Is TOP QUALITY RESIDENCES Worth [$] To You?

This article provides an overview 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 conditions 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 types 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 very first time.

“Veteran returning resident” is a one who was a resident of Israel, then left and was a foreign resident for at the very least 10 consecutive years and returned to be a resident of Israel. However, an individual returning to Israel between January 2007 and December 31 2009 will undoubtedly be considered a veteran returning resident if that person was abroad for an interval 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 prior to January 1 2009 will be considered as returning residents eligible for the tax benefits even though 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 a period of ten years from your 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 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 a decade 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 during the period of foreign residency jeopardize the huge benefits?

So that you can 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 a person who meets both of these 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 just 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 no. Visits to Israel will not 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 businesses would often be taxed on worldwide income once their owners moved to Israel. This situation led the Knesset to include in Amendment 168 the provision stating a foreign company will not be considered a resident of Israel solely because of one’s move to Israel. So long as the company is not clearly controlled or managed in Israel, it really 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

The following are common tax-related issues encountered by people planning their proceed to Israel:

1. At what point does an individual go from being truly 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 considers a range of components including the person’s residence, place of residence of the household, main place of business place, center of economic activity, etc.

The test is not black and white but grey, as people in the midst of 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, someone 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 ’09 2009. This would entitle the individual to the expanded rights of a veteran returning resident. If planned and documented planning, you can definitely take advantage of the fluid nature of the biggest market 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? Regarding passive income, dividends or interest received from the foreign company abroad will tend to be deemed produced abroad. Exactly the same holds true for capital gains. In case a foreign resident bought a house abroad and sold it after learning to be a resident of Israel, the gain will likely be exempt from capital gains tax in Israel. Ki Residences Sunset Way

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