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The IBSA Podcasts
IBSA podcasts contain information from a global community of entrepreneurs and professional advisors dealing with international business structuring and regulatory compliance.
Hosted by Roy Saunders, who has over 50 years’ experience within the financial sector, these podcasts delve into enlightening conversations with a wide range of leading professionals aiming to demystify the complex world of business and provide invaluable insights to help listeners deal with various complex technical matters to best support their business and clients.
Disclaimer: We believe the information in this podcast to be correct at the time of recording. The information given is relevant at the time in line with governmental legislations. Competent counsel in the jurisdiction(s) whose laws are involved should be consulted. The podcast is made available by the IBSA for educational purposes only and to provide general information. The information should not be used or relied upon as a substitute for competent legal advice from a licensed professional in your jurisdiction.
The IBSA Podcasts
Unlocking Tax Benefits for New Immigrants in Israel
Considering the tax benefits as a new immigrant to Israel with insights from international tax lawyer George Rosenberg and his senior associate, Maya Saphier. Learn how Israel's generous 10-year exemption on foreign income and capital gains can allow you to own foreign companies without triggering standard Israeli tax liabilities, as long as the control of these companies remains outside Israel. George explains that there is no inheritance tax in Israel, except for capital gains tax on inherited real estate, and delves into the nuanced criteria for achieving tax residency, emphasising the importance of Jewish faith or familial ties to a Jewish immigrant.
George explains the unique challenges non-Jews face in securing permanent residency, the lack of investor or golden visas, and the potential future impacts of governmental policy shifts on tax regulations. Additionally, gain a deeper understanding of trust taxation, including the surprising tax neutrality on trusts managed by Israeli trustees with foreign settlors and beneficiaries. Don't miss out on this comprehensive guide that simplifies complex tax rules and helps you navigate your financial future in Israel.
This series of podcasts explores the beneficial tax regimes in Italy, Spain, Portugal, Malta, Cyprus, Switzerland, Singapore, Israel and Dubai in respect of where UK residents may wish to emigrate in light of the non-dom changes introduced by the Conservatives, and the likely tightening of these rules under the new Labour government.
Hello and welcome to this IBSA series of podcasts on considering countries to where UK residents may wish to emigrate, in light of the non-dom changes proposed by the Conservatives and the likely implementation of these rules under the new Labour government, including bringing foreign trust assets within inheritance tax and increasing capital gains tax rates to income tax levels.
Speaker 1:My name is Roy Saunders, founder and chairman of the IBSA, the International Business Structuring Association, which is a multidisciplinary global association of entrepreneurs and their professional advisors, dedicated to sharing their expertise with each other within a great networking platform. Our current series, a 15-minute podcast, will review beneficial tax regimes in Italy, spain, portugal, malta, cyprus, switzerland, singapore, israel and Dubai. Today, I'm joined by George Rosenberg. Born in Vienna, raised in Canada, he's an international tax and corporate lawyer who I've known for many years with his own firm Rosenberg Schneller, known as Roche in Tel Aviv, which also operates in Zurich, and his senior associate, maya Safir, is here with me as well. George, I am aware that incoming residents to Israel can benefit from a 10-year exemption for their foreign income and capital gains. Perhaps you can start off by giving us a bit more information about this exemption and its requirements.
Speaker 2:Yes, well, this exemption has existed for a long time. Basically, writ large, it means that any new immigrant to Israel who is recognized as a new immigrant to Israel, who is recognized as a new immigrant and we'll go to that, we'll get into that a bit later is entitled to a full 10-year tax holiday on all foreign-sourced income of any kind, of any capital gains. Ordinary income, doesn't matter what pensions, anything at all, is fully, fully exempt in.
Speaker 2:Israel. Moreover, such a new immigrant is entitled to manage and control the business of a foreign company without that foreign company being deemed Israeli resident again for the period of 10 years. There is no need to apply for this exemption. There is no need to apply for this exemption because it is automatic. It is bestowed automatically on any new immigrant who qualifies, as I said before, as a new immigrant. Until recently, that exemption also included an exemption from any kind of reporting. The tax department, and especially the OECD, had been standing on the hind legs about that. It's certainly about the reporting aspect. So the law has recently been changed now and the reporting exemption no longer is in place, but the tax exemption still exists. In other words, you're bound to report and the tax department says simply I want to know at the end of the 10 years what the hell is going on. So that's the reason for allowing the reporting.
Speaker 1:Okay, so you mentioned about foreign companies being managed by new immigrants not being considered to be Israeli tax resident. I presume by that you mean that if, of course, if you've got an Israeli resident who is not an immigrant, who manages a foreign company, that could be considered to be taxed.
Speaker 2:Correctly. That's one of the criteria for definitions of a company that's resident in Israel. If it's controlled and managed out of Israel, you have to be very careful. It's not necessarily by an Israeli resident.
Speaker 2:What determines here is where the business is being controlled. For, in other words, a non-resident who happens to be in Israel and runs the foreign company from Israel, that company would also be deemed. On the other hand, an Israeli resident who spends five, four, three, four days a week in Cyprus, runs the company from there, comes back to Israel for the weekends, doesn't do any company work in Israel, that company will not be deemed Israeli resident. So it's where it's physically managed and controlled from.
Speaker 1:Okay, thank you. And you mentioned about foreign income and gains being exempt, including pension income, in that 10-year period. I don't know whether you have an inheritance tax in Israel, but it's not.
Speaker 2:You don't have an inheritance tax in Israel, but it's not. You don't have this tax whatsoever right, okay one caveat on that, if I, if I may on real estate there is no inheritance tax and nonetheless, uh, when the heirs come to uh realize or sell the uh assets that they inherited, they they do not enjoy a step up. In other, they will have to pay a capital gains tax based on the original value. So it's sort of a disguised delayed inheritance tax.
Speaker 1:Okay, that's interesting. Okay, so what's the criteria for individuals becoming tax residents in Israel?
Speaker 2:You have to be of the Jewish faith, which is that's a mouthful. It is and it isn't, because it's very difficult to. In other words, there are no hard and set criteria to determine somebody's Jewish faith. You have to be born to a.
Speaker 2:Jewish mother, the religion of the father is irrelevant. And on top of it all, in our law of return there are certain exceptions where a spouse of a Jewish immigrant is also entitled to become a new resident. Applies also to grandchildren. There's some controversy about this, but at the moment it's in the books and we have a lot of relatives of Jews who themselves are not Jews, who have qualified as new residents. But basically you have to be Jewish, okay.
Speaker 1:And when you say you have to be Jewish, does that mean Orthodox, jewish Reform, jewish Conservative, liberal? Either anyone.
Speaker 3:Yes, I wanted to remind you that there are no qualifications for being Jewish under the law of return, but the rights of the spouses and the grandchildren are, I think, in the law of citizenship and not in the law of return the law of citizenship, then I mean, one of the things that I thought of is, when you come over to Israel, do you have to be there for a certain number of days to claim Israeli tax residence?
Speaker 2:First of all, it should be made clear that citizenship is irrelevant in Israel for tax purposes okay, unlike the United States, for example. On the other hand. In other words, if you have a visa and you enter Israel with a permanent resident visa, you have to be a permanent resident in order to be a new resident for tax purposes. Once you are a permanent resident, there's no law that says that once you've come in and you've entered Israel, that you cannot leave within a week and go out. But the population division of the Minister of Interior looks at that not very favorably and they think maybe you're just trying to play tricks. So, basically, there are regulations which require you to be in Israel at least for 90 days. During those 90 days, you have an option which has to do with citizenship again, not with tax, but has to do with citizenship. If during those 90 days you do nothing, you automatically will become an Israeli citizen.
Speaker 2:On the other hand, you have the option of, within those 90 days, to say I do not want to become an Israeli citizen. In other words, you will just remain a permanent resident and again, that will not damage your qualifications for the tax holiday.
Speaker 1:And I presume, if you are a resident in Israel for tax purposes, you can benefit from double tax treaty reliefs, even though your foreign income and gains are exempt.
Speaker 2:That's a good question. For example, from what point of view you look at it will specifically say that they will not apply to residents who are exempt from tax just because it's either remitted to Israel or because of a holiday such as this. In other words, in many cases it would not apply because of treaty provisions.
Speaker 1:We have a similar one. When we had our non-dom rules, we had a similar saving clause that only if you omit the income would you be able to get benefit of double tax. Treaty relief Correct.
Speaker 3:Yes. Another point is I want to emphasize that the rules that allows you to become a new immigrant in Israel based on the Judaism or affinity to Israel is not the same rules that applies for the tax purposes. It should be noted that the rules are a bit different when it comes to the immigration population and to the tax authorities.
Speaker 1:Okay, on that basis. What about non-Jews wanting to come to Israel? What is the visa requirements there? How do they apply for this?
Speaker 2:As a rule, it's very difficult for a non-Jew to get a permanent resident visa. It is fairly simple for anybody who's in a religious order, who wants to come and settle in Israel For example Christian ministers or Muslim officials they will be able to get such a visa, will be able to get such a visa. But an ordinary person, a business person, they have to be very, very extenuating, exceptional circumstances why such a person should be able to get a permanent residence?
Speaker 1:Are there any investor visas that are applicable?
Speaker 2:No, we do not have any investor visas.
Speaker 1:You don't have any golden visas or anything like that? No, not yet. And how do you think? I mean? There's a lot going on in Israel we know that at the moment, which is really worrying. What's happening with the government? Do you think there'll be a new government and how that will affect tax changes or not?
Speaker 2:I think when we will eventually have an election, if and when there probably will be a new government, it is highly unlikely that there will be dramatic changes in tax on the subjects that we have touched today.
Speaker 2:Tax departments pretty well reconciled themselves by now to the 10-year holiday, now that you have to report, so it's not likely to bring about any changes. About 15 years ago, maybe closer 20 years ago, they tried to bring in inheritance tax and it fell on its face at no chance at all and there's absolutely no talk about that whatsoever. Can I say something just in connection with trusts having to do with tax holiday? I say that because we work very, very much on trust and it's one of our main areas of expertise. We have a very developed trust law. We also have very particular, exact rules on the taxation of trust and mainly the rationale behind those rules is not to let trust either be tax favorable or tax disfavorable. In other words, they should be tax neutral. In other words, they should be tax neutral and in line with that kind of a philosophy, to the 10-year tax holiday that trust will be.
Speaker 1:Enjoy that tax, the income of that trust will enjoy a tax holiday for the 10 years, exactly as the settler would. What if you have Israeli residents, beneficiaries of a trust created by somebody who's coming into Israel?
Speaker 2:That used to be until 2014. That was okay. No longer. In other words, the moment you have and on top of it all, it's actually quite harmful because you can have a trust with one Israeli beneficiary and four or five non-Israeli beneficiaries. The moment as long as the settler is outside of Israel, you're okay, because then it's a relative trust and only the Israeli resident beneficiary will be taxed. But the moment that settler comes into Israel, it converts into Israeli resident trust, which means that the entire income is taxable, and even though there are non-resident beneficiaries, in which case, of course, what you'd have to do is set up separate though there are non-resident beneficiaries, in which case, of course, what you'd have to do is set up separate trusts for the non-resident beneficiaries- yeah, I can see that, but I mean that applies also for people coming into israel for this 10-year holiday beneficiaries either must be non-residents or those that qualify for the 10-year tax holiday in their own name.
Speaker 1:Understand, understand, okay. Well, that's quite an interesting topic because a lot of people will be coming to Israel with foreign trusts and we're now entering into a period where our foreign trusts are potentially going to be subject to inheritance tax and all the assets for the trust, even for people coming into England. So that could be a real problem.
Speaker 2:Yeah, we do a little bit of planning before they come in. We have quite often, exactly because of what you're saying, queries both from people in england and other countries in europe and especially united states, about people who are coming to israel now and they want to know what should we do? Uh, if we have both israeli resident beneficiaries and non-resident beneficiaries, it's quite. The planning is not complicated, but it has to be taken care of before the immigration.
Speaker 1:Okay, well, that's very interesting. Look, we've covered a lot of subjects in a very short time. We want to keep our podcasts at 10 to 15 minutes, so I think we've done that well.
Speaker 2:One. I have a favorite remark about trust which could be very interesting for anybody. Under our tax law, the residence of a trustee is totally irrelevant for tax purposes. Therefore, an Israeli trustee of a trust where the settler is non-resident, the beneficiaries are non-resident, has no reporting and no tax liability whatsoever in Israel, even though the trust will be administered in Israel and the trustee is resident in Israel. So that's something interesting. On top of it all, we can have an Israeli underlying company of such a trust and since such a company is transparent, then again that Israeli company will be deemed non-resident.
Speaker 1:That's very interesting. That's a good advert for Israeli trustees. I guess you can get a whole new profession there, okay, well, thanks very much. That's very interesting, maya. Thank you for joining us, and, george, it's always a pleasure to speak to you.
Speaker 2:It was very nice talking to you, as usual, and thanks for having me, and I look forward to many more discussions of the same nature.
Speaker 1:Thank, you everybody for listening.