Israeli Tax benefits for New

Immigrants and Veteran

Returning Residents
Iddan Dinai, Adv.
.Tax Partner, Barnea & Co
 Law Definition of an Israeli resident
Iddan Dinai,
Adv. Section 1 of the Israeli Income Tax Ordinance –
1961, defines an Israeli resident as:
An individual whose center of life is in Israel
The entirety of the individual's family, economic
and social ties should be considered, including:
• The individual’s place of permanent home
• His and his family's dwelling
• The individual’s permanent place of being employed or the
permanent or ordinary place of occupation

• The individual’s place of active and substantial economic interests

• The individual’s place of activity in organizations, associations or

other institutions
 Quantitative Presumptions
Iddan Dinai,
Adv. A presumption that the center of an individual’s
life is in Israel applies if:
• The individual stayed in Israel during the tax year for a
period of 183 days or more; or -

• The individual stayed in Israel during the tax year for a

period of 30 days or more and the total period of his
stay in Israel in the current tax year and the two years
preceding it is 425 days or more.

• The presumption could be rebutted by either the

individual or the Assessing Officer
• Exceptions: an employee of the State of Israel, an
Israeli Municipal authority, the Jewish Agency, etc.
 Qualitative Tests
Iddan Dinai,
Adv. The ultimate test – the center of life test:
• Examination of the overall family, economic and
social ties to Israel in light of individual
circumstances (Gonen High Court ruling )
• Non formal rather than quantitative examination

• Objective test – location of the majority of an

individual’s relations (physical examination)
• Subjective test – the location the individual
perceives as his center of life (examination of
intention)
 Effective Date of Becoming an
Israeli Resident
Iddan Dinai,
Adv.

• Specific date or entire tax year?

• Numerous tax resolutions indicate a tendency to
attribute the change in residency to the
beginning of a specific tax year, unless
circumstances explicitly indicate that the change
in residency can be attributed to a certain date or
month
• Under the Tax Authority’s guidelines , the earliest
of the following should be regarded as the arrival
date:
• Date of Aliya under Ministry of Absorption criteria
 Effective Date of Becoming an
Israeli Resident (Cont.)
Iddan Dinai,
Adv.

• The first day a permanent home was

available in Israel for the new-comer and
his arriving family members, and if he is
single the first day a permanent home
was available for him while in Israel
while not having another permanent
home outside Israel.
• The first day in Israel in a tax year in
which the new-comer eventually stayed
in the aggregate more than 183 days
 Dual Residence and "Tie-
Breaker" Rules
Iddan Dinai,
Adv.

Tie-Breaker rules under the Convention

between the State of Israel and the
Kingdom of Belgium for the Avoidance
of Double Taxation with respect to
Taxes on Income and Capital (the
“Treaty”):
Dual residence might arise under Article
4(1) of the treaty that stipulates:
“Resident of a contracting state" – any
person, under the laws of that state is liable
to tax therein by reason of domicile,
residence, place of management or any
other criterion of similar nature”
 "Tie-Breaker" Rules
Iddan Dinai,
Adv. Article 4(2) hierarchal tests:
• Permanent home available
• Center of vital interests
If a permanent home is available in both
states – deemed to be a resident of the state
with which his personal and economic
relations are closer
• Habitual abode
If center of vital interests cannot be
determined or if the individual has no
permanent home available to him – he is
deemed to be a resident of the state in which
the individual has an habitual abode
 "Tie-Breaker" Rules (Cont.)
Iddan Dinai,
Adv.

• Nationality
If the individual has an habitual abode in
both states or in neither of them – he is
deemed to be a resident of the state of
which he is a national
• If an Individual is a national of both
states or of neither of them – the
competent authorities of the contracting
states shall settle the question by mutual
agreement
 Expansion of Tax Benefits
under Amendment 168 of the
Iddan Dinai,
Adv. Income Tax Ordinance
• Additional tax benefits applicable to new immigrants
and veteran returning residents (“Eligible Individuals”)
under Section 14 of the Income Tax Ordinance:
• Tax exemption on business and foreign employment
income generated outside Israel for a period of 10
years
• Tax exemption on capital gains on the sale of non-
Israeli assets for a period of 10 years, including
assets purchased after the immigration date. A partial
linear exemption shall still apply after the 10 year
period.
 Expansion of Tax Benefits
(Cont.)
Iddan Dinai,
Adv. • An Eligible Individual will not be considered a
"controlling shareholder" of a "Controlled Foreign
Company" as defined in Section 75B of the Income
Tax Ordinance– a tax benefit in relation to
imputed dividend income deriving from passive
income of a foreign company
• Tax benefits relating to foreign trusts
• Tax exemption for income attributed to an Eligible
Individual deriving from a “Foreign Occupation
Company” as defined in section 5(5) of the Income
Tax Ordinance for a period of 10 years
• Please note – determination of the effective date
of becoming an Israeli resident is critical.
 Adjustment Period
Iddan Dinai,
Adv.

An Eligible Individual may elect, 90 days

from his arrival date, not to be considered
an Israeli resident for tax purposes for a
one year adjustment period, commencing
the date of arrival to Israel. The Adjustment
Period will be counted for the purpose of
any exemption period, should he stay in
Israel.
 A Foreign Company
controlled and managed in
Iddan Dinai,
Adv.
Israel
• A foreign company controlled and managed in
Israel is usually regarded as an Israeli resident
company for tax purposes
• Following Amendment 168 , a foreign company
controlled and managed in Israel by an Eligible
Individual (the “Controlled Company") will not
be deemed for a 10 year period as an Israeli
resident company for tax purposes
• An exception applies in relation to a foreign
company whose operation could not exist
without having its business activity controlled
and managed in Israel
 Foreign Company (Cont.)
Iddan Dinai,
Adv.

• Non-Israeli source income of a foreign

company managed and controlled by an
Eligible Individual will not be subject to
Israeli corporate tax for a period of 10
years

• Interest and dividend income derived by

the Eligible Individual from such
company will also be tax exempt for a
period of 10 years
 ILLUSTRATION OF HOLDING ALTERNATIVE
STRUCTURES

New “Oleh”

Dividend A Dividend B Dividend C

Foreign company A Foreign company B Israeli company C

Israeli Source Income Foreign Source Income World Wide Income

Iddan Dinai,
Adv.

Thank you for your

attention