For foreign assets, Big Brother really is watching

Dr. Avi Nov

The tax authority is connected to many databases, and collects information about us daily. One of those databases is on the main computer of Border Control.

Dear readers, if you are traveling abroad in the near future, it pays to know that Big Brother really is watching you. The Israel Tax Authority has concluded that if you travel overseas a lot, or spend a lot of time there, you apparently have income or assets abroad, which are subject to reporting and income tax requirements.

We are witness to a dramatic increase in enforcement efforts by the Tax Authority. These are operations by the Authority's intelligence and investigations unit, which after an initial collection of information, has begun to reach out to potential transgressors as well.

The Tax Authority is connected to many databases, and collects information about us daily. One of those databases is on the main computer of Border Control, which collects details of your arrivals and departures to and from Israel. That information is passed on to Tax Authority computers.

Recently, the Tax Authority decided to send out requests for declarations of assets and income from abroad to people travel overseas frequently, or who spend a long period abroad over the course of the year. That is on the basis of the assumption that people who travel frequently either work abroad, from which they have additional income that they are not reporting as required by law, or they have assets abroad that are a source of income which is not being reported.

According to Israeli tax law, Israelis who have income from assets overseas, such as money in foreign bank accounts, shares or options in foreign companies, houses or other real estate - are all required to pay tax in Israel on income those assets generate, in addition to taxes paid abroad.

In principle, it is possible to receive a tax credit in Israel in proportion to the tax that was paid abroad, in line with income tax regulations or in accordance with treaties to prevent double taxation, if one exists between Israel and the country which generates the income.

Even if you are not required to pay tax in Israel, there is a requirement in principle to report assets held abroad. If you do not report those assets and income, you are liable to face criminal and civil court proceedings for non-reporting.

Who is exposed

Israeli residents who are especially open to a tax authority audit are those who have income as self-employed or as employees from work performed overseas; those who receive income from dividends, royalties, or rent overseas; those who own shares or options in a foreign company, even if it did not generate any income during the tax year; those who own other assets abroad such as property, movables, or patents, whose value is at least NIS 1,768,000 (an amount which is updated each year); those who own a bank account in a foreign bank, or several foreign bank accounts, whose combined balances are NIS 1,768,000 (this amount is also updated each year).

In addition, there are reporting requirements in relation to various trusteeships and in relation to tax plans that require reporting.

Returning residents and new immigrants are exempt from reporting and from paying tax according to various tax benefits in the law.

Dr. Avi Nov is a lawyer who represents Israeli and foreign clients in tax cases. He manages the IsraelTaxLaw.com tax website.

Published by Globes [online], Israel business news - www.globes-online.com - on January 23, 2011

© Copyright of Globes Publisher Itonut (1983) Ltd. 2011

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