Thinking about making Aliyah?

The following article was printed in the Jewish Tribune

While it could be a wonderful decision, you must be prepared! Moving around the corner can be difficult and stressful, but it is no match for moving to a new country; particularly a country with a different climate, currency, culture and language. There are many factors that will contribute to your ultimate success. One of the most important considerations will be your financial well-being.

The number one reason Aliyah fails is because of financial constraints. In the coming months this column will discuss many of the financial issues that will help you prepare for a financially sound and successful Aliyah.

The Israeli government has recognized the financial challenges for olim and has introduced new legislation to help. In May 2008 the ministries of finance and absorption introduced a new law that provided for a 10-year tax holiday on both active and passive income earned outside of Israel for qualified olim.

Qualified olim are “new immigrants” and “long absent returning residents.” A long-absent returning resident is an Israeli who was a non-Israeli resident for at least 10 consecutive years before returning to Israel.

But what does this 10-year tax exemption mean?

First it means full exemption on foreign sourced income – both active and passive income earned outside of Israel.

Next, the tax holiday relieves qualified olim from their reporting obligations. Yes, those who qualified are not required to file reports with the Israeli Tax Authorities for their foreign income or assets for a period of 10 years from the time they became Israeli residents.

One can also choose to “acclimatize” and not be considered an Israeli resident for a period of one year from the date of arrival. However, if one chooses to stay, the acclimatization year is included as part of the tax holiday.

And finally, for the tax holiday period, foreign companies operated by new olim will not be categorized as Israeli companies even if “management and control” shifts to Israel with the new oleh. This allows qualified olim to generate foreign corporate income exempt from Israeli taxes as long as the income isn’t generated in Israel.

Once the tax holiday expires your worldwide income will be subject to Israeli taxes. However, the tax convention between Israel and Canada will reduce the risk of double taxation.

So making Aliyah could be highly advantageous from a tax perspective. But it is not simple to capitalize on the Israeli tax holiday – and there are costs too: Canadian departure taxes and ongoing withholding taxes, and Israel’s comprehensive income tax rules.

To qualify for the Israeli tax holiday, you first have to cease to be a Canadian resident and become an Israeli resident. In the coming articles, we will discuss what you have to do attain the status of a Canadian non-resident and Israeli resident.

Chaim Wigoda made Aliyah from Canada in 2002. He is the Managing Director of HCC International Services Ltd. – an Israeli company that specializes in tax and financial planning for olim.
Last Updated ( Wednesday, 30 November 2011 )

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