How To Turn TOP QUALITY RESIDENCES Into Success

This article provides an summary of the tax benefits Israel provides returning residents, Olim and companies they control. The article will detail who is eligible for benefits and what those benefits are. Finally the article will review the main issues that often arise through 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 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 person who was a resident of Israel, then left and was a foreign resident for at least 10 consecutive years and returned to be a resident of Israel. However, an individual time for Israel between January 2007 and December 31 2009 will be considered a veteran returning resident if that person was abroad for an interval of at least five years.

“Returning resident” is a person who returned to Israel and became an Israeli resident after being truly a foreign resident at the very least six consecutive years. However, residents that left Israel prior to 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?

In accordance with 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 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. Ki Residences Singapore The benefits are tax exemptions for five years on passive income produced abroad or originating from assets outside Israel. The main 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 10 years on capital gains from the sale of property that 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 benefits?

So that you can create certainty also 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 least 183 days per year for two years.

2. A person 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 cut off the sequence of foreign residency, thus endangering the benefits?

The answer is no. Visits to Israel will not endanger the status of foreign residency as long as the visits are indeed visits. If the visit begins to look 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 relating to Amendment 168 the provision stating that a foreign company will never 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 really 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 really is taxed on that income.

Planning Highlights

The following 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. The test takes into account a range of components such as the person’s residence, host to residence of the family, main office place, center of economic activity, etc.

The test is not monochrome but grey, as people in the midst of moving have contacts and activities in at least two countries. But a person planning to proceed to Israel can and should plan his steps carefully. For instance, someone who has lived abroad since June 2004 and who returned to Israel many times in ’09 2009 to plan a return to Israel in 2010 2010 would want to set up a “center of life” shift in 2009 2009. This would entitle the person 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 center of life test to attain 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 produced in or outside of Israel? Regarding 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 becoming a resident of Israel, the gain will likely be exempt from capital gains tax in Israel.

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