TOP QUALITY RESIDENCES Shortcuts – The Easy Way

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This article provides an overview of the tax benefits Israel provides returning residents, Olim and companies they control. This article will detail who is eligible for benefits and what those benefits are. Finally this 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 Income Tax Ordinance, which provided significant tax advantages to new immigrants and returning residents who moved to Israel after January 1, 2007.

There are three types of people eligible for tax benefits: “new immigrants”, “veteran returning residents” and “returning residents”.

“New immigrant” is one 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 the very least 10 consecutive years and then returned to become a resident of Israel. However, a person returning to Israel between January 2007 and December 31 2009 will undoubtedly be considered a veteran returning resident if see your face was abroad for a period of at the very least five years.

“Returning resident” is a person who returned to Israel and became an Israeli resident after being truly 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 they were foreign residents for only three consecutive years.

What are the benefits?

In accordance with Amendment 168 new immigrants and veteran returning residents have entitlement to broad tax exemptions for an interval of ten years from your day they become Israeli residents. The exemptions connect with all income which hails 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 the definition of “returning resident” is eligible for fewer benefits. 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 as the person was a foreign resident.

What is the definition of “foreign resident” and do visits to Israel over foreign residency jeopardize the benefits?

As a way to create certainty also to allow people living abroad to plan their proceed to Israel, Amendment 168 defines who’s 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 just 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 take off the sequence of foreign residency, thus endangering the huge benefits?

The answer is not any. Visits to Israel won’t endanger the status of foreign residency so 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 could 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 thus taxed on worldwide income. Therefore, without a clear exemption for foreign companies owned by veteran returning Israelis or Olim, these companies would often be taxed on worldwide income once their owners moved to Israel. This example led the Knesset to include in Amendment 168 the provision stating that a foreign company will not be considered a resident of Israel solely due to one’s move to Israel. As long as the company is not clearly controlled or managed in Israel, it is eligible for the exemption for income produced outside Israel. Needless to say, if management and control come in Israel then the company is deemed an Israeli resident and taxed on worldwide income. Also, if the business produces Israel sourced income, it really is taxed on that income.

Ki Residences Singapore Planning Highlights

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

1. At what point does a person 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 center 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 such as the person’s residence, host to residence of the family, main office place, center of economic activity, etc.

The test is not black and white but grey, as people amid 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, somebody 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 want to establish 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 make use 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 beyond Israel. Exemptions do not make an application for income stated in Israel. When is income considered produced in or outside of Israel? Regarding passive income, dividends or interest received from a foreign company abroad are likely to be deemed produced abroad. 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 is going to be exempt from capital gains tax in Israel.

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