Aliyah (from the Hebrew meaning ‘ascent’) is the immigration of Jews from the diaspora to the Land of Israel. Also defined as ‘the act of going up’—that is, towards Jerusalem—‘making Aliyah’ by moving to the Land of Israel is one of the most basic tenets of Zionism. The State of Israel’s Law of Return gives Jews and their descendants automatic rights regarding residency Israeli citizenship. For much of Jewish history most Jews have lived in the diaspora where aliyah was developed as a national aspiration for the Jewish people, although it was not usually fulfilled until the development of the Zionist movement in the late nineteenth century. Ever since 1970 the right of entry and settlement was extended to people with one Jewish grandparent or people married to a Jew, although they were not considered Jewish under Jewish law. Under certain circumstances converts to Judaism may also manage to take advantage of Aliyah.
All very interesting, you may be saying, but what could this possibly have to do with tax? The answer is that if you take advantage of Aliyah there are some potential tax advantages, being:
- You will be able to claim a new domicile. This could be useful if you are living in a country where non domiciled are treated differently for tax purposes (say Ireland or Malta if you are British and the UK if you are from anywhere else in the world except Ireland).
- You will be able to take advantage of a 10-year tax holiday on all non-Israeli income: ‘new immigrants are entitled to tax breaks on passive and active income earned overseas for 10 years after immigrating.’
- There is no inheritance tax in Israel (as of date) and so there obviously exists the opportunity to reduce or completely avoid IHT if you come from a country, such as the UK, that taxes its deceased citizens regardless of where they are resident.
The 10-year tax holiday sounds especially attractive, of course, since Israeli higher rate income tax is charged at 52%. However, there are two potential catches. The first is that Israeli’s are taxed on their worldwide income. New citizens must declare all their overseas assets even if they don’t have to pay tax on them. Secondly, if you manage an overseas business from Israel (for example, by using the phone and email to instruct other managers or even to make trades) then the management of the business is considered, by the Israeli tax authorities, to be in Israel and, therefore, subject to Israeli tax. The Israeli tax authorities, incidentally, have been granted powers that other tax authorities around the world can only aspire to. For example, they demand a monthly tax and VAT return.
Is it possible to take advantage of aliyah and still run a business from Israel? In principle, no. In practice, depending on the business, the answer is probably that many people do it using pay as you go mobile phones and different computers. Providing you can show the Israeli tax authorities how you are supporting yourself, they may be disinclined to take any further interest in you. But you will be walking the very thin line between avoidance and evasion.
What about keeping assets outside your tax net in anticipation of the end of the 10-year tax holiday? In general, the use of discretionary trusts and other similar vehicles are out as the Israeli’s look straight through these. However, it may be possible to set up an offshore vehicle where the number of individual shareholders/beneficiaries is such as to ensure that it has almost no value.
Finally, there have been cases where new Israeli citizens have gone non-resident the moment that they arrive. In other words, for the first ten years they completely escape the Israeli tax net. This may, or may not, be effective depending on how well they plan during the ten years.
For a very tiny number of people Israel’s aliyah offers interesting tax saving possibilities but it needs to be approached with caution and expert advice. 20.5.16