Israel as a Tax Heaven

Foreign Investors|New Immigrants|Returning Residents

Dr. Avi Nov, Adv.

January, 2013

The State of Israel has become in recent years a unique country related to attracting foreign capital, Foreign Investors, New Immigrants and Returning Residents. One of the major factors for this is the tax system that grants far-reaching tax benefits and relief as well as extraordinary exemptions for Foreign Investors, New Immigrants and Returning Residents.

‪The special Israeli tax system along with a stable economy, and extensive tax treaties (about 50 tax treaties), places Israel as a leader in all relating to investments in high tech companies and real estate assets as well as providing an ultimate framework for international taxation planning for Foreign Investors.

‪The following provides a summary of tax benefits, and tax planning opportunities pursuant to Israeli tax law, which can be used legitimately:

Tax benefits for Foreign Investors that invest in Israel

• An exemption from capital gains tax for Foreign Investors on the sale of shares in an Israeli company (or foreign company, provided that most of its assets are in Israel), subject to a number of terms and conditions. See also: New Israeli Tax Incentive for Foreign Residents
• An exemption from capital gains tax for Foreign Investors on the sale of securities registered and traded on the Tel Aviv Stock Exchange by foreign residents.
• ‪An exemption from capital gains tax in Israel for Foreign Investors in hedge funds. See also: Israel tax ruling on hedge-fund managers
• An exemption from Income tax on interest on bank's deposits by Foreign Investors.
• ‪An exemption from tax for Foreign Investors on income from interest and linkage differentials on bonds traded on the Tel Aviv Stock Exchange, subject to certain terms and conditions.
• ‪An exemption from betterment tax in Israel on the sale of an absolved residential apartment (under certain terms and conditions), once every four years (or 18 months when this is the only apartment).
• An exceptional tax planning strategy for Foreign Investors. Such investors can use an Israeli company as the owner of their global investments and have full exemption from Israeli tax and tax reporting requirements.This structure is often called aTOV(Trust Owned Vehicles). For more details, see: The Israeli underlying company

Tax benefits for new immigrants and returning Israelis

• A tax exemption in Israel on all types of income, earnings and assets (outside of Israel) for 10 years for New Immigrants and Returning Residents. This exemption is accompanied by an exemption on reporting the aforementioned earnings, income and assets.
• New Immigrants are entitled to an exemption from purchases tax up to a sum of approx. NIS 1.4 million (approx. €280,000), as at February 2010 and on the balance they should pay 5%.
• An exceptional tax planning strategy for New Immigrants and Returning Residents. Such investors can use an Israeli company as the owner of their global investments and have full exemption from Israeli tax and tax reporting requirements (Trust Owned Vehicles).
• ‪An exemption from Income tax on interest on bank's deposits by new immigrants and returning Israelis.

See also: Tax breaks to new immigrants and returning residents

General Tax benefits for investors

• ‪Section 6 of the agreement between Israel and France (from 1963) prescribes that the tax on income from property assets (real estate) in Israel to be paid by a French citizen will only be paid in Israel (the place and which the land is located). The opposite holds true for an Israeli citizen who invests in real estate in France.
• ‪Section 13 of the agreement adds that earnings produced from transferring land will be taxed in the engaging country in which the aforementioned land is located.
• The Encouragement of Apartment Leasing Law – reduced tax rates are available for business income under certain terms and conditions.
• ‪A low company tax rate (compared with other countries).
• ‪‪Special tax benefits to investors in a REIT fund – An alternative to a direct investment in real estate.

Rental Income from Residential in Israel

• Passive income from renting out a residential apartment in Israel by individuals is valued in three options: first – an exemption option according to the Income Tax (Exemption from Tax On Income From Renting Out Residential Property) Law, 5750-1990, up to a certain ceiling, second – a reduced tax option at a rate of 10% according to Section 122 of the Income Tax Ordinance, and the third option – that is fully taxable on the one hand, and on the other hand allows one to claim expenses.