By David Halbwax L.L.M, International Legal Counsel

July 2020

To celebrate its 60th anniversary, the State of Israel has granted significant tax benefits still applicable to new immigrants and returning residents, including exemption for a period of 10 years from tax, reporting assets and income generated outside Israel.

After more a decade of its application, it seems appropriate to examine the content of this tax exemption measures (I) and their binding limits (II).

 

  • Content of the tax- Aliyah Exemption measures

 

According to the Tax Ordinance and Regulations, new immigrants and returning residents who have resided overseas for at least 10 years or resided overseas for 5 years and returned to Israel during 2007-2009 period, are entitled to the following benefits:

 

  • 10-year tax- exempt for company active abroad owned and/or managed by new immigrants or returning residents

During this 10-year period, the company can generate tax-free revenue during a decade only if revenues are not generated in Israel.

 

  • 10-year tax- exempt from reporting earnings whose source is from abroad.

New immigrants and returning residents and companies under this prescription are not obligated to report earnings. However, income from activities in Israel or from Israeli investments and assets generated following Alyah or return to Israel is subject to reporting and taxation according to regular tax laws.

 

  • 10 year tax- exempt for all income generated outside Israel

New immigrants and returning residents are exempted for 10 years for all income, active or passive such as pensions, royalties, dividends and rental of assets 

 

 II       Limits of Tax Alyah Exemption

New immigrants and returning residents should be aware that the 10-year exemption does not apply to income for work done in Israel for a foreign firm.

 

What does it mean?

In fact, a new immigrant  or returning resident who keeps running his business from Israel is required to pay Israeli tax from day on income for all activities performed in Israel, which is frequently  the case for the new immigrants and  returning residents from Europe and USA.

In consequence, just income attributable to days work abroad is, in principle, exempt from Israeli income tax.

Our law office is able to assist you in defining the best strategy to avoid unpleasant situations due the complexity of this legislation.