In order to ease your return home and to remove significant tax barriers, the Ministry of Immigrant Absorption and the Tax Authority have succeeded in formulating a new tax benefits package for immigrants and returning residents.
The proposed benefits are designed to compliment the efforts of the State of Israel to increase the number of Israelis and Jews that choose to make Israel the center of their lives by removing significant tax barriers. Our goal is to encourage investment in Israel and to bring in human resources, and thus help both the Israeli economy and Israeli society to flourish.
The benefits offered within the framework of the tax reform program grant an exemption from taxes and from reporting assets and income whose source is from abroad for a 10-year period, and will grant tax exemptions on various types of income, including interest and dividends from abroad, income from rentals, professional work and income from additional employment, and income from business and capital gains from selling of assets outside of Israel.
The Minister of Finance has adopted this program and has instructed the Tax Authority to draft a proposal for legislation, and to promote this legislation, so that the tax reforms can become law within the next few months.
Following is a detailed outline of the proposal, explaining the guidelines for exemptions for new immigrants and returning residents who will be considered new immigrants for purposes of income whose source is from abroad:
Granting of an Exemption for all Types of Income Whose Source is From Abroad for a 10-Year Period
An exemption will be granted to new immigrants in a uniform, inclusive, and clear manner on all income whose source is from abroad, for 10 years from the date of aliyah, in a manner in which all types of income will be included, whether its source is from the sale of assets and investments overseas, or whether its source is from current income from deposits overseas.
Currently, tax exemptions are granted for five years only on passive income from assets acquired overseas (interest, dividends, allowances, annuities, royalties, and rentals); similarly exemptions are given for four years on income from businesses on condition that the business was owned by the immigrant for at least 5 years prior to making aliyah. Together with this, and in parallel, the existing law establishes an exemption on tax for a period of 10 years on income from capital gains on the sale of assets from the properties and investments abroad that produced the exempt income.
Extension of Tax Benefits to Returning Residents
A new tax status will be adopted, to be known as “a returning resident that is classified as a new immigrant for tax purposes” for individuals that resided overseas for at least 10 years from the time they left Israel. This new status will expand tax benefits that are currently given to returning residents and will make them equivalent to the tax benefits that are given to new immigrants. In order to encourage the return of Israelis within the framework of the Ministry of Immigrant Absorption campaign for Israel’s 60th year, a one-time dispensation has been proposed, according to which, between the years 2008-2009, it will only have been necessary to have resided overseas for five years in order to be considered “a new immigrant for tax purposes” on condition that the individual was considered a foreign resident on January 1, 2008.
Determining an “Adjustment” Track
This track would grant a one-year adjustment period from the date of arrival during which, if an individual so requests, they will not be considered a resident of Israel for income tax purposes. Following this period the individual may then reach an informed decision about where they wish to live.
Determining Tax Exemptions for Companies Managed by New Immigrants
Companies that are managed by new immigrants will not be classified as Israeli resident companies except for purposes of the aliyah of their shareholders to Israel. This is to remove any uncertainty on the part of the individual that their decision to make aliyah might affect the company in which they hold shares and subject it to Israeli tax laws. Thus, in effect, earnings are exempt according to law and the company may be directed by an immigrant, provided that income is not generated in Israel.
Determining an Exemption from Reporting Earnings When the Source is From Abroad
Individuals, and the companies that are under their direction, are not obligated to report earnings that benefit from exemption. However, income of new immigrants and of returning residents from activities in Israel and from Israeli investments and assets that is generated following aliyah or return to the country is subject to reporting and taxation according to regular tax laws.