Israel and taxes

The US and Israel are working on revising a double taxation treaty and at the end of the day I believe we will be able to work together.

September 18, 2019 16:38
Israel and taxes

BOAZ FEINBERG. (photo credit: Courtesy)

When you make aliyah, there are so many bureaucratic challenges, logistical concerns, personal and emotional considerations; but one important issue that is often overlooked, especially by younger immigrants, is taxes.

So, the Magazine recently sat down with Boaz Feinberg, partner and head of the Tax and Financial Regulation Department at ZAG/Sullivan international Law Firm, to discuss the importance of tax planning for both individuals and businesses, upcoming Israeli tax reforms, and the impact of US tax reforms on Israel.

ZAG/Sullivan is a unique international law firm with offices in Tel Aviv, Boston, NY, Washington and London as well as a practice in China. The firm is a powerhouse when it comes to advising hi-tech and life science start-ups doing business in Israel and the US, representing roughly a quarter of all Israeli companies being traded on NASDAQ today.

The firm’s tax department provides the back-office tax issues for the commercial department, whether in mergers and acquisitions, initial public offerings, or cross-border transactions, and serves individuals with assistance in tax planning and aliyah issues.

How important of a consideration are taxes when making aliyah?
Life decisions are stronger than taxes. Most people are concerned with education, work and, if you’re a little bit older, children’s education, and when you’re a senior, a nice place to spend the remainder of your life. However, taxes are in fact a crucial force in the decision you make, not necessarily in the decision of whether to immigrate, but it may affect the timing, questions with regard to keeping a presence in your home country, your investments, and how you structure your affairs.
More specifically, you need to take into consideration taxes regarding your dwelling, customs breaks on goods you get from abroad, and you can also get nice customs and purchase tax breaks on your first car – which in Israel is a pretty large amount.
Additionally, you may need assistance with constructing the way that you continue to work or want to continue to work abroad in the most optimal way, especially when it comes to people making aliyah from the US.

What’s different for those coming from the US?
In the US you’ll have to think a little bit harder on how to restructure your finances, because you will have to continue to pay taxes even when moving to Israel. With most other jurisdictions in the world, once you leave the country, you no longer have to pay taxes, but with the US that is not the case.

There is currently a lot of talk in Israel about implementing new tax reforms. How will this affect new olim?
Recently, there has been an outcry coming from the Israel Tax Authority, which is discussing the possibility of repealing the 10-year exemptions. This is essentially a tax and reporting exemption, so that new immigrants don’t have to report to the Israeli tax authorities on income generated outside of Israel for 10 years.
This is very concerning and will affect many new olim if it comes into play. It’s important for anyone contemplating aliyah to understand that once the reform is out there, it will take effect immediately from the day one makes aliyah. So, this should be a major factor in deciding on the timing to immigrate.
I’ve seen people who are considering leaving their place of birth in the UK or South Africa or the US, and they are considering several jurisdictions in which to live, and taxes is one crucial issue that is being considered. This new reform could be a game changer, and we’ll have to wait and see if it passes.

While ZAG-SW offers tax planning services to individuals, your main focus is on tax issues for the commercial side. As such, what are some of the most pressing tax considerations for Israeli businesses?
We assist Israeli businesses with a wide variety of solutions in collaboration with our US tax department in Boston, which has more than 40 lawyers. We help Israeli companies relocating or expanding to the US with organizational issues, employee benefit issues, tax issues in investments and real estate in the US. Additionally, we help US investors that are investing in Israeli R&D centers or in start-up companies.
For US investors, tax issues involve both the US and Israeli side to better understand optimizing their tax results for their endgame. So, depending on what kind of investment it is, we help our clients discuss the repercussions of their investments from a tax perspective and the solutions.
One of the major issues today facing US investors and Israeli businesses is the effects of the Trump tax reform.

Can you explain what the tax reform entails?
Up until US President Donald Trump’s reform, you have a pretty large surplus or delta between the federal tax, corporate tax and Israeli tax – about 23%, which is pretty close to the OECD average. The federal tax stood at 35%.
What the tax reform did was first and foremost reduce the corporate tax to 20% (lower than the Israeli corporate tax), so that for US investors the question of investing in Israeli R&D no longer has to do with the corporate tax difference.
This tax reform is intended to lure in more investments into the US and US companies other than invest in Israeli or other foreign companies.

So how has this tax reform affected US investments in Israeli companies?
So far this has not influenced investments in Israel; we are so far not seeing a large shift; in fact, we are still seeing funds being raised and capital invested in Israeli hi-tech.
That comes to show the strength and excellence of the Israeli hi-tech employees and businesses, that despite the tax becoming more neutral, we still see a fair amount of investments being made in Israel – which is reassuring.
But not enough time has passed, and in the future we may see a large share of investments moving back to the US, and the Israeli tax authorities will have to decide what to do about it in order to lure back investors.
It’s not only Israel that is getting impacted by this reform, it’s the entire world – now that the US has turned into a tax regime trying to get its investors back.
For now, we are sitting on the sidelines and waiting to see how things will turn out, but you have to be optimistic. The US and Israel are working on revising a double taxation treaty and at the end of the day I believe we will be able to work together in a way that the US will be sensible about its ally.

This article was written in cooperation with
ZAG/Sullivan international Law Firm.

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