The following information provided by Yitzhak Heimowitz and Hanan Prishkulnik was sent to us by a CHAI member.
THE RABINOWITZ TAX REFORM
New olim will be expected to file some kind of return or report to the Income Tax Authority in April for the year 2003. Forms for this purpose appear on this Hebrew website: http://www.mof.gov.il/itc. These are Form No. 5329 to open a new taxpayer file and Form 1324, a schedule to the regular tax return 1301 for those who already have a tax file. (Form 1324 has places to indicate taxes already paid abroad on the various kinds of income.
All Israeli residents who have income from wages or a salary from abroad will be subject to taxation in Israel.
New olim are exempt for the first 5 years from date of residence from tax on their passive income from abroad. If they were residents for more than 5 years, but less than 10 years, on January 1, 2003, olim are exempt for the year 2003 only. Passive income includes interest, dividends, capital gains, rents, royalties and pensions.
Each of these is taxed differently:
Interest on bank deposits abroad 15%
Interest on traded securities such as bonds until the 2007 tax year - 35%
In 2007 and after going down to 15%
Dividends until the 2007 tax year - 35%
In 2007 and after going down to 25%
Capital gains until the 2007 tax year - 35%
In 2007 and after going down to 15%
(Note: Capital gains were taxable even before the new tax reform law.
For ten years after becoming a resident of Israel, persons will be tax exempt on assets located abroad that belonged to the taxpayer prior to becoming a resident of Israel. After 10 years, the capital gain will be taxed only on gains accumulated from the 10th year forward.)
Rents on all foreign real estate, figuring only depreciation - 15%
(Can deduct all expenses and pay regular Israel income tax rates up to 50%.)
Non-governmental pensions: The tax will not be higher than it would have been in the U.S. if the taxpayer had continued to reside there, and the pension was his only income.
Social Security and government pensions (Federal, State and City) are exempt from Israel tax under the U.S. Israel Tax Convention. Otherwise, the Income Tax Commission has been meeting with TRAC (see below) to define pensions. These will include all retirement income linked to a job or self-employment.
Under the U.S. Israel Tax Convention each country grants a tax credit for taxes paid to the other country. The taxpayer will not pay more than the higher of the two taxes. (The issue of which country gets the "first bite" at the tax is being dealt with the Tax Reform Action Committee of AACI -TRAC - and the Council of Immigrant Associations in Israel.)
Losses from foreign activities: Losses from passive activities (such as a passive partnership or from rent activity) generated outside of Israel will be offset only against passive income generated abroad. Losses from the operation of a business outside of Israel can be offset against any kind of taxable income sourced abroad. Business operation losses sourced abroad as they pertain to businesses operated and controlled in Israel, will be treated as if sourced in Israel.
Beginning in January, 2007, any Israeli taxpayer can offset lossess from foreign stock transactions against gains from Israeli traded stock transactions, interest and dividends. Under current regulations, these losses can only be offset against gains generated from foreign stock transactions.
In December 2002 TRAC succeeded in obtaining an important amendment to the Tax Reform Law providing that certain classes of olim who were residents of Israel for not more than 20 years would pay lower rates of tax on their passive income (15% instead of 35% for interest and capital gains; 25% instead of 35% for dividends) immediately starting in 2003, not waiting to 2007. In July 2003 Finance Minister Bibi Netanyahu agreed to expand this benefit to other classes of olim. The Income Tax Commission prepared a draft bill to do this, but it has not yet been presented to the Knesset.
New olim who deposit foreign currency in time accounts in banks in Israel are exempt for 20 years from tax on interest from these accounts.
(No change there.)
Know that all tax forms are in Hebrew. Filing in English is not permitted. The law says that anyone who is required to file a return and fails to do so will not be able to claim any benefit under the law. We do not recommend that Cleveland olim try to prepare their own Israel tax returns because the developing Israeli rules are complicated, and there have also been substantial changes made in the U.S. tax law for 2003. In Jerusalem, we suggest you make an appointment with Cleveland-Israel CPA, Ken (Zvi) Marsh at 02-651-1421. In Tel Aviv, contact Atty Neil Wilkof 03-562-5599 for a recommendation in that area. (See their Business ads on this Website.)
The end
|
