Update on Israeli Tax Benefits for Returning Residents and New Immigrants 

Dr. Avi Nov, Adv. 

February 2011

Israel enacted important amendments recently, which are relevant to Returning Residents (Toshavim Chozrim) and New Immigrants (Olim Chadashim). These amendments are in addition to the outstanding tax benefits that were granted to returning residents and new immigrants in amendment 168. The new tax benefits include tax exemption on royalties and tax credits for returning residents.

Tax exemption on royalties

The new Economic Policy for 2011 and 2012 Law, includes a new tax exemption for people classified as “Privileged Resident.” The new tax exemption applies to new immigrants who first become Israeli residents in the years 2011-2015, or returning residents who return to reside in Israel in those years after residing outside Israel six consecutive years.

The new tax exemption applies to a non-Israeli resident who is invited to live and work at an Israeli academic institution or hospital. Such individual will be exempt from Israeli tax on royalty income received from a “Yissum” compny belonging to that institution for five years starting in the year such income is first received. The new tax exemption applies commencing January 1, 2011, and is subject to various conditions.

The tax exemption is contingent on various conditions, such as:

The individual returns to Israel between 2011 until 2015, and enters into an agreement with a “Yissum” compny within the two-year period commencing at the end of the year in which he arrived in Israel; the product is based on R&D that was approved by the Chief Scientist pursuant to the R&D Law.

 

Tax credits for returning residents

A new law was enacted to grant additional tax credit points to returning residents (Amendment 181 to the Income Tax Ordinance).

A returning resident that becomes an Israeli resident between May 16, 2010 and September 30, 2012, after being a Non Israeli resident for at least six consecutive years will be entitled to tax credit points granted gradually over a 3.5 year period commencing on the latter of the date of his arrival in Israel, or January 1, 2011. This is equivalent to the existing law regarding new immigrants.

During the first 18 month, the returning resident will be entitled to three credit points, during the next 12 month - two credit points, and during the last 12 month - one credit point. Each annual credit point is worth about NIS2,500.

Until this new amendment, the extra credit points were granted only to people who had a Teudat Oleh (immigration certificate) under the Law of Return.
 
A returning resident can receive the tax benefit through his Israeli wage by presenting a letter obtained from the Ministry of Absorption. Alternatively, the tax benefit can be obtained as part of the annual tax return.
 
Dr. Avi Nov, Adv., is an expert in Israeli & international tax law 

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This article is intended for informative purposes only and is in no way to be construed as tax advice or a legal opinion

 

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