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When does a returning resident need to prepare vis a vis the Israeli Tax Authorities?

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Relocation is a complex process which requires serious efforts and also physical efforts. Often the effort required from an individual and his family is so considerable that they do not find some time to devote to planning their tax and national insurance. This when actually relocation is the year when there are many tax traps, together with national insurance traps. Moreover, with correct planning it is possible to utilize during the relocation year many tax and national insurance advantages which result in real saving.

We take for an example an individual who in the past was an “Israeli resident”, became a “foreign resident” and now is returning to Israel (“an ordinary returning resident”). The following is a list (not closed) regarding which, should there be one or more of the following situations, then that individual must know how to prepare with the Tax and National Insurance Authorities in Israel, whether in order to submit returns and tax payments or in order to utilize the tax benefits due to him:

  • Ownership of an independent business abroad which will continue to operate after his return to Israel.
  • Continuing to receive a salary from an employer abroad after returning to Israel.
  • Holding real estate and financial assets, negotiable or private, abroad. This particularly applies to those acquired during the period prior to the individual becoming a foreign resident, or if the assets were acquired as a foreign resident, but the total period that he stayed abroad was shorter than the period which entitles him to be considered a returning resident (in the past – 3 years stay abroad as a foreign resident, today 6 years).
  • Current income from assets abroad (rent, dividends, interest, royalties, pension).
  • Holding real estate and Israeli business assets, directly or indirectly, without considering when acquired (including a residential apartment leased for an amount above the exempt tax ceiling – in 2014 an exemption ceiling was NIS 5,080 per month).
  • Employee share options, received or which will be exercised in Israel, particularly when part of the vesting period occurred when abroad.
  • Holding a rate of 10% and above in an Israeli company.
  • Holding any rate in a foreign company (which is not traded on the stock exchange) or holding in another asset whose value is over NIS 1.8 million, or holding in bank accountants whose total balance exceeds NIS 1.8 million, on any day during the year.
  • Interest revenues in Israel exceeding NIS 632 thousand, on which tax was not deducted according to regulations.
  • Creation or receiving a trust, directly or indirectly in a value exceeding NIS 100,000.
  • When there were significant signs of Israeli residency, during the period of stay or during the period of work abroad.
  • Salary (gross) in an amount exceeding NIS 638,000 (including from realizing shares received in an option plan and shares to employees).
  • Own activities in Israel.

Israeli law enables a tax exemption in some of the above events for a limited number of years. In other cases, or regarding years thereafter, the tax exemption is stipulated in the law, and it is possible to plan the realization of profits and withdraw income to utilize tax advantages.

The conclusion required is, that in addition to the obligation of reporting to the Tax Authorities regarding the above events, it is advisable that anyone carrying out a process of relocation will plan how to utilize the tax advantages and will avoid tax and national insurance traps, all according to his specific circumstances.