The Secret Of TOP QUALITY RESIDENCES

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

In 2008 the Knesset approved Amendment 168 to the 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 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 person who was a resident of Israel, then left and was a foreign resident for at least 10 consecutive years and then returned to become a resident of Israel. However, an individual returning to 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 a foreign resident at 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?

According to Amendment 168 new immigrants and veteran returning residents are entitled to broad tax exemptions for an interval of ten years from the day they become Israeli residents. The exemptions apply to 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 the definition of “returning resident” is entitled to 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 such as royalties, rents, interest and dividends.

? Exemption for a decade 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 during the period of foreign residency jeopardize the benefits?

So as to create certainty and to allow people living abroad to plan their proceed 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 least 183 days per year for two years.

2. An individual whose center of life was outside Israel for two years after leaving Israel. (The term “center of life” will undoubtedly be explained below).

Will visits to Israel take off the sequence of foreign residency, thus endangering the huge benefits?

The answer is not any. Visits to Israel won’t endanger the status of foreign residency provided that the visits are indeed visits. If the visit begins to look live a move, both with regards to 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, a company incorporated in Israel or controlled or managed in Israel is deemed 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 companies would often be taxed on worldwide income once their owners moved to Israel. This example led the Knesset to include in Amendment 168 the provision stating that a foreign company will not be considered a resident of Israel solely because of one’s move to Israel. As long as the company is not clearly controlled or managed in Israel, it is eligible for the exemption for income produced outside Israel. Of course, if management and control come in Israel then the company is regarded as 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 an individual go from being a non-resident to a resident of Israel? As noted above, the “center of life” test determines whether one is a resident of non-resident of Israel. The biggest market of life test involves a complex balancing of many aspects of a person’s life – family, personal and economic. Ki Residences Sunset Way The test takes into account a range of components including the person’s residence, host to residence of the family, main place of business 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 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 2009 2009 to plan a return to Israel in 2010 2010 would want to set up a “center of life” shift in ’09 2009. This would entitle the person to the expanded rights of a veteran returning resident. If planned and documented planning, you 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 beyond Israel. Exemptions do not make an application 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 will tend to be deemed produced abroad. The same holds 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.

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