Tax Issues When Making AliyahPresented by Philip Stein CPA, (USA)

Myths & Facts

• Israeli taxes are outrageously high

• Israel will take all of your money

• If you pay US tax; you don’t need to

pay Israeli Income Tax

• Israel has a backward tax system

and they will never catch you

Myth

Myth

Myth

Myth

A 10 year vacation from Israeli Tax

What does the exemption What does the exemption covercover??

• All passive income from outside of Israel

• All active income from outside of Israel

• No reporting requirements

10 Year Passive Income Exemption

• Interest

• Dividends

• Rentals

• Pensions

• Royalties

10 Year Exemption

• Applies to capital gains

• Applies to earned income in the U.S.

• Non real estate generally exempt from

state income tax

• No tax on social security payments

• No tax for 10 years on pensions

• No more state tax on retirement

income

• Farewell to state tax

• Farewell to higher taxes • Welcome to a new beginning

Example of Israeli Salaries

• 15,000 Shekel a Month

• 20,000 Shekel a Month

• 30,000 Shekel a Month

• 35000 Shekel a Month

• 23%

• 29%

• 35%

• 36.5%

U.S. Taxpayer

• Family of 5

• Total Income 120k

• Pays NY State Tax

• Has 20k in itemized deductions

Effective Tax?

26.1%

Hidden Taxes in the US

Tuition

Where do I work

Where do I earn my income

Where Do I Pay?

• Treaty since 1995

• Prevents Double Taxation

• Always pay the higher amount

• Framework that both countries respect

“But I don’t work for an Israeli company ”

• Self employed in Israel for a U.S. company

• Working in Israel for a U.S. company

• Where do you pay tax?

Do I have to open a ‘tik?’

• ‘Atzmai’• Incorporate• Outsource

What taxes do I pay in Israel?

• Income Tax- ‘Mas Hachnasa’

• ‘Bituach Leumi’- 9%

• ‘Mas Briut’- 5%

The Problem with Self-Employment Tax

• No treaty to prevent double taxation- Social

Security and ‘Bituach Leumi’

• Self-Employment Tax 15.3% on approximate

1st 100k

• Medicare 2.9% on income above 100k

• Consider incorporating in Israel

• Accounting fees are deductible

What about VAT?

• Rate 16%• Different than sales tax?

Arnona

• Real Estate Tax• Who pays?

Your House- rent or sell?

• No gain + no rent = no tax• Gain + no rent = up to $500,000 exclusion• Gain + Rent = new rules

New Rules for sale of house

• Part of gain can’t be excluded• The longer the rental period, the smaller

the exclusion• Leaving the house empty, preserves the

tax exemption• Must sell no more than 3 years after

leaving

Trust Exemption

• Established and funded by long term non-

Israeli resident

• Israeli beneficiary is not trustee

• Israeli beneficiary has no control

• Israeli beneficiary cannot contribute to the

trust

Philip Stein & Associates Ltd.pstein@pstein.comadmin@pstein.com

www.pstein.com

U.S. Phone: 866-995-1040

U.S. Fax: 866-611-8256