Is Israel a tax haven?

With the extreme turmoil in the Middle East and with Israel surrounded by real and potential enemies, perhaps this is not the time to consider citizenship in the State of Israel. But an intriguing article has been published by the Tel Aviv law firm of Udi Barzilai, former deputy head of the Israel Tax Authority.

Defying the international attacks on all tax havens led by the Organization for Economic and Community Development (OECD), Israel has eased its tax laws in an obvious effort to attract new residents and eventual citizens – and in so doing may have made itself into a limited tax haven of sorts.

Very Attractive Tax Breaks

Up until now Israeli tax law allowed new immigrants with substantial income from foreign source investments an exemption from most ex­change controls and they could hold assets wherever they wished in any currency. During the first ten years of residence, a new immigrant could even be exempt from in­come and capital gains taxes on foreign source income.

Under the new Israeli Tax Amendment 168, which some are calling “revolutionary,” an individual who immigrates to Israel, if certain conditions are met, not only gets a 10-year full tax exemption, but also has no tax reporting requirements. Under another new law, the Economic Efficiency Law 2009, the Finance Minister has authority to double the 10-year tax free period to 20 years, if the persons makes a “significant investment” in Israel. It is unclear how Israel can square these new tax benefits, especially non-reporting, with tax information exchange agreements Israel has signed with other countries. Also Israel is in the process of qualifying as an OECD member and that anti-tax competition group will no doubt have questions.

The Law of Return

Israel’s official immigration policy is unique in that it welcomes scattered Jews of the world (“the Diaspora”) to the Jewish homeland. Adopted in 1950, the “Law of Return” decrees that any­one with one Jewish grandparent has an automatic right to Israeli citizenship, even if they are not observant religious Jews. The law provides an automatic second pass­port and dual citizenship for all who qualified. Under the Law of Return, Jews are granted Israeli citizenship 90 days after immigrating there. Non-Jews who reside in Israel for three years of a five-year period, intending to settle there also may apply for Israeli citizenship, but they must renounce their former nationality.

Major Tax Shelter

Considering the political and tax implications of these tax laws Israel may be providing high net worth individuals with a unique opportunity to transfer funds from offshore jurisdictions and financial centers into Israel with no taxes and no reporting. While Israel has not been classified previously by the OECD as a tax haven, one wonders how long their new tax laws will last before the usual anti-tax haven OECD barrage begins. It may be a coincidence that the Financial Times has reported that the U.S. Justice Department and Internal Revenue Service are investigating information about U.S. persons’ accounts held at Bank Leumi in Israel.

Source Sovereign Society