Are the Israeli tax incentives for Toshavim Hozrim about to end? The Israeli Tax Authority is leading a proposals that would require an Israeli new residents and Toshav Hozer Vatik to disclose their non Israeli source income and gains derived in their first 10 years in Israel. See also: Israeli Tax Incentives to Olim: New Rules Proposed
Under current Israeli tax law, a new residents and Toshav Hozer Vatik areexempt from any Israeli tax liability on their non Israeli source income and gains derived in their first 10 years in Israel. In addition, a new residents and Toshav Hozer Vatik do not need to disclose their non Israeli source income and gains derived in their first 10 years in Israel.
Foreign companies controlled by new immigrants and senior returning residents will not be classified as Israeli tax residents companies, or as a Control Foreign Corporation(CFC), or as a Control Foreign Professional Company (CFPC), only because their shareholders became Israeli residents.
New immigrants and senior returning residents who own and manage a foreign company that is active abroad, or own its shares, will not be subject to Israeli taxes. The company will be able to continue generating tax-free revenues, so long as these revenues are not generated in Israel. New immigrants are exempt from paying taxes on their pension. Returning residents will be exempt from paying taxes on their pension for a period of 10 years.
It is true that the Israeli government is planning to change certain tax rules in order to close loopholes and make tax planning more difficult. The new tax rules are proposed in The Israeli 2013 Economic Arrangements Bill. How will these new Israeli tax rules have an effect on Olim and Toshavim Hozrim?
The Global Forum on Transparency and Exchange of Information for Tax Purposes has released recently peer review reports assessing the tax systems of 13 jurisdictions, including Israel, for information exchange.
According to the report, the legal and regulatory framework in Israel generally ensures that ownership, accounting and banking information is available for all relevant entities and arrangements. However, in a limited number of cases, where a company has issued bearer shares, the owners of these shares may not be identifiable.
The Israeli Tax Authority has broad access powers to obtain requested information for exchange of information purposes under Tax Treaties, including from banks. However, ownership and accounting information may not be available and accessible in respect of certain trusts and new immigrants or returning veterans.
Israel has a considerable network of Tax Treaties that provide for exchange of information in tax matters. Nevertheless, the Israeli competent authority does not have access powers to give effect to agreements which cover only exchange of information (as distinct from double taxation).
Israel’s response to the findings of this report as well as the practical implementation of the international standard will be considered in the Phase 2 review, which is scheduled to commence in the second half of 2013.