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Information for Olim
Who is eligible
for relief?
Reduction
of tax on pensions received by new immigrants
How will the
reduction be calculated?
Pensions entitled
to the reduction
Relief for
new immigrant's passive income
Exemption
for tax on interest accrued from a deposit in a Israeli bank
Income Form
Foreign Securities
Relief for
income from a new immigrant's business
Relief for
new immigrant's capital gains
Relief for
returning residents
How to apply
for relief
Dear "Oleh",
As of January 1st, 2003, the tax system in Israel was changed. All residents, old and new, are, from here on, subject to tax on a worldwide basis. If tax is paid abroad, the tax in Israel is reduced according to special rules provided.
We wish to inform you of special provisions set by the new law relating to the income of new immigrants, in order to ease your absorption in Israe.
If you have never been
a resident of Israel in the past, you are entitled to relief in taxation
of certain income received from abroad.
If you have, in the past,
been an Israeli resident, subsequently resided outside of Israel as foreign
resident* for three consecutive years, and currently returned to be an
Israeli resident, you shall be entitled to relief granted to returning
residents.
* A foreign resident acknowledged as such by the Israeli tax laws.
Reduction of tax on pensions received by new immigrants
If you are eligible to a pension due to work performed in the past outside
of Israel, the total amount of tax due in Israel will not exceed the tax
you would have paid on that pension had you remained a resident abroad.
You will be entitled to this reduction as long as you receive the pension
from abroad.
If you receive a pension
from a State with which Israel has a double taxation convention, the pension
may be completely exempt in Israel according to that tax convention.
If you receive a pension
from a State that is party to a tax convention which allows both States
to tax the pension, or from a State with which there is no tax convention,
and the pension is subject to tax in such State , the amount of tax payable
in Israel shall be limited to the tax that would have been charged abroad.
You will receive credit in Israel for tax paid abroad hd you remained
resident abroad. If the reduced tax in Israel equals the amount paid abroad,
you will not be required to pay additional tax in Israel.
How will the reduction be calculated?
In calculating the tax that would have been levied abroad, account will
be given to personal allowances that you would have been entitled to deduct
had you remained a resident abroad. The tax is calculated as if the pension
were your only income, without deducting allowances, expenses or losses
from other sources of income.
The assessing officer in your area of residence will be glad to provide
information about documents you would be required to submit.
If the reductions granted according to the Income Tax Ordinance to the
general population are preferential to those affporded by the special
reduction for new immigrants, you may choose to forfeit the special reduction
and receive the regular reduction (if you fulfill the entitling criteria).
Pensions entitled to the reduction
You will be entitled to the reduction if the following three conditions are met:| 1. | You receive a pension in periodic installments |
| 2. | The pension was procured by regular deposits made to a pension fund from your wages during the period of your work outside of Israel as an employee or self-employed. |
| 3. | The deposits were made either by your self (as employee or self-employed) or by your employer. |
Relief for new immigrant's passive income
You are entitled to relief
for a limited period, on your income from interest, dividends, pension,
royalties and rental payments, paid on account of assets outside of Israel,
that you owned before becoming a resident and have maintained, provided
that the said income is not business income.
You may request that this income, or a part thereof, shall not be exempt
from tax.
The period of relief:
If you have become a resident of Israel after 1.1.93, the relief will
be granted on the said income during the 2003 tax year.
If you have become a resident of Israel after 1.1.98, the relief is granted
for the later of either 5 full years from the date of becoming an Israeli
resident, or until the end of the 2003 tax year.
For example:
A person, who became resident on 1.1.2001, can enjoy the relief for 3
years, from 1.1.2003 until 31.12.2005.
Exemption from tax on interest accrued from a deposit in an Israeli bank
You will be exempt from tax on income from interest for 20 years if sums
of money, that belonged to you outside of Israel before you became a resident
in Israel, are deposited in an Israeli bank. The following conditions
must be met:
| 1. | The sums of money were deposited in a foreign currency account in a banking institution for a fixed period, of no less than three months. |
| 2. | The sums were deposited within 90 days of being transferred to Israel. |
| 3. | You signed an affidavit within 14 days of opening the account establishing
that you have become an Israeli resident for the first time. For accounts opened before 1.1.2003, this requirement may be met until 31.12.2003. |
| 4. | The interest income is of private character and is not part of your business or vocation income (there are limitations to the use the bank may make of the deposit as collateral for loans to others). |
| 5. | The exemption will be granted for 20 years from the date of your first becoming a resident in Israel. |
Income Form Foreign Securities
If you became a resident of Israel, for the first time and are included
in one of the following categories you shall be eligable for reduced tax
rates on income from foreign securities, applicable immediately from the
2003 tax year.
These rates are:
15% on interest from a foreign security
25% on dividends from a security
15% on real capital gain from the sale of a security
Who is eligable for relief?
| 1. | If you reached the age of 60 after 1.1.2003, you are entitled to the relief upon becoming 60 years of age. | |
| 2. | If you reached the age of 60 on 1.1.2003 or before, you shall be entitled to the relief if one of the following apply: | |
| a. | You were at least 50 years of age at the time of first becoming a resident. | |
| b. | At the time of first becoming an Israeli resident, you were between 40 and 50 years of age. In this case, the relief shall apply only if you declare before the Assessing officer that the source of the foreign securities was from assets outside of Israel, that you have held before your immigration to Israel. | |
| c. | Less then 20 years have passed since you first became a resident in Israel. | |
| 3. | Less then 10 years have passed from the day you first become a resident of Israel. | |
| 4. | If less then 20 years have passed from the day you first became a resident of Israel, you are entitled to the relief if the source of the foreign security was from assets outside of Israel, that you have held before your immigration to Israel. | |
Relief for income from a new immigrant's business
You are entitled to an exemption from tax on income from your business outside of Israel, for 4 years from the day you became an Israeli resident, provided that the business was yours for at least 5 consecutive years before you became a resident of Israel.
Relief for new immigrant's capital gains
If you sell an asset that you have owned outside of Israel before you
became an Israeli resident, within 10 years from the day you became an
Israeli resident, you shall be exempt from tax on the profits from the
asset's appreciation. (Before the tax reform the exemption was limited
to 7 years only).
If you sell the asset after 10 years of becoming an Israeli resident,
you will receive a partial relief calculated according to relative periods:
capital gain from the day of purchasing the asset abroad until the end
of the 10 exempt years shall be exempt from tax and the remaining capital
gain will be subject to tax.
The actual value of the asset at the end of the 10 exempt years will not
be examined, but rather a relative calculation will be made according
to the following formula:
| Real capital | X Period from date of acquisition until the end of the 10 exempt
years _________________________________________________________ |
| capital gain | gain from sale Period from date of acquisition until date of sale |
Relief for returning residents
Relief for returning residents is granted only with regard to assets
purchased during the period of residing outside of Israel after ceasing
to be an Israeli resident.
Passive income derived
from these assets will enjoy the same relief as that given to new residents
under the same conditions.
Capital gains on the sale of these assets will be granted the relief given
to new residents, if the asset does not entitle its owner, directly or
indirectly, to an asset in Israel.
If the asset is a right
in a foreign corporation, the relief will apply only if the foreign corporation
is not entitled to a right that was in Israel.
If you shall receive income from abroad you will have to apply to the
assessing officer in your area of residence, submit a report of your income
during that year and request the relief you are entitled to.
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