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Publication at the AshdodCafe news site of article by Johana BenSoussan on Exit Tax

June 13, 2017

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Israeli law encourages French Jews to come and settle in Israel or "do Alya" as it is called in Israel. One of the tools of this policy is the implementation of an incentive tax system. Thus, a person who receives the status of receives the status of new immigrant, in Hebrew “Olé” or of returning citizen “Tochav Hozer” is eligible for certain reductions on his Israeli income tax for a period of three years. years and a half after "Alya" as well as a total exemption from taxation in Israel on income from abroad. An “Ole” or “returning permanent resident” considered as such after ten years of residence in a foreign country is eligible for an exemption during the first ten years following his date of immigration to Israel while a “returning citizen” is only entitled to an exemption on his passive income for a period of five years. These numerous incentives are in addition to the income tax reductions offered to Israeli residents, such as assistance for working mothers and parents of young children, and assistance for demobilized soldiers. French people wishing to expatriate must, however, take into consideration other more unfavorable tax measures such as the "exit tax".

France and Israel tax their tax residents in accordance with the principle of territoriality of the tax according to which the tax is calculated according to the place of origin of the income (inside or outside the state). Therefore, determining the tax residence of the taxpayer is a necessary precondition for any tax consideration.

By virtue of the tax treaty signed by Israel and France on July 31, 1995, aimed at avoiding double taxation, a French or Israeli resident is a person whose “center of economic and vital interests” is in France or Israel. In addition, in accordance with French and Israeli law, there is a presumption that anyone who has stayed 183 days or more in a country in a given tax year has the center of their interests in that country (and therefore , must be considered as Israeli or French tax resident) during the same year. The bilateral convention sets out the various rules allowing a tie-breaker in the event of risk of double taxation of residents (these are cases where each of the two states claims to be that of the taxpayer's effective residence). In addition, a transition period of one year has been arranged for any new immigrant or permanent resident returning from their date of arrival, during which they may apply not to be considered an Israeli resident in the country. income tax title.

Created in 2011 in order to dissuade French taxpayers from expatriation, the "exit tax" targets residents transferring their tax domicile outside of France, if they were French residents for six of the last ten years preceding their departure and on the condition that their assets in securities and social rights exceeded 800,000 euros or that they had holdings of at least 50% in a company. It should be noted that, by way of derogation, predominantly real estate companies whose assets are more than 50% made up of real estate are not affected by this measure.

"Exit Tax" therefore consists of the immediate imposition at the progressive rate of income tax and social security contributions (15.5%) of unrealized capital gains on company rights, securities, securities or rights held by a natural person. However, in the event of transfer of residence to another State of the European Union or of a specific exemption, the tax is automatically deferred and is therefore not paid upon departure but only upon the actual disposal of the assets.

So, as Israel organizes itself to welcome more new immigrants, France's tax system attempts to limit the emigration of its nationals out of Europe. It is therefore essential for the "Olim" of France to consult a professional specializing in tax law who will advise them according to their particular situation on the need to sell their assets or develop their heritage upstream.

* Johana Bensoussan is a French lawyer in the law firm Afik & Co., Avocats et Notaire ( specializing in tax law, immigration law and business law. Gal Dikshtein, CPA, Former Director in the Professional Division of the Israel Tax Authority and Founder and Partner of the company "Gal Dikshtein Consulting" which deals specifically with Israeli and international taxation. The content of this article cannot be equated with legal or tax advice or advice, each issue having to be the subject of a specific analysis. For more