New immigrants and long-term returning
The tax benefits for new immigrants and long-term returning residents include an exemption from tax payments in Israel for a ten-year period on all foreign source income, such as employment income (3), dividends, annuity payments, rental income, or royalty payments. The crucial point is that the source of the income must be abroad. Income derived from sources within Israel is not within the permitted exemptions under the Ordinance (4).
In addition to the tax exemptions, new immigrants or a long-term returning resident may choose one year as an adaptation year, provided that a notice is provided within 90 days of arrival to Israel in accordance with the Ordinance.
In the event that the individual remains an Israeli resident after the one-year adaptation period, the year will be counted within the ten-year exemption period. (5) In the event that the individual does not remain an Israeli resident and terminates Israeli residence prior to the end of the adaptation year, the one-year period will not be considered a period of residency in Israel.
Returning residents are entitled to a tax exemption for a period of five years on all foreign source income, excluding business income including (a) annuity payments, royalties, rent, interest or dividend payments originating from assets purchased by the returning resident while a resident of another jurisdiction; and (b) interest or dividend income originating from “Specified Securities” abroad. (6) “Specified Securities” are defined as publicly traded securities purchased by the returning resident while residing abroad and managed by a financial institution, as well as publicly traded securities purchased by the returning resident from interest, dividend or capital gains income arising from “Specified Securities.”
Controlled Foreign Corporations (hereinafter, "CFC") rules were introduced in 2003 together with a major overhaul of the tax system and the introduction of worldwide taxation. The purpose of the CFC provisions (7) is to prevent the deferment or avoidance of taxes by the use of foreign corporations with regard to passive income.
The Ordinance expands benefits to new immigrants and long-term returning residents by permitting such individuals to maintain their business activities abroad via foreign companies while residing in Israel without subjecting such foreign corporations to Israeli taxes during the ten-year exemption period. Said exemption applies only to foreign source income of the company.
In addition to the tax exemptions, the Ordinance expands the benefits also to reporting obligations. (8) New immigrants and long-term returning residents are exempt from reporting obligations on all foreign source income for a period of ten years. Nonetheless, the reporting exemption is controversial and is unsupported by the Tax Authority that is attempting to have this exemption from reporting revised. In addition, as CRS reporting will be provided, information on certain activities abroad may be reported to Israel irrespective of the individuals' reporting exemption.
New immigrants and trusts
The Ordinance grants exemptions similar to those granted to individuals to trusts settled by and for the benefit of individuals entitled to exemptions under the Ordinance (9).
F. No estate and gift tax
There is no estate or gift tax in Israel.
In 2019, Israel's population is over 9,000,000 individuals.
This is a dramatic growth of 1,000 per cent compared with a population of 800,000 in 1948, the year of the establishment of the State.
Most of this increase in population is attributed to immigration from over 70 countries.
Alon Kaplan was admitted to the Israel Bar in 1970 and appointed notary in 1989. He was admitted to the New York Bar in 1990, was licensed in Germany in 1991 and became a member of the Frankfurt Bar Association in 2010. He was an adjunct lecturer at the Law Faculty of Tel Aviv University and lectured in its LLM programme. Kaplan, the founder of STEP Israel in 1998, is currently its president. An academician of the International Academy of Estate and Trust Law and member of the American College of Trust and Estate Counsel, Kaplan also advised the Israeli Tax Authority on trust legislation. He is the author of the book “Trusts & Estate Planning in Israel”, Juris Publishing.
Lyat Eyal was admitted to the New York State Bar in 1998 and to the Israel Bar in 2005. Eyal's private client practice focuses on cross-border estate planning issues, trusts, pre-immigration planning and estate administration. Eyal is a member of STEP, ITSG, the New York State Bar Association International and Trusts and Estates Sections. Eyal is an academician at the International Academy of Estate and Trust Law (TIAETL) and a fellow of the American College of Trust and Estate Counsel (ACTEC). Eyal publishes regularly in distinguished professional publications and speaks at seminars and conferences internationally in her areas of expertise.