Update: Tax Break Package 2016 (Israel)

Who is eligible?

Only 3 people are eligible for Israeli  tax benefits:

1. “Oleh” – A new immigrant
2. “Senior Returning Resident” – Citizens of Israel who return after 10 years of living abroad.
3. “One-Time Measure” – Individuals who returned to Israel during the years 2007-2009 are considered as “Senior Returning Residents” even if they only lived abroad for 5 years.

The above only applies for people becoming citizens/returning  from Jan. 1st 2007 and onwards.

What are the tax benefits?

There are 9 key benefits:

1. A 10 year exemption from paying tax on foreign-source income (i.e. income made outside of Israel).
2. A 10 year exemption from declaring on foreign-source income which are exempt.
3. A 10 year exclusion from definition as an Israeli company resident – for a company established abroad.
4. A 10 year exemption from capital gain tax on assets owned prior to immigration, which is then reduced linearly.
5. A 10 year tax exemption on annuity payments from abroad for years worked abroad.
6. An option to be considered a foreign resident for taxation purposes, for one year from arrival.
7. 3.5 years of entitlement to tax credit, with options of extension.
8. A tax exemption on income from interest on foreign currency deposits at the Bank of Israel.
9. An exemption from payments to the Bituach Leumi (National Insurance Institute) for one year.

Let’s expound on a few of these points.

Income entitled to tax benefits:

• Passive Income – Dividends, rent, interest, pensions and royalties generated by assets overseas.
• Capital Gain – Capital gain from the alienation of assets located abroad. Extended to assets located abroad acquired after becoming Israeli resident.
• Business Income – All business income that is achieved from assets held overseas.
• Vocational and Labor Income – All salaries and income from activities of independent nature, which were generated abroad.

Adjustment option:

There is a period of adjustment for 1 year from the date of arrival in Israel that is granted upon request, which enables you to choose not to be considered an Israeli resident for tax purposes for 1 year. The request for adjustment must be submitted within 90 days after arriving in Israel.

Bituach Leumi:

If there is earned income or other sources of income that exceed 5% of the monthly average wage – NIS 473 (for 2016), there is no exemption.

Tax credits:

All Israeli citizens receive 2 credit points (which is a reduction of NIS 432 per month from the tax liability), as well as an additional 0.25 points if they are a working male and 0.75 points for a working female.Working olim are entitled to additional points on top of that, for a period of three and a half years. This advantage can be extended throughout the time they carry out army service or studying at university or college during:

• The first 18 months – 3 additional credit points (reduction of NIS 648 per month or NIS 11,664 for the first 18 months)
• The following 12 months – 2 additional credit points (reduction of NIS 432 per month or 5,184 annually)

• The following 12 months – 1 additional credit points (reduction of NIS 216 per month or NIS 2,592 annually)

Additional Tax – High leveled chargeable income will be taxed an additional 2% tax for every Shekel above 66,960 NIS monthly income (or 803,520 NIS annual income).

The income between 41,411 and 66,960 NIS will be taxed at 48% while every Shekel above that sum – will be taxed in additional 2% tax.

Tax exemption on income from interest on foreign currency deposits at the Bank of Israel:

An “Oleh” is tax exempt on Interest arising from foreign currency deposits at the Bank of Israel is for a 20 years period, in the four following conditions:

1. The source of the amounts deposited are prior to his making Aliya.
2. The amounts deposited within 90 days from the date of transfer of money to Israel and the new immigrant declared to the bank within 14 days after the deposit of the funds, a statement on Form 2402, for being a newcomer.
3. The interest income is not considered business income.
4. The deposit is not used as a grant to a loan to a relative who is an Israeli resident.

A “Returning Resident” is tax exempt on interest arising from foreign currency deposits at the Bank of Israel for a five years period in condition that the amount generated during the period he was abroad.

See Expat Tax CPA’s homepage for more on how we might assist you.