This article provides an summary of the tax benefits Israel provides returning residents, Olim and companies they control. The 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 ahead of moving to Israel.

In 2008 the Knesset approved Amendment 168 to the TAX Ordinance, which provided significant tax advantages 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 first time.

“Veteran returning resident” is a one 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 be a resident of Israel. However, a person time for Israel between January 2007 and December 31 2009 will be considered a veteran returning resident if that person was abroad for an interval of at the very least five years.

“Returning resident” is a person 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 undoubtedly be considered as returning residents eligible for the tax benefits even if these were foreign residents for only three consecutive years.

What are the benefits?

In accordance with Amendment 168 new immigrants and veteran returning residents have entitlement to broad tax exemptions for a period of ten years from the day they become Israeli residents. The exemptions connect with all income which originates from outside of Israel. The exemptions apply to 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 primary 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.

? Ki Residences Singapore Exemption for 10 years on capital gains from the sale of property which was purchased as the person was a foreign resident.

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

In order to create certainty also to allow people living abroad to plan their move to Israel, Amendment 168 defines who’s a foreign resident. A Foreign resident is a person who meets both of these criteria:

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

2. A person whose center of life was outside Israel for just two years after leaving Israel. (The word “center of life” will undoubtedly 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 provided that the visits are indeed visits. If the visit begins to check live a move, both in terms of length and nature, then your 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, an organization 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 businesses would often be taxed on worldwide income once their owners moved to Israel. This example led the Knesset relating to Amendment 168 the provision stating a foreign company will never be considered a resident of Israel solely because of one’s move to Israel. As long as the company isn’t clearly controlled or managed in Israel, it is entitled to the exemption for income produced outside Israel. Of course, 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 really is taxed on that income.

Planning Highlights

Listed below are common tax-related issues encountered by people planning their proceed 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 someone’s life – family, personal and economic. The test takes into account a range of components such as the person’s residence, host to 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 least two countries. But a person planning to proceed to Israel can and really should plan his steps carefully. For example, somebody who has lived abroad since June 2004 and who returned to Israel many times in ’09 2009 to plan a go back to Israel in 2010 2010 would want to set up a “center of life” shift in ’09 2009. This would entitle the individual to the expanded rights of a veteran returning resident. If planned and documented planning, one can definitely make use of the fluid nature of the center of life test to attain the maximum benefits.

2. Where are revenues generated? All exemptions are granted on income produced outside of Israel. Exemptions do not make an application for income produced 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. In case a foreign resident bought a residence abroad and sold it after learning to be a resident of Israel, the gain will likely be exempt from capital gains tax in Israel.