30.05.2016
Exemption from Capital Gains Tax for New Immigrants and Returning Residents - דר' אברהם אלתר
Fiscal legislation has always served to advance national goals. As part of the 2003 tax reform, the commendable aim of encouraging immigration and bringing back home Israelis who have emigrated, has been translated into tax relief and special exemptions for this preferred population.
Among these ?Zionist Provisions? that were given a face lift in that tax reform round, I will survey in this article the provisions for exemption from capital gains tax. I would note from the outset that this exemption is intended for individuals only and therefore foreign companies that ?immigrate? and change their place of residence to Israel, are not entitled to such.
Starting in January 2003, capital gains derived from the sale of assets purchased overseas by new immigrants and returning residents are tax exempt for a period of 10 years from the date of arrival in Israel (previously the exemption applied to new residents for a shorter period ? 7 years only). Sale of an asset after this period will not lead to the total loss of this exemption, since the tax will be calculated on the capital gain accrued from the end of the benefit period, and not retroactively.
New immigrants will be able to utilize this exemption only in respect to foreign assets that have been purchased overseas prior to their immigration to Israel. Returning residents will be entitled to the exemption only if they have lived permanently overseas for 3 continuous years after they ceased being residents of Israel, and the asset has been purchased overseas during said period. A returning resident will lose the exemption should it turn out that said asset (including a right in a foreign resident company) constitutes a direct or indirect right to an asset located in Israel.
A new temporary provision states that a new immigrant / returning resident who was a resident of a treaty state (a country with which Israel has signed a tax treaty) for at least continuous 10 years, and has purchased during that time securities of an Israeli company (or of a foreign company most of whose assets are rights to assets in Israel), will benefit from the tax exemption upon sale of the securities, for a period of 10 years from the date on which he immigrated to Israel (or to a partial exemption if he sold said securities after the 10 year period). The temporary provision applies to purchases made / that will be made in the period from July 1, 2005 to December 31, 2008.
In view of that stated above, it is recommended that a new immigrant and returning resident invest in purchasing assets overseas prior to their immigration / return to Israel, for if not, the exemption will not apply. Moreover, there is no need to hurry to sell the asset prior to the expiration of the benefit period (10 years) since the exemption will be granted in any case, in a linear fashion, on the past period as well.
People who showed interest in this article was interested in >
those ads as well
A foreign resident who holds options and who intends to immigrate / return to Israel, would be wise to consider realizing the options prior to such. Thus, when he becomes a resident of Israel, he will have in his possession an asset overseas which he acquired prior to becoming a resident of Israel. In this way, the amount of increase in value from the date of realizing the option and until the end of the 10 years from the date of his becoming a resident of Israel will be exempt from capital gains tax in Israel, even if the share is sold at a later date. On the other hand, if he realizes the option after becoming a resident of Israel, he will lose the tax exemption.
The exemption provisions in the Income Tax Ordinance are particularly attractive when applied to assets invested in a country with which Israel has signed a treaty for preventing double taxation. In such a case, it is possible that the treaty assigns taxation rights to the state of residence (Israel) and the assessee is exempted from tax in that state. At the end of the day a situation could arise where there is no tax liability at all, neither in Israel nor overseas.
