First, I want to note that the tax benefits that are available to new immigrants (Ole Hadash) can save quite large amounts, and sometimes they dont even pay income tax in the first years of life in Israel. Such a mechanism is provided by the state in order to help Ole Hadash settle faster and adapt to new conditions. And if, for example, a person who plans to repatriate to Israel has a business in the country of origin, or assets that he does not plan to sell, or work that he can perform remotely, then he can also count on special tax benefits for a long period of time.
On what foreign and Israeli income does the new immigrant have tax benefits on?
Within 3.5 years, the repatriate has the opportunity to reduce the amount of income tax levied on wages, using the system of preferential units (nekudot zikuy). For 2019, the amount of the tax discount for one zekuy nekudot is 218 shekels a month or 2,616 shekels a year.
How it works:
In the first 18 months of living in Israel as a new citizen, the repatriate has benefits of 3 nekudot zikuy or 654 shekels a month in the amount of income tax;
The next 12 months – 2 nekudot zikuy or 436 shekels a month;
Another 12 months – 1 zekuy nekudot, 218 shekels a month.
The grace period begins on the date of receipt of repatriate status, and not on the “first income”. If the new Israeli citizen has no income for some initial period, then he cannot postpone this benefit, for example, until he is employed.
If the tax charged is less than the due amount of the return, then the difference simply “burns out”, i.e. Nekudot Zikui can fully cover the amount of income tax, but does not create additional surcharges “for non-use”.
For 10 years, the repatriate does not pay taxes and does not report to Mas Akhnas on income tax on such income from abroad as: bank deposits, dividends from securities, rent, pension, royalties, profit from the sale of real estate or assets, etc.
If you are a new repatriate and plan to sell your property abroad, for example, an apartment in the country of origin, it is better to do this before the end of the grace period of 10 years.
If you haven’t “seen” your income in this list, consult a professional.
For 10 years, the repatriate does not pay tax on pension savings.
For 20 years, the returnee does not pay income tax on foreign currency savings. Provided that this money came from Ole Hadash from the country of origin and is stored in Israeli banks.
Incomes earned abroad from foreign business or returnee investment projects are also exempted from taxes.
What foreign income does not include tax benefits for new immigrants?
If you are a new immigrant who permanently resides in Israel, but works remotely for a foreign employer, then such income from abroad does not fall under any item described in the preferential system. Other taxation principles and other benefits will apply here.
Typically, the taxation of such income is regulated by regulations that govern double taxation and the prevention of tax evasion. And usually, such documents establish that if work for a foreign employer is performed in the country of residence, then such income is taxed in accordance with the tax laws of the country of residence.
1) If you are an Israeli citizen who works for a foreign employer as a full-time employee, you need to make sure that the accounting of your foreign employer does not deduct local taxes from your salary, but applies to you the principles of calculating the salary for a foreign employee.
2) If you are an Israeli citizen who works for a foreign employer under the terms of a civil contract, make sure that your contract has a clause that the work is carried out outside the territory of the employers’ country. Such a clause will ensure the tax jurisdiction of the country of residence, i.e. of Israel.
Also in the country of residence income from “international” professional activities is taxed. This refers to writers, artists, architects, scientists, teachers, etc. An exception may be situations when the “customer country” the artist or architect (or any other person engaged in professional activities) has personal accounts to which income is received, or a legal entity, or another “local base”. Tax consultants in the “customer country” and in Israel will help clarify this point.
N.B.: If the work is physically carried out in the “customer country” and paid there, then such work is taxed first according to the tax laws of the “customer country”, and then the country of residence. Thus for new immigrants, such income is taxed only in the “customer country”, and in Israel it is exempt from tax for 10 years. At the end of the grace period, Ole Hadash, international regulatory documents governing double taxation come into force.
How to report to a new resident of Israel on labor income from abroad?
Some new compatriots are in no hurry to declare such incomes at all, but as an experienced specialist in tax matters, I can say with confidence that the Israeli tax authorities are vigilant for the money owed, they evade payment sooner or later (but usually sooner), they punish severely and without concessions (“I didn’t know” is not an argument for them).
More often than not, we recommend that a new repatriate register as an individual entrepreneur – it can be “osek murshe“, depending on the type of activity and annual turnover. And to cooperate with foreign employers on the basis of a civil contract.
The business activities of Ole Hadash also have a number of tax benefits. But I will not risk giving an exhaustive and universal answer to the question of how it is better to report to a resident of Israel on labor income from abroad. The taxation of income of an individual or private entrepreneur is influenced by a host of factors, such as types of income and amounts (meaning in relation to the minimum income), whether or not a salary is paid from an Israeli employer, whether there are income from business activities in Israel, and what expenses are incurred, taxpayer and many other factors. In each specific situation, it is better to seek tax advice and work out the best reporting format.
N.B.: Here I want to remind you that according to the professional code, client communication and swarm hashbon are completely confidential.
How does an Israeli citizen pay taxes after 10 years of Aliyah?
The income of an Israeli citizen from labor relations with foreign companies is subject to taxation on a common basis:
If the work is physically performed from Israel, then according to the tax laws of Israel;
If an Israeli citizen travels to Russia, for example, and receives his salary there, then he pays first Russian taxes and then pays the difference in Israel- if under Israeli law the tax rate is higher than the Russian one which is usually the case.