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 this article will review the main issues that often arise through the planning stage prior to moving to Israel.

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

There are three types of people eligible for tax benefits: “new immigrants”, “veteran returning residents” and “returning residents”.

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

“Veteran returning resident” is 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 returning to Israel between January 2007 and December 31 2009 will undoubtedly be considered a veteran returning resident if see your face was abroad for an interval of at least five years.

“Returning resident” is a person who returned to Israel and became an Israeli resident after being truly a foreign resident at least six consecutive years. However, residents that left Israel ahead of January 1 2009 will undoubtedly be considered as returning residents entitled to 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 are entitled to broad tax exemptions for a period of ten years from the day they become Israeli residents. The exemptions connect with all income which hails from outside of Israel. The exemptions apply to passive income (dividends, interest, and capital gains tax) and active income (employment, business profits, services).

Ki Residences Singapore 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 like royalties, rents, interest and dividends.

? Exemption for a decade on capital gains from the sale of property that 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 benefits?

As a way to create certainty and to allow people living abroad to plan their proceed to Israel, Amendment 168 defines who is a foreign resident. A Foreign resident is really 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 two years after leaving Israel. (The term “center of life” will be explained below).

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

The answer is not any. Visits to Israel will not endanger the status of foreign residency given that the visits are indeed visits. If the visit begins to check live a move, both with regards to length and nature, then the Israeli tax authorities could see the visits as a shift in center of life.

Foreign companies owned by new immigrants and returning residents Veteran

According to Israeli Income Tax Law, a company incorporated in Israel or controlled or managed in Israel is regarded as a resident of Israel and therefore taxed on worldwide income. Therefore, without a clear exemption for foreign companies owned by veteran returning Israelis or Olim, these companies 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 that a foreign company will never be considered a resident of Israel solely due to one’s move to Israel. As long as the company is not clearly controlled or managed in Israel, it really is entitled to the exemption for income produced outside Israel. Of course, if management and control come in Israel then the company is regarded as 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 an individual go from being 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 like the person’s residence, place of residence of the household, main place of business place, center of economic activity, etc.

The test is not monochrome but grey, as people in the midst of moving have contacts and activities in at the very least two countries. But an individual planning to proceed to Israel can and should plan his steps carefully. For instance, somebody who has lived abroad since June 2004 and who returned to Israel many times in 2009 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 take advantage of the fluid nature of the biggest market of life test to achieve the maximum benefits.

2. Where are revenues generated? All exemptions are granted on income produced beyond Israel. Exemptions do not make an application 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 a foreign company abroad are likely to be deemed produced abroad. Exactly the same holds true for capital gains. If a foreign resident bought a residence abroad and sold it after becoming a resident of Israel, the gain is going to be exempt from capital gains tax in Israel.