Effective May 14, 1998, a revolutionary change took place in the Israel Foreign Currency Regulations. The previous foreign currency controls were abolished and all Israelis are now permitted to have foreign currency accounts in Israel and abroad and to buy, sell and own property abroad. As the former Controller of Foreign Currency, Ms. Micki Eran, put it, all Israelis now have the rights of exemption holders (Ba'alei P’tor).
Thus in general Olim no longer have rights greater than those of all other Israelis. The exceptions are that Olim are exempt for 20 years from the tax on interest on bank accounts in Israel only and are exempt for 10 years from tax on other passive income.
The change is not 100%; there are still very limited controls in effect for some institutional investors, but all individuals are exempt.
The new Regulations replace "control" with "reporting". The banks are required to submit general reports on total transactions and also individual reports on transactions of $50,000 or NIS 200,000 or more. In order to enable the bank to report, the individual must inform the bank the purposes of the transaction over $50,000 or NIS 200,000. These numbers have not changed since May 11, 1998, according to the Bank of Israel website.
Due to new laws and regulations regarding money laundering, banks are required to report the following transactions to a special office in the Ministry of Justice:
- All deposits or withdrawals of cash whether Israel currency or foreign currency of NIS 200,000 or more.
- Conversions of cash in Israel currency or foreign currencies of NIS 50,000 or more.
- Any bank transfer into or out of Israel of NIS 1,000,000 or more.
- The banks are also instructed to use their discretion in reporting other transactions that arouse their suspicion.
The Tax Reform Law, which taxes worldwide income of Israeli residents is an outcome of the foreign currency liberalization. This law was enacted by the Knesset in July 2002 and numerous amendments were passed on December 17, 2002. The law went into effect on January 1, 2003.
On September 9, 2008 the Knesset amended the Income Tax Ordinance to provide that new immigrants and veteran (vatik) returning residents (VRR) who had been outside Israel for at least 10 years would be exempt from Israel tax on their foreign source income for 10 years. The amendment is effective retroactively to January 1, 2007.
Returning Residents who had been abroad at least 3 years, but less than 10 years, will continue to be tax exempt for 5 years on passive income from assets outside Israel, which the returning resident purchased during the time he/she was not an Israeli resident.
The provisions of these amendments are complicated and new immigrants or returning residents are advised to obtain expert advice.
AACI wishes to thank Yitzhak Heimowitz, Attorney at Law for writing this article. Mr. Heimowitz can be contacted:
Tel: 03 560 1994; Fax: 03 560 5356, 64A Shenkin St., Tel Aviv 61141