A returning resident ("Toshav Chozer") is an individual who was previously a resident of Israel for tax purposes and returns to the country after a continuous stay abroad of at least six years. It is important to distinguish between a returning resident and a veteran returning resident ("Toshav Chozer Vatik"), who has spent a longer period abroad and is eligible for additional benefits. The returning resident is entitled to several significant tax benefits designed to ease their transition back to Israel and encourage them to return to the country.
When a returning resident comes back to Israel, they are entitled to tax exemptions on passive income originating from abroad for five years. This income includes interest, dividends, royalties, and pensions. This exemption allows the returning resident to enjoy their overseas income without the obligation to pay tax in Israel during this period.
Additionally, returning residents are eligible for a tax exemption on capital gains from the sale of assets purchased abroad before returning to Israel. This exemption is valid for ten years from the date of return, allowing the sale of these assets and enjoying the profits without paying tax in Israel. It is important to note that this exemption does not apply to assets purchased after returning to Israel.
To utilize these benefits, the returning resident must undergo a formal recognition process with the Tax Authority. They need to submit an application for recognition as a returning resident and provide documents proving their continuous stay abroad and return to Israel. The benefits are granted as part of the process of filing annual income tax returns, so it is essential to report all income and assets abroad and request the applicable exemptions and reliefs.
In addition to tax benefits, returning residents can enjoy other forms of assistance, such as help in finding employment, professional training support, and various facilitation in receiving services from government offices. It is important to consult with an accountant or tax advisor to ensure full utilization of the entitled benefits and to avoid reporting errors.
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