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The 10-year Oleh Chadash Benefits
As an Oleh Chadash you've got 10 years of tax benefits - mainly on incomes earned outside of Israel. However, on income that you 'generate' in Israel, you'll have to pay Israeli tax just like everyone else. Most Olim are not aware of how the Israeli Tax Authority define income generated in Israel'. And this can be an expense mistake to make. So make sure to be certain what is and isn't included in your Oleh Chadash benefits.More: Oleh Chadash 10 Year Tax Benefits
Which incomes are taxable in Israel even for an Oleh Chadash?
- Employment or active work.
Work carried out by an individual located in Israel is treated as 'generated in Israel'. Israeli income tax must therefore be paid on this income. (It doesn't make a difference where your employer is located, or if they pay your income into a bank account outside of Israel)
- Rental income from Israel situated properties.
If you own a property in Israel which generates rental income, the income will be taxable in Israel even for Oleh Chadash.
- Interest on loans to Israeli borrowers
If you receive interest payments on a loan you've given to an Israeli person or entity, the interest will be deemed as generated in Israel. So, Israeli income tax should be paid on this income (even if you loaned the money to/from a bank account outside of Israel).
- Digital assets (Crypto currencies and NFT's)
The Israeli Tax Authority haven't clarified their standing on the deemed location of crypto digital assets. As a result, it is likely that the 10-year tax exemptions don't apply to gains or incomes received from holding or trading digital assets.
Israeli tax when working for an employer abroad
If you're working in Israel for an employer abroad, you will need to report and pay Israeli income tax on your earnings - yes, even as an Oleh Chadash. So how do you report? There's a few different options however, it's the most straightforward to register as a freelancer. Like this, you can send an invoice to charge your employer for your work. You'll be paid in full, after which you'll pay your own income tax and National Insurance. As a freelancer, you can register as either an Osek Patur or an Osek Murshe (depending on the type of work you do and the size of your income).The Osek Patur GuideThe Osek Murshe Guide
I work in Israel for a business abroad which I own.
If you've got a business abroad, but from Israel you're involved with the running of that business, there's going to be tax to pay in Israel. That's because the work that you do whilst in Israel is not included in your Oleh Chadash benefits.
In this situation, it's important to obtain a value for the work you do in Israel and to record it correctly as Israeli earnings. Also, it's strongly recommended to prepare a Transfer Pricing Report to be sure that the value for your work is in accordance with international market rates. This way you'll have backup if your calculations are challenged by the Tax Authorities.
Summary
The Tax Authority are getting more aggressive towards tax evasion in Israel. Also, they're aware that many Olim Chadashim don't report or pay their taxes as required. Often, the questions will only hit you after your 10 years have ended. This can be extremely problematic as by that time you've accumulated 10 years of unpaid taxes.
There's so much that can be done to maximize your 10-year tax benefits in the correct way. Seek the advice and be one step ahead.
