In order to illustrate the various types of eligibility, we have selected several profiles of new immigrants and returning residents, as well as the regulations pertaining to the described situations. You may be able to identify similar features with your own specific scenario.
Alon’s profile
Tamir’s profile
Michael’s profile
Rinat’s profile
Alon’s profile
Alon is a software engineer who completed his studies in 1998. He then began working for an Israeli company specializing in software development for the business sector. In 2002, he resigned and moved with his girlfriend Alona to the USA, where he began to work for an American company in a similar field. While there, the two married and saved money through several means: savings accounts, convertible stocks and even investment in a private American firm dealing with a unique patent. In 2008, the couple returned to Israel.
Legal status
Based on the amendments and temporary order, the couple will be considered returning residents, since on January 1st, 2007, they were living abroad, and by 2008 five years had passed since they left Israel. The couple will be able to present a form to the Ministry for Immigrant Absorption requesting a year’s adjustment, during which time they will not be considered Israeli residents for tax purposes, in order to enable them to examine their situation upon their return to Israel. Beyond that year, and for nine additional years, they will benefit from tax exemptions on their income from abroad. If they sell their holdings in the American company in which they invested, they will be exempt from tax for 10 years from the moment of their return (including the year’s adjustment).
Had the couple returned in 2010 or 2011, they would not be considered returning residents, since the temporary order providing benefits to individuals returning after 5 years but less than 10 pertains only to those returning between 2007 and 2009.
Tamir’s profile
Tamir is a surgeon who completed his academic studies in 1995. In 2003, he left with his wife Rachel for Spain, where he began working in a hospital in Barcelona, specializing as an eye-doctor. In order to attain his specialization, he was compelled to remain in Spain for a further 10 years beyond the four of his studies, during which time he also opened a clinic with a local doctor. Rachel, meanwhile, established her own business, and they also had children. After a total of 11 years away, they decided to return to Israel. Since this was before the period of obligation to the hospital was over, it was agreed that he would commute for 2 days a week. Two years after their return, Rachel sold her part of the business she had established in Spain, creating a new one in Israel with the proceeds.
Legal status
Based on the amendment, Tamir and Rachel are returning residents, since upon their return they will have been away for 10 years, during which time they resided abroad. They may receive a year’s adjustment from the Ministry of Immigrant Absorption, during which time they may examine their situation upon their return, find schools for their children, etc. During this time, and during the nine following years, Tamir will be exempt from paying tax on his income from abroad and his profits from the clinic he helped establish, as well as reporting on these incomes. He will only have to pay tax on his wage from the Israeli hospital. Rachel also benefits from a tax exemption on the sale of her part in her business, although her new business in Israel will be taxed based to its income.
Michael’s profile
Michael lives in Brooklyn, NY. In 2008, at the age of 70, he decided to make Aliyah with his family. Michael is a successful lawyer who owns a company in the Bahamas that provides consultancies to clients in Canada and the US. Amongst his assets, Michael owns an apartment building in the USA, 20% of a transport company and a registered patent he sold to an American company for yearly royalties of one million dollars.
Legal status
Based on the amendment, Michael and his family will be considered first-time Israeli residents. They will be able to request a year’s adjustment from the Ministry of Immigrant Absorption, during which time they will be considered Israeli residents for tax purposes, in order that they can examine their condition as immigrants. Beyond that year, and during the next nine years, Michael will be exempt from paying taxes on his income from wages as a consultant, all other work abroad, his income outside Israel from rental, dividends, capital gain, interest and royalties from the American company. In accordance with the amendment regarding a foreign company, his consultancy firm will not be subject to the laws pertaining foreign companies, and his share of the company’s profits will not be considered as having been generated in Israel.
Based on the amendment and the period of benefits, Michael’s companies will not be considered as being managed or controlled in Israel, and will therefore not be considered Israel. During the period of exemption, Michael will not be compelled to report his income from abroad, which is tax exempt. Michael will only pay tax on income from investments and activities in Israel.
Rinat’s profile
Rinat is a high-tech entrepreneur and a talented patents creator who, during recent years, has sold two start-ups. She produced an additional patent and decided to register it with a Cypriot firm under her complete ownership. For its management, Rinat decided in 2002 to move to France.
Seven years later, in 2009, Rinat realized that selling the Cypriot company was being delayed. Meanwhile, her parents and brothers in Israel requested that she return home. Rinat decided to commute between Israel and France – one week in each location, working in France and setting up house in Israel.
Legal status
Based on the amendment and temporary order, Rinat will be considered a returning resident since on January 1, 2009 she had been living abroad for more than five consecutive years (in accordance with the temporary order, 2007-2009). Rinat will be able to apply for a year’s adjustment from the Ministry of Immigrant Absorption, during which time she will not be considered an Israeli resident for tax purposes, so that she will be able to examine her situation upon return. Beyond that year and for the following nine years, she will be exempt from taxes on income generated abroad from any source. She will also be exempt from tax on capital gain from selling the Cypriot company, so long as she does this within the 10-year period from her return.
Based on the amendment, during the period of benefits, the foreign company under her ownership will not be considered as being managed or controlled in Israel and will therefore not be considered an Israeli company. Moreover, during that period, she will be exempt from reporting her income from abroad that is considered tax-exempt. All Israel business and companies she establishes in Israel from the moment of her return will be subject to taxes upon their activities, as will capital gains from their sale.