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This article provides an overview of the tax benefits Israel provides returning residents, Olim and companies they control. Ki Residences Singapore This article will detail who is entitled to benefits and what those benefits are. Finally this article will review the main conditions that often arise during the planning stage ahead of moving to Israel.

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

There are three forms of people eligible for 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 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 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 one who returned to Israel and became an Israeli resident after being a foreign resident at least six consecutive years. However, residents that left Israel ahead of January 1 2009 will be considered as returning residents entitled to the tax benefits even though these 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 an interval of ten years from the day they become Israeli residents. The exemptions apply to all income which hails 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 huge 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 such as 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 this is of “foreign resident” and do visits to Israel over foreign residency jeopardize the huge benefits?

In order to create certainty and to allow people living abroad to plan their move 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 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 no. Visits to Israel won’t endanger the status of foreign residency so long as 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 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 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 situation led the Knesset to include in Amendment 168 the provision stating a foreign company will never be considered a resident of Israel solely due to one’s move to Israel. As long as the company isn’t clearly controlled or managed in Israel, it is eligible for the exemption for income produced outside Israel. Needless to say, 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 proceed to Israel:

1. At what point does an individual 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 considers a range of components like the person’s residence, place of residence of the household, main office place, center of economic activity, etc.

The test is not black and white but grey, as people amid 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 example, a person 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 like 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 achieve the maximum benefits.

2. Where are revenues generated? All exemptions are granted on income produced outside of Israel. Exemptions do not apply for income produced in Israel. When is income considered stated in or outside of Israel? In the case of passive income, dividends or interest received from the 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.

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