Ole hadach - 10-year tax exemption for new residents - background
In the 1990s, the Israeli government introduced a series of tax exemptions for Olim hadashim on income earned abroad.
They did so with the intention of encouraging Diaspora Jews to move to make Aliyah and settle in Israel.
Effective January 1, 2007, the Israeli government passed Tax Reform 168, which further extended tax benefits for Olim hadashim, granting tax exemptions on foreign income for 10 years after making Aliyah.Read also: how to shift the date of aliyah to extend the 10-year period?
What income is tax-exempt for an Ole hadach and for how long?
Generally speaking, income earned abroad by an Ole hadach during his or her first 10 years as a new Israeli tax resident will not need to be declared and will be tax-free in Israel.
- Dividends from a foreign company.
- Rental income from real estate located abroad.
- Interest received from foreign financial institutions.
- Pensions received from abroad.
- Capital gains on the sale of foreign shares, real estate or other assets and investments.
- Income earned for the provision of services while the Ole hadach was abroad.
What were the benefits for those who made Aliyah before 2007?
The new rules apply to immigrants who made aliyah after January 1, 2007. However, olim who made aliyah before this date benefit from the following exemptions:
Exemption for 5 years following aliyah on "passive" income, such as: interest, dividends, pensions, royalties, rental income from real estate abroad.
Exemption for 4 years following aliyah on "active" income, such as: Income from professional activity derived from an activity abroad that was active for at least 5 years prior to the date of aliyah. That is, the business had to have been active for at least 5 years prior to aliyah, so income received through this entity after aliyah would be exempt for 4 years.
Exemption for 10 years after aliyah on capital gains realized on the sale of foreign property and investments purchased before the date of aliyah.
- Being paid from a foreign bank account has no impact on the source of income. What we look at is where the income is generated, not where you are paid.
For exampleIf you receive rental income from real estate in Israel, but receive payment into your bank account in France, the income will still be treated as earned in Israel and taxed accordingly.
- Similarly, the location of your employer has no impact on the source of your income. So for exampleIf you work in Israel for an American employer, your income is treated as earned in Israel and taxed accordingly under Israeli law, regardless of whether or not you are an Ole Hadash.
- The tax benefits granted by the Israeli government to Olim hadashim are merely an exemption from Israeli reporting and taxation. However, you may still be required to declare and pay taxes on your income in the country where the income is earned.
For exampleFor example, rental income from real estate located in France may be exempt from Israeli tax, but will still be taxable in France.
- If you were living in Israel before making aliyah, your tax benefits may have begun before the date of your aliyah. Usually, this will be recorded on your Teudat Ole. However, it is advisable to take professional advice in these circumstances to avoid any misunderstandings and potential problems with the Israeli tax authorities.
What are the tax rates on Israeli-source income?
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Your questions - our advice
- What happens after the 10-year exemptions for an Ole hadach?
- Should I "relocate" my foreign company to Israel? What are the tax advantages?
- As an Ole hadach, do you have to declare pensions received from abroad?
- What are the tax advantages for a Toshav hozer (returning resident)?
- I have kept my company active in France, but I work from Israel. Do I have to pay tax in Israel?
- How can I justify working abroad?
Israel's tax system offers a number of advantages to those wishing to make Aliyah.
Before taking the plunge, it's important to be well prepared and avoid any potential tax complications.
Proper preparation will enable you to maximize your rights as an Ole Hadash and take full advantage of your tax benefits during the 10 years following your Aliyah.
Consult us to optimize your tax situation and obtain customized tax treatment in Israel and abroad.