New immigrants to Israel (olim) and returning expatriates will enjoy a ten-year exemption from Israeli taxes on foreign assets and on any income generated abroad. This is just one of the key measures passed unanimously by the Knesset on Tuesday, when it voted into law a far-reaching tax reform bill aimed at promoting immigration. The unprecedented tax breaks apply to all new immigrants and returning Israelis who arrived in the country as of January 1, 2007.
The reform was designed at the initiative of the Tax Authority and the Absorption Ministry in the context of the "Returning Home for Israel's 60th Anniversary" project, aimed at drawing back to Israel thousands of Israelis who currently live abroad. A joint Absorption Ministry-Tax Authority team presented the initiative to the Finance Ministry, where it was approved as part of the general government effort to promote Aliyah (immigration to Israel).
In addition to a ten-year tax exemption for all income generated outside Israel - including salaries, passive income and capital gains - the new law includes the following reforms to the Tax Code:
Extending Tax Exemptions to Returning Expatriates
Returning expatriate Israelis who lived overseas for at least ten years will be categorized as "new immigrants for income tax purposes."
Absorption Track
A new immigrant will have one year to decide whether or not to be considered an Israeli citizen for tax purposes. During this absorption period, the lawmakers believe, the new immigrant will be able to make a careful decision about where he or she would like to become a legal resident.
Tax Exemptions for Immigrant-Owned Companies
Foreign corporations controlled by olim or returning expatriates will not be considered Israeli companies for tax purposes. This measure was intended to remove any doubt as to the status of such companies owned by immigrants before their move to Israel. In this way, immigrants can earn income tax-free for ten years from any foreign company they control as long as the income is not generated in Israel.
Reporting Exemptions
Individual immigrants and companies in their control will be exempt from Tax Authority reporting requirements regarding any income generated abroad or any foreign assets. However, any income generated in Israel after their immigration will be reported and taxed according to existing regulations.
'A True Revolution' or a 'Honey Trap'?
Minister of Absorption Eli Aflalo said that "the reform is a true revolution, which for the first time combines value-based incentives and Zionist Aliyah with economic incentives. And it will give olim and returning citizens a jumping-off point for economic integration in Israel, which will contribute greatly to market growth."
According to Aflalo, the new tax reforms remove a significant stumbling block for immigrants and returning 
"There is a real possibility for people... to make Aliyah and live out their lives in a Holy Land Tax Haven."
expatriates. His ministry will be promoting other initiatives and projects aimed as easing the way for those Jews considering moving to Israel, Aflalo added.
CPA Baruch Grossman, whose Modiin-based firm, Grossman & Co., specializes in American-Israeli tax issues, agrees: "Such tax exemptions are definitely an effective means of promoting immigration to Israel." In fact, with proper tax planning, "there is a real possibility for people... to make Aliyah and live out their lives in a Holy Land Tax Haven," he added.
However, Grossman warned, "That tax haven can easily become a 'honey trap' for the unprepared immigrant." There is the likelihood of "very unpleasant surprises down the road," he said, once the immigrant has to start paying taxes and hasn't prepared his finances accordingly.
In addition, Grossman believes that the tax exemption law "opens the door to tax evasion, criminal activities and money laundering." With no general filing requirement in Israel, "local tax authorities simply won't have any reliable information about new residents utilizing the proposed exemption," he explained.