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Tax Benefits to New Immigrants and Returning Residents
Israeli law defines an Israeli resident for tax purposes by using the “center of life” test
which examines the individual’s family, economic and social ties. The application of
the test is assisted by two rebuttable presumptions regarding the number of days
the individual has spent in Israel within a certain period of time. The law offers some
benefits to new immigrants (who become Israeli tax residents for the first time) and
veteran returning residents (who, in the past, were Israeli tax residents and became
Israeli tax residents again, after being considered foreign tax residents for at least 10
consecutive years). For example, the benefiting individuals enjoy a 10 year tax and
reporting exemption with respect to foreign source income and assets.
Taxation of Trusts
In 2006,Israel passed a comprehensive tax reform,which introduced an unprecedented
tax on certain foreign trusts and foundations with Israeli settlors or beneficiaries. In
2014, the Israeli tax lawwas further redesigned in order to increase the scope of Israeli
tax collection, in light of Israel’s growing deficit. The government sought to increase
tax collection from trusts and foundations, inter alia, by imposing tax liability on foreign
trusts and foundations which were previously exempted.
According to the current law, a trust that has been settled by a foreign settlor, but has
an Israeli beneficiary (except for Israeli charity institutions) are liable to Israeli taxation.
Nevertheless, if all the trust’s Israeli beneficiaries are “related by family” to the settlors,
certain tax reliefs may apply. Tax reliefs are available to trusts and foundations where
the settlors and beneficiaries are new immigrants or returning residents. Additionally,
the 2014 reform imposed certain new reporting requirements. In general, the 2014
reform created a complex body of law, and, currently, there is a limited number of
judicial rulings which serve to clarifying its provisions.
Voluntary Disclosure
On September 2014, the ITA launched a new voluntary disclosure program (the “New
VDP”). The New VDP enables non-compliant taxpayers to come forward and arrange
their reporting and tax obligations in exchange for the ITA’s (in collaboration with the
State Attorney) undertaking not to initiate any criminal proceedings against such
taxpayers. The New VDP applies to any undisclosed passive or active income and
assets, whether in Israel or abroad. However, the New VDP does not apply to income
originating from illegal activities. The New VDP replaces previous programs and is in
effect until the end of 2016.
The New VDP also includes two special application tracks which will be in effect until
June 2016:
a) Anonymous applications – the application is submitted on an anonymous basis
and the identity of the taxpayer is disclosed only after a tax agreement has been
reached with the civil officer.
b) “Green Track” applications – if the total capital included in the application does not
exceed NIS 2 million and the aggregate taxable income does not exceed NIS 0.5
million, the taxpayer may apply for this route.
Real Estate Reform
House prices in Israel have soared dramatically in recent years. The government took
several steps to cool the market and reduce the cost of residential apartments,
includingcancelingpreviouslyexistingexemptions from landbetterment taxand raising
purchase tax brackets regarding purchases of residential apartments (particularly for
foreign buyers or acquisitions of luxury residential apartments).