Plan to End Tax-filing Exemption for New Immigrants in Israel Fails

Lobbying by Immigration Ministry kills proposal before it reaches the cabinet.

Tomer Appelbaum

New immigrants and returning Israelis will continue to be exempted from reporting their foreign income and assets, after Immigrant Absorption Minister Sofa Landver blocked a Finance Ministry plan to end the controversial practice.

The proposal, which would have ended the exemption starting in January, never got to a vote in the cabinet on Thursday. Landver succeeded in getting it removed from the Economic Arrangements Bill — supplementary legislation to the annual budget — before ministers had a chance to consider it.

She argued that restoring the reporting requirement, which was lifted in 2007, would deter entrepreneurs and rich individuals from immigrating to Israel or returning to it after a period abroad.

New immigrants and Israelis who return to the country after an absence of at least a decade are exempt from reporting any income they have earned abroad for their first 10 years in the country.

The exemption, which was made in a bid to encourage immigration, is comprehensive, covering income from capital gains, interest or work.

But the rule also made Israel a popular destination for Diaspora Jews who wanted to avoid paying taxes in their home countries, inadvertently turning Israel into a tax shelter. Israel has been part of a global effort to crack down on international tax shelters and win back revenues long lost to secret bank accounts and offshore tax havens.

In November Israel became the last member of the Organization for Economic Cooperation and Development to sign an international convention designed to combat tax evasion.

But repeated efforts to end the exemption have run up against opposition from the Immigrant Absorption Ministry. Last year, it was then-Immigrant Absorption Minister Zeev Elkin who blocked the move to repeal the exemption.

The proposal put forward by the Income Tax Authority and the Finance Ministry would have ended the exemption in January.

It would also have done away with a law that entitles the finance minister to offer new immigrants and returning Israelis a 10-year tax-filing holiday under certain conditions if they make a major strategic investment in Israel.

Supporters of the exemption say that in addition to encouraging the wealthy and the entrepreneurial from immigrating, ending it will create a vast new bureaucracy to monitor immigrant taxpayers and saddle them with the cost of filing tax statements.