This article provides an summary of the tax benefits Israel provides returning residents, Olim and companies they control. This article will detail who is eligible for benefits and what those benefits are. Finally the article will review the main issues that often arise during the planning stage prior to moving to Israel.

In 2008 the Knesset approved Amendment 168 to the Income Tax Ordinance, which provided significant tax advantages to new immigrants and returning residents who moved to Israel after January 1, 2007.

Ki Residences Singapore There are three forms of people qualified to receive tax benefits: “new immigrants”, “veteran returning residents” and “returning residents”.

“New immigrant” is person who was never a resident of Israel and became a resident of Israel for the very first time.

“Veteran returning resident” is really a person who was a resident of Israel, then left and was a foreign resident for at the very least 10 consecutive years and then returned to become a resident of Israel. However, a person time for Israel between January 2007 and December 31 2009 will undoubtedly be considered a veteran returning resident if that person was abroad for a period of at the very least five years.

“Returning resident” is a one who returned to Israel and became an Israeli resident after being a foreign resident at the very least six consecutive years. However, residents that left Israel ahead of January 1 2009 will be considered as returning residents eligible for the tax benefits even if they were foreign residents for only three consecutive years.

What are the benefits?

According to Amendment 168 new immigrants and veteran returning residents have entitlement to broad tax exemptions for a period of ten years from your day they become Israeli residents. The exemptions apply to all income which originates from beyond Israel. The exemptions connect with passive income (dividends, interest, and capital gains tax) and active income (employment, business profits, services).

A person meeting this is of “returning resident” is eligible for fewer benefits. The benefits are tax exemptions for five years on passive income produced abroad or originating from assets outside Israel. The main exemptions are:

? Exemption for five years on passive income from property acquired while a foreign resident. Passive income includes things such as royalties, rents, interest and dividends.

? Exemption for a decade on capital gains from the sale of property which was purchased while the person was a foreign resident.

What is the definition of “foreign resident” and do visits to Israel during the period of foreign residency jeopardize the huge benefits?

As a way to create certainty also to allow people living abroad to plan their proceed to Israel, Amendment 168 defines who’s a foreign resident. A Foreign resident is a person who meets these two criteria:

1. Was abroad for at the very least 183 days per year for just two years.

2. An individual whose center of life was outside Israel for just two years after leaving Israel. (The term “center of life” will undoubtedly be explained below).

Will visits to Israel take off the sequence of foreign residency, thus endangering the huge benefits?

The answer is not any. Visits to Israel won’t endanger the status of foreign residency given that the visits are indeed visits. If the visit begins to look live a move, both in terms of length and nature, then the Israeli tax authorities may see the visits as a shift in center of life.

Foreign companies owned by new immigrants and returning residents Veteran

According to Israeli TAX Law, a company incorporated in Israel or controlled or managed in Israel is deemed a resident of Israel and therefore taxed on worldwide income. Therefore, with out a clear exemption for foreign companies owned by veteran returning Israelis or Olim, these businesses would often be taxed on worldwide income once their owners moved to Israel. This example led the Knesset to include in Amendment 168 the provision stating a foreign company will not be considered a resident of Israel solely because of one’s move to Israel. So long as the company is not clearly controlled or managed in Israel, it is entitled to the exemption for income produced outside Israel. Needless to say, if management and control are in Israel then the company is deemed an Israeli resident and taxed on worldwide income. Also, if the business produces Israel sourced income, it is taxed on that income.

Planning Highlights

The following are common tax-related issues encountered by people planning their move to Israel:

1. At what point does a person go from being truly a non-resident to a resident of Israel? As noted above, the “center of life” test determines whether a person is a resident of non-resident of Israel. The center of life test involves a complex balancing of many aspects of a person’s life – family, personal and economic. The test takes into account a range of components including the person’s residence, host to residence of the family, main office place, center of economic activity, etc.

The test is not monochrome but grey, as people amid moving have contacts and activities in at the very least two countries. But an individual planning to move to Israel can and really should plan his steps carefully. For instance, a person who has lived abroad since June 2004 and who returned to Israel many times in ’09 2009 to plan a return to Israel in 2010 2010 would want to set up a “center of life” shift in 2009 2009. This would entitle the person to the expanded rights of a veteran returning resident. If planned and documented planning, you can definitely make use of the fluid nature of the biggest market of life test to attain the maximum benefits.

2. Where are revenues generated? All exemptions are granted on income produced beyond Israel. Exemptions do not apply for income stated in Israel. When is income considered produced in or outside of Israel? In the case of passive income, dividends or interest received from the foreign company abroad will tend to be deemed produced abroad. Exactly the same is true for capital gains. If a foreign resident bought a residence abroad and sold it after learning to be a resident of Israel, the gain is going to be exempt from capital gains tax in Israel.