israel.
“My bill proposes an amendment to the current Bituach Leumi Law, eliminating the double payment of social security for Israeli residents whose primary income comes from abroad and enabling them to only pay their social security abroad,” Cotler-Wunsh said.
If passed into law, the bill would apply to all countries, including those that do not have bilateral agreements with Israel, such as the United States.
“It would serve as a positive incentive for aliyah, making it easier for potential olim to make the decision to move to Israel, and for Israelis living abroad to return, while maintaining occupational and financial stability without a heavy financial ‘penalty,’ similar to countries with which Israel has bilateral agreements.” Cotler-Wunsh said.
MKs from Likud, Blue and White, Yesh Atid, Shas, Yisrael Beytenu and United Torah Judaism signed the bill, which was officially accepted by the Knesset and received its private bill ID number on Sunday.
But for it to move forward, the bill needs to be brought to a vote by the Ministerial Committee on Legislation, which has not convened for several weeks due to disputes between Likud and Blue and White. When it has met, it has only voted on bills connected to the coronavirus.
Only when it receives approval from the ministerial committee can it be brought for its first reading in the plenum. Passing its first reading would allow the bill to move forward in the next Knesset without needing to start over the legislative process, if the current Knesset dissolves before the bill passes into law.
Association of Americans and Canadians in Israel executive director David London praised the bill.
“AACI strongly feels that double taxation of those who have made aliyah and are full-time residents of Israel is unfair and should be stopped,” he said. “A law helping that to happen would assist olim and could encourage aliyah.”
Accountant Ron Zalben, a partner with Aboulafia Avital Shrensky and Co., said if the bill passed, it would be a welcome change.
“Paying double social security is a huge burden for taxpayers,” he said.
But Elie Deutsch of the Alan Deutsch accounting firm expressed skepticism.
“The term ‘income from abroad’ is a very vague term,” he said. “There is a big difference between income ‘earned’ abroad and income ‘received’ from abroad.
If the income is merely received abroad (such as from a US employer or US client) but is earned while physically working in Israel, then that’s when the individual gets hit with double taxation on Bituah Leumi/Social Security.
In order to have a law passed to exempt the taxpayer from Bituah Leumi, that would be an enormous relief for taxpayers. But it would require having Bituah Leumi give up on tax that is deemed Israeli source from an income-tax perspective.”
Former MK Dov Lipman, who was in the Knesset from 2013 to 2015, said he did not succeed in advancing a similar bill, even though his Yesh Atid Party controlled the Finance Ministry at the time.
“This ranked very high among the complaints my office received from English-speaking olim,” he said. “But I was not able to make any progress with the Finance Ministry and learned very quickly that there was no way for me to get it passed.”