Before I make aliya, can you tell me what to do to take advantage of tax breaks?
Question:
I heard that there have recently been new tax changes made in Israel. Can you update me as to what these are, and how I should structure my affairs before arriving in Israel?
Anxious prospective oleh
Sent (September 1, 2007)
Answer:
By: ACL
Dear Anxious prospective oleh.
On 1st January 2003, Israel joined the rest of the international community, and imposed a residency based world-wide tax on all Israeli residents. This was a natural progression following the relaxation of exchange controls, which has occurred over the passed few years. In other words, active income/earned income (earned from personal work), and passive income/unearned income (capital gains, interest, dividends and rentals), earned anywhere in the world would be taxable in Israel, once the taxpayer is resident in Israel.
Due to last minute lobbying from different interest groups before the tax changes were implemented, certain exemptions were granted on the taxation of different categories of income. One of these categories was the income earned by “Olim Chadashim”/ New immigrants.
Included in these benefits granted to Olim Chadashim/ New immigrants are the following:
- 20 year tax-exemption on the interest on foreign currency deposits held in Israeli banks.
- 10 year tax-exemption on capital gains on foreign assets held at the date of immigration.
- 5 year exemption on dividends earned on foreign securities held at the date of immigration.
- 4 year tax-exemption on business income from businesses owned for 5 years prior to immigration.
These tax exemptions, together with the fact that there is currently no Estate Duty or Donations Tax imposed on Israeli residents, means that with the correct pre-immigration financial structuring, an immigrant to Israel may achieve substantial tax savings. However, obtaining these benefits is not automatic, and requires one’s affairs to be specifically structured prior to 1st arriving in Israel as a new Israeli resident.