Many Olim Hadashim receive their pension from France without declaring (rightly or wrongly) their pension to the French or Israeli tax authorities.
Let's sort out what needs to be done to comply with the French and Israeli tax authorities.
At the end of the article, a new case law from the Toulouse Administrative Court of Appeal will shed some light on this subject.
Here's a short video explaining the basics of declaring a pension in Israel from France.
Does an Ole Hadash have to declare his retirement?
A pensioner receiving his pension from France must declare his pension in country of tax residence only.
If he makes aliyah, he must :
Declare to France that he has left his French tax residence to the French expatriate service.
- Tick the "non resident" box on your French tax return if, for example, you have property income in France.READ ALSO: WHO IS CONSIDERED AN ISRAELI RESIDENT?
Do I have to declare my French pension to the Israeli tax authorities?
For the 10 years following the date of aliyah, the Israeli tax authorities do not require you to file a tax return or pay taxes on your retirement income from France.
After 10 years, the Israeli tax authorities will require you to declare your retirement income in Israel. You will then be potentially taxable on this income.
See below for information on how to optimize your pension declaration in Israel.READ ALSO: HOW TO DECLARE YOUR RETIREMENT IN ISRAEL?
When do you have to declare your pension in Israel?
Many Olim Hadashim took the nationality several years ago, but came to settle in Israel years later.
So it's often a good idea to check whether you're eligible to postpone your aliyah date, as explained in the article below.SEE ALSO: POSTPONING YOUR TAX MOVE TO ISRAEL.
What do most Olim Hadashim do?
A ) Many don't tell France they've left, and still declare themselves as French tax residents to take advantage of social and medical benefits.
Here are just a few of the problems:
- In doing so, they often forget to declare to the French tax authorities the fact that they have a bank account abroad (in Israel). This is potentially a false declaration.
- By declaring themselves "French tax residents", they continue to be subject to the IFI (Impôt sur la fortune immobilière) even on property not located in France!
- They continue to pay pension tax in France when they could benefit from the Israeli tax system, which is often more advantageous. They have the right to do so.
B) Those who tell France that they are no longer French tax residents and don't declare anything in Israel either, as they are exempt from declarations for 10 years.
As far as the Israeli tax authorities are concerned, these people are perfectly within their rights (Article 14 of the Israeli General Tax Code).
On the other hand, the French tax authorities have these people in their sights because, technically, they don't pay taxes for 10 years on their French pensions, either in France or in Israel.
The French tax authorities want to put an end to this "little game".READ ALSO: ISRAELI RESIDENTS: SELLING AN APARTMENT IN FRANCE, DO YOU HAVE TO DECLARE IT IN ISRAEL?
Retired civil servants will still have to declare and pay tax on their retirement in France, even after 10 years of aliyah.
In Israel, this income does not have to be declared.
Do you have a question?
Towards a drastic overhaul
For those who don't yet know, Portugal is also a country that gives an exemption on foreign income for 10 years following settlement. Exactly the same as for Olim Hadashim making Aliyah to Israel.
The French tax authorities began to take a serious look at French pensioners moving to Portugal to live out their retirement. Then it moved on to new Israeli immigrants.
According to the French tax authorities, you'll now have to prove that your French pension has been declared in your new country of tax residence (ISRAEL), regardless of whether that country exempts you.
Otherwise, the French tax authorities will have the right to continue to tax you by withholding thetax at source.
Case law from the Toulouse Administrative Court of Appeal
As explained above, this is a real bombshell that the French tax authorities are preparing to drop on olim hadashim who have become accustomed to paying no tax on their pensions.
This is nothing new.
The Conseil d'Etat had already addressed the issue a few years ago. But new case law from the Toulouse Administrative Court of Appeal puts the spotlight on the issue once again.
The facts in a nutshell:
- Olim Hadashim who made aliyah in 2014 have asked not to pay taxes on their retirement in France, in accordance with the tax treaty between France and Israel.
- Nor did they pay tax on this pension in Israel, as they put this same income into exempt income.
- The French tax authorities refused, as the taxpayer had other income in Israel and the pension was declared under Israeli domestic law. In fact, they were able to prove that the pension had been "declared in Israel", and were thus able to recover the tax that had been paid over all those years.
Conclusion on this case :
- The French tax authorities have demanded that the French pension be declared in Israel, on pain of a tax reassessment in France.
- What would have happened if the pensioners had no other income in Israel and had declared their French pension as "exempt income"? The French tax authorities could have countered this position!
- We're not even talking about the case where the pensioner declares neither in France nor in Israel! The answer is very clear, France reserves the right to deduct tax at source. as a non-tax resident and at the same time "correcting" the last years not declared with penalties along the way.
- Telling France that you have left your French tax residence is very important.
- Carry a certificate of tax residence in Israel every year!
- Continue to declare your other income (property income, for example) in France as a non-resident.
- Declare your French pension in Israel to avoid prosecution by the French tax authorities.
Our firm specializes in this field and can help you with all the procedures in Israel and France to file your tax returns and regularize your situation for previous years.
Needless to say, a taxpayer acting "in good faith" is often more likely to obtain leniency from the tax authorities.
In a nutshell
- French pensions must be declared in your country of residence for tax purposes.
- Doing your tax return in France is not necessarily the right choice.
- Make sure you complete your tax return as a "non-resident"!
- Declare your retirement every year, even if you're in your 10th year of aliyah.
Your questions - Our advice
- What will the French tax authorities do in 2022? Will they demand to receive Israeli tax notices with your declared pensions?
- Do you know how to file your non-resident tax return for the French tax authorities?
- How long does it take to notify France of your departure?
- How do you repair what's been done?
- What about olim hadashim after 10 years who don't declare themselves to the French or Israeli tax authorities?