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This article provides an summary of the tax benefits Israel provides returning residents, Olim and companies they control. This article will detail who is entitled to 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.

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 first time.

“Veteran returning resident” is really a one who was a resident of Israel, then left and was a foreign resident for at least 10 consecutive years and returned to become 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 a period of at least five years.

“Returning resident” is a one 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 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?

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 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).

A person meeting the definition 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:

? Ki Residences Sunset Way 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 10 years 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 over foreign residency jeopardize the huge benefits?

As a way to create certainty and to allow people living abroad to plan their move to Israel, Amendment 168 defines who’s a foreign resident. A Foreign resident is really a person who meets both of these 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 cut off the sequence of foreign residency, thus endangering the huge benefits?

The answer is no. Visits to Israel won’t endanger the status of foreign residency as 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 Income Tax Law, an organization incorporated in Israel or controlled or managed in Israel is regarded as a resident of Israel and thus 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 situation led the Knesset relating to Amendment 168 the provision stating that a foreign company will not be considered a resident of Israel solely due to one’s move to Israel. So long as the company isn’t 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 Company produces Israel sourced income, it is taxed on that income.

Planning Highlights

Listed below are common tax-related issues encountered by people planning their move to Israel:

1. At what point does a person 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 biggest market of life test involves a complex balancing of several aspects of someone’s life – family, personal and economic. The test takes into account a range of components like the person’s residence, host to residence of the household, 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 least two countries. But a person planning to move to Israel can and should plan his steps carefully. For example, somebody who has lived abroad since June 2004 and who returned to Israel several times in ’09 2009 to plan a return to Israel in 2010 2010 would like to set up a “center of life” shift in 2009 2009. This would entitle the individual to the expanded rights of a veteran returning resident. If planned and documented planning, one 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 outside of Israel. Exemptions do not make an application for income produced in Israel. When is income considered stated in or outside of Israel? Regarding passive income, dividends or interest received from a 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 is going to be exempt from capital gains tax in Israel.