International taxation - International Taxation – Family Company and Benefits for New Immigrant

Recently an interesting taxation resolution, referring income from a family company to a new immigrant was published (Taxation resolution 1010/09). The case dealt with a couple, residents and citizens of a treaty country that considered immigrating to Israel and getting the status of “new immigrants”. The couple owned a foreign company (fully held by them) which serves as an “agent” to another foreign company that was a related company. The couple wanted to incorporate a family company (i.e. a transparent entity for tax purpose) in Israel that will replace the “agent” company’s activities. The family company would commit to tax under Section 64 A of the Ordinance. The question was whether the couple is entitled to the benefits in accordance with Article 14 (a) of the Ordinance, even when the activity producing the income will be through the Israeli family company. Section 14 (a) of the Ordinance provides for a 10 years tax exemption on income produced outside of Israel by a new immigrant (“Olim”) or a long term returning resident, including income from business activity. Exemption is determined pursuant to Section 14 (a) and pursuant to Section 97 (b) (regarding capital gains), as applicable, and shall apply, as long as the family company’s income was produced and accrued outside of Israel. This decision is recommended from a taxation point of view, especially given that in terms of the Israeli tax system, the tax result would have been similar if the couple continued working through the foreign “agent” company they owned (that already existed or through a new company). However ,implementation of this resolution may improve the tax outcome in foreign countries where the activity takes place. It should be noted that this decision allows extensive use and creativity regarding the benefits that are given to new immigrants or a long term returning resident, combining family companies and using this taxation decision