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Immigration to Israel: Israeli Tax Ramifications and Benefits

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Immigration to Israel: Israeli Tax Ramifications and Benefits
When does Israeli residency start?
Foreign Taxation
Israeli Sourced Income
Pensions & Other Assets
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Guest Contributor: Leon Harris
10 Year Tax Holiday
Israeli resident individuals are subject to Israeli tax on their worldwide income and capital gains. Effective January 1, 2007, "New residents" and "Senior returning residents" (Israelis who have lived abroad for at least 10 years) are both entitled to the same package of tax benefits.
Returning residents who lived abroad for only 5 years, but who returned from 2007-2009, are also entitled to these same tax benefits. References to new residents below include senior returning residents, unless otherwise indicated.
The most notable benefit for new residents is a 10-year tax holiday (exemption) regarding all non-Israeli sourced income and capital gains, even if the foreign assets were acquired after moving to Israel.
Exempt income and related assets do not need to be reported to the Israel Tax Authority for the entire 10 years. All types of income and capital gains are covered by the exemption if they are derived from non-Israeli sources, such as income from salary, business, pensions, investments, etc.
New residents and senior returning residents also have immunity from rules regarding ‘control and management’ and ‘controlled foreign companies’ and ‘foreign professional companies’. In addition, they may elect, within 90 days after arrival in Israel, to be treated as non-resident for one year for Israeli tax purposes (explained in more detail below).
Waiving the Exemption
New Immigrants are entitled to waive their exemption on passive and earned income. There are relatively few circumstances where this option is preferable. But in particular cases, where there is a lack of clarity regarding the taxation of pension income, it may be desired to pay a low Israeli tax, rather than to pay a higher foreign tax.

Guest Contributor: Leon Harris

10 Year Tax Holiday

Israeli resident individuals are subject to Israeli tax on their worldwide income and capital gains. Effective January 1, 2007, "New residents" and "Senior returning residents" (Israelis who have lived abroad for at least 10 years) are both entitled to the same package of tax benefits.

Returning residents who lived abroad for only 5 years, but who returned from 2007-2009, are also entitled to these same tax benefits. References to new residents below include senior returning residents, unless otherwise indicated.

The most notable benefit for new residents is a 10-year tax holiday (exemption) regarding all non-Israeli sourced income and capital gains, even if the foreign assets were acquired after moving to Israel. 

Exempt income and related assets do not need to be reported to the Israel Tax Authority for the entire 10 years. All types of income and capital gains are covered by the exemption if they are derived from non-Israeli sources, such as income from salary, business, pensions, investments, etc.

New residents and senior returning residents also have immunity from rules regarding ‘control and management’ and ‘controlled foreign companies’ and ‘foreign professional companies’. In addition, they may elect, within 90 days after arrival in Israel, to be treated as non-resident for one year for Israeli tax purposes (explained in more detail below).

Waiving the Exemption

New Immigrants are entitled to waive their exemption on passive and earned income. There are relatively few circumstances where this option is preferable. But in particular cases, where there is a lack of clarity regarding the taxation of pension income, it may be desired to pay a low Israeli tax, rather than to pay a higher foreign tax.


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