Legal Updates

The tax exemption for a returning resident does not apply to work income even if done outside of Israel

December 2, 2020

An Israeli citizen lived outside Israel for about 20 years and before returning to Israel worked for an international company as a regional sales manager in 9 countries: Israel, India, Bangladesh, Sri Lanka, South Africa, Turkey, Greece, Cyprus and Malta. When he returned to live in Israel, he continued to work in the same position and did some of the work outside of Israel
The Supreme Court held that despite the tax exemption for passive income of returning resident that dervies from assets outside Israel, tax will apply to the entire income from work. Income tax in Israel is levied on the income of a resident of Israel that was produced or received in Israel or outside Israel and on the income of a foreign resident produced or received in Israel. A new immigrant and an Israeli resident who returned to Israel after 10 years enjoys an income tax exemption for 10 years on income originated from assets outside Israel, so that the relocation to Israel will not adversely affect the immigrant's tax liability. The meaning of this test is that active income, the source of which is a continuous effort of the taxpayer (such as income from work or business), is not exempt from tax in Israel. Here the income is the result of work and therefore income outside Israel is also taxable in Israel.