How new immigrants in Israel can make money and keep it – opinion

Let’s look at the business and tax side of aliyah.

By LEON HARRIS

NOVEMBER 19, 2020 22:13

YOUNG PROFESSIONALS land in Israel on a Nefesh B’Nefesh charter aliyah flight. (photo credit: SHAHAR AZRAN) — YOUNG PROFESSIONALS land in Israel on a Nefesh B’Nefesh charter aliyah flight.

(photo credit: SHAHAR AZRAN)

In a shock development this week, the UK Labour Party re-admitted Jeremy Corbyn to its ranks of members. This came only 17 days after he was suspended for downplaying serious antisemitism allegations by the UK’s Equalities and Human Rights Commission.

British Jews may be expected to vote for the Conservative Party or make aliyah. Let’s look at the business and tax side of aliyah.

Contrary to popular perception, it’s perfectly possible to make money in Israel and keep most of it. According to the Organization for Economic Cooperation and Development, Israeli tax revenues amounted to 31.1% of GDP in 2018, which was better than Britain (33.5%) and better than the OECD average (34.3%). And Israeli business law follows Western principles thanks to British rule in 1917-1948, the hi-tech revolution and OECD membership since 2010.

TO SWEETEN the aliyah deal, “new residents” and “senior returning residents” (who lived abroad 10 years) are entitled to a special package of tax benefits.

The most notable benefit for such people is a 10-year Israeli tax holiday (exemption) regarding all foreign source income (including income from salary, business, pensions, investments, etc.) and capital gains, even if the foreign assets were acquired after moving to Israel. Exempt income and related assets do not need to be reported to the Israeli Tax Authority for the entire 10 years.

During the 10-year tax holiday, there is also immunity from anti-avoidance rules regarding “management and control,” “controlled foreign companies” and “foreign professional companies”.

The 10 year benefit period begins when the individual becomes a new resident, i.e. shifts their center of living to Israel having regard to economic, social and family circumstances. The law contains rebuttable presumptions of residency if an individual is present in Israel: (1) 183 days in one tax year (calendar year), or (2) 425 days over three tax years including at least 30 days in the most recent year.

With regard to income derived from sources in Israel, no exemption applies.

NEW RESIDENTS and senior returning residents do not need to report overseas income or assets in their 10 year tax holiday. Proposals were put forward in the past make exempt foreign income reportable to the ITA from day one, but these came to nothing.

The 10 year exemption does NOT apply to income for work done in Israel for a foreign firm.

Keep a diary of where you worked day by day. Time worked abroad is not taxable in Israel. Corresponding travel expenses are not deductible. Check the foreign tax position.

Subject to any tax treaty, it takes four tax years to stop being an Israeli resident. The 10-year clock does not stop while you are away.

With regard to income derived by olim (new immigrants) in Israel, no Israeli tax exemption applies. However, they receive extra personal tax credits, known as “credit points.” These credit points reduce the monthly income tax bill by NIS 219 – 657 in the first 3.5 years after aliyah. This is helpful but not big.

FIRST, CHECK tax and other matters in the old country. Canada has a departure tax. The US continues to tax US citizens and green card holders even if they live in Israel. But the US may mitigate double tax with an earned income exclusion and/or a foreign tax credit and/or a high tax exception. UK olim must check the timing of their move and other aspects having regard to the big three UK taxes – income tax, capital gains tax and inheritance tax.

Second, olim don’t have to phone or e-email their old investment advisers, they can consider Israeli investment firms to help invest around the world. And Brits know the pound has been weak for a while, perhaps to promote UK exports if no trade deal is struck with the EU.

Third, olim with business interests abroad should check out the tax side. Israel will not deem a foreign company to be controlled and managed by olim in Israel for 10 years. But if olim stay on a foreign company’s payroll, they may pay Israeli taxes of up to 50% on their salary, and the foreign company may owe 23% Israeli company tax on the profits of a branch they didn’t know they had in Israel. This is based on standard international tax treaty principles. A proper group corporate structure is needed by olim in business.

Fourth, olim should review will and succession arrangements for their spouse and kids, and inheritances from parents abroad. Many things may need to be addressed.

As always, consult experienced tax advisers in each country at an early stage in specific cases.

leon@h2cat.com
The writer is a certified public accountant and tax specialist at Harris Horoviz Consulting & Tax Ltd.