Thank you to Avraham Deutsch’s office for authoring this article.
New immigrants and returning citizens are entitled to various benefits granted by the Israeli Income Tax Ordinance. These benefits were extended in 2008 in commemoration of Israel’s 60th anniversary to try further to provide incentives for Jews to make Aliyah. A returning resident is someone who has either resided overseas for at least ten years; or resided overseas for five years and returned to Israel during 2007-2009; or were considered foreign residents on January 1, 2007. Special benefits also exist for returning scientists and entrepreneurs. The law was introduced in order to persuade many Israelis, who had made Yerida (left the State of Israel) to return. These tax benefits are offered to new immigrants who made Aliyah after January 1, 2007 as follows:
New Tax Status for Returning Residents
A new tax status – “a returning resident classified as a new immigrant for tax purposes”, will expand tax benefits given to returning residents. The new status will be given to individuals who:
- Resided overseas for at least ten years from their departure from Israel
- Resided overseas for five years and returned to Israel during 2007-2009
- Were considered foreign residents on January 1, 2007
Tax Exemptions for Companies Managed by Returning Residents or New Immigrants
Returning residents or new immigrants who own a foreign company, that is managed and controlled from abroad, will no longer be automatically subject to Israeli taxes. Thus, the company, in general, will be able to continue generating tax-free revenues, so long as these revenues are not generated in Israel.
Exemption from Reporting Earnings from Abroad
Returning residents or new immigrants, and the foreign companies that are under their direction, are not obligated to report earnings that benefit from the exemption. Only income from activities in Israel and from Israeli investments and assets that are generated following Aliyah or returning to the country are subject to reporting and taxation according to regular tax laws.
Expansion of Tax Benefits for a Returning Citizen and New Immigrant
Returning residents and new immigrants will be exempt from taxes for ten years on income generated outside Israel. This covers all income, active or passive, such as interest, dividends, pensions, royalties, and rental of assets. All income, whether from the realization of assets and investments abroad or from regular income abroad, is tax exempt.
Taxation Relief on Non-Israeli Pension Income for Returning Residents and New Immigrants
Returning residents and new immigrants will be entitled to reduced tax rates on pension income from certain work-related pensions. In general, the tax rate in Israel on such pensions will not be higher than the tax rate in the country paying the pension.
Tax Credit for New Immigrants (updates as of January 1, 2022)
New immigrants who made Aliyah prior to January 1, 2022 (date not inclusive) will enjoy an income tax credit, which helps reduce their income tax base, over a period of 3.5 years. The breakdown is as follows:
- During their first 18 months after Aliyah – you receive 3 tax credit points.
- During the next 12 months- 2 points (reducing 1 point from the previous 18-month period).
- During the next 12 months- 1 point (reducing 1 point from the previous 12-month period).
For a total of 3.5 years
Effective immediately, new immigrants who made Aliyah after January 1, 2022 (date inclusive) will enjoy income tax credit over a period of 4.5 years. The breakdown is as follows:
- During their first 12 months after Aliyah – 1 tax credit point
- During their first 18 months after Aliyah – 3 points (adding 2 points from the previous 12-month period).
- During the next 12 months- 2 points (reducing 1 point from the previous 18-month period).
- During the next 12 months- 1 point (reducing 1 point from the previous 12-month period).
For a total of 4.5 years
Tax Benefits for New Immigrants on Interest from Foreign Currency Deposits
New Immigrants are entitled to an exemption from paying tax on interest on foreign currency deposits for 20 years, so long as the source of those deposits is capital they possessed prior to their immigration, and which was deposited in an Israeli banking institution.
An Adjustment Year
New immigrants and returning residents can fill out an application form for an adjustment year. During the year they will not be considered Israeli residents for tax purposes. At the end of the year, if they decide to stay in Israel, they will enjoy all the benefits that are part of the new tax reform, and the period of residency will start retroactively from the first date they arrive in Israel.
Summarization of the Tax Benefits Before and After the Reform
| Type of Benefit | Past Status | Present Status | |
| New Tax Status – a returning resident classified as a new immigrant for tax purposes | Did not exist |
| |
| Exemption on passive income (interests, dividends, rentals etc.) for new immigrants and returning residents | Granted to new immigrants only for a 5-year period | Granted for a ten-year period for new immigrants and returning residents. The exemption includes income from professional work and salaries. | |
| Exemption on income from professional work and salaries | Granted for four years only to new immigrants who owned a business 5 years prior to their Aliyah | ||
| Companies managed by new immigrants | Did not exist | Exemption from tax on income for a new immigrant or a returning resident who owns companies that are managed abroad. | |
| Exemption from reporting | Limited exemption | Full exemption on reporting exempted income. | |
| Adjustment track for tax purposes | Did not exist | One-year adjustment period from the date of arrival to Israel. |
* Last updated on August 10, 2022 *
.
Alan (Avraham) Deutsch is a CPA, with over 30 years’ experience. Alan and his associates specialize in income tax planning and compliance as well as in investment consulting. Alan has five office locations and can be reached at 02-999-2104, 03-527-3254, 09-746-0623 or 052-274-9999, or you can e-mail him at [email protected]. Please visit his website at www.ardcpa.com for more information.
