- quote -

After viewing the website specified it definitely appears to
be that what Israel has done is to move from a "territorial
tax method" which taxes it's residents only on income
derived in Israel (or income deemed to have been derived in
Israel) to a "personal tax method" which taxes residents of
Israel on their worldwide income. The territorial tax
method is retained for persons who reside overseas. and who
have income derived in Israel.

What Israel has NOT done is to adopt a policy similar to the
US , whereby they tax their non-resident citizens on their
worldwide income. An Israeli citizen who doesn't reside in
Israel would only be subject to Israeli tax on income from
Israeli sources.

That is pretty much in line with the tax policies of most
countries, except the United States and the Philippines.

Stephen Gallagher

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Bryan Kellar wrote:

- quote -

That wouldn't be unusual at all.

Indeed, I would expect Israel to tax the Israeli-source
income of anyone at all -- not just expatriate citizens or
former residents.

It's my impression, FWIW, that most (perhaps all) countries
do claim a right to tax income derived from sources within
their borders, regardless of the residence or citizenship
status of the recipient of the income.

A non-resident of Israel with Israeli-source income might, of
course, also be expected to pay tax on that income to his/her
country of residence (since the country of residence, no doubt,
claims a right to tax the total worldwide income of anyone who
lives within its borders). In that case, one would probably
have to hope that the country of residence offers a foreign tax
credit or other provision to avoid double taxation of that piece
of income.

Rich Wales richw[at]richw.org http://www.richw.org
*DISCLAIMER: I am not a lawyer or professional tax adviser. My
comments are for discussion purposes only and are not intended to
be relied upon as legal or professional advice.

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"Rich Wales" <richw[at]richw.org> wrote:
- quote -

If we are talking about the article here:
http://www.mof.gov.il/itc/eng/hozrim/hoz_eng21-2002.pdf
then it appears what they are trying to do is more like
taxing the Israeli-source income of residents who used to
live there, rather than taxing all citizens on worldwide
income. Of course, I could be wrong. (Hey, most of their
website is in Hebrew, and I think 3 minutes is my lifetime
interest in this subject, unless it comes up in real
life<grin> .)

Bryan

--
-------- Bryan Kellar, EA
Oregon Tax Help, Inc. Portland, Oregon
www.oregontaxhelp.com
www.canadatax.org

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David Rosenbaum wrote:

- quote -

Would you, by any chance, have a reference documenting this
change? All the sources I was able to find on the net seemed
to say that Israel was still taxing income on the basis of
residence and/or source -- though there was some discussion
about how an Israeli who continued doing the same (or
similar) kind of work after moving abroad as he/she had done
in Israel might still be considered a resident of Israel for
purposes of Israeli tax law.

Rich Wales richw[at]richw.org http://www.richw.org
*DISCLAIMER: I am not a lawyer or professional tax adviser. My
comments are for discussion purposes only and are not intended to
be relied upon as legal or professional advice.

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- quote -

After checking the Israeli Ministry of Finance's website, I
believe I located the change you are referring to, and it's
not what the original poster was asking about.

From what I can see, prior to 1/1/03, a "resident" of Israel
had to pay Israeli income tax only on income sourced in
Israel. Income from outside Israel was not taxable to a
"resident" of Israel. Effective 1/1/03, a "resident" of
Israel has to pay tax on his worldwide income.

However, if an Israeli citizen permanently moves outside of
Israel and breaks his residential ties with the country, he
does not have to pay any Israeli tax, except on earnings
that come from Israeli sources.

So, for example, if an Israeli citizen moves from Israel to
Spain to take up residence. He would not have to pay Israeli
income tax on the money he earns in Spain.

This is significantly different from the US policy.

Yes, it's true that a US citizen who lives in the US will
find his worldwide income is subject to US taxes (like an
Israeli who lives in Israel now finds his worldwide income
subject to Israeli taxes).

However, a US citizen who moves of the US and takes up
residents in another country, still has his worldwide income
subject to US taxes.

So, for example, a US citizen who moves from the US to
Spain, must still declare his worldwide income to the US
Internal Revenue Service, and he "potentially" must pay US
taxes on that income. There are exemptions and credits
which can be taken, if necessary to eliminate some or all of
the US taxes due, but in some cases, this US citizen living
in Spain might pay US tax on non-US income.

Let's make sure we're comparing apples to apples.

Stephen Gallagher

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- quote -

Do you mean taxing "non-resident" citizens on worldwide
income. By that I'm asking, if an Israeli citizen does NOT
live in Israel and even if he has no income earned in
Israel, he must still declare that income to Israel and have
that income subject to Israeli income tax?

Stephen Gallagher

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- quote -

As to why they do it, I don't know. The only other
country, that I'm aware of, that follows this policy
is the Philippines, but there may be others. Nearly
every other country imposes taxation based on residency
or on source of income, not solely based on citizenship.

I think that it's more to prevent US citizens from
structuring their finances abroad to avoid US taxes.
I don't know how much revenue the IRS actually makes
from US citizens who live and work abroad. I can tell you
that I've never had to pay any US tax, due to the
foreign earned income exclusion.

- quote -

I believe that it was considered in the 1970s, but not
since then. It's not on the top of anybody's agenda,
since most US citizens do not ever live or work abroad.

Stephen Gallagher

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- quote -

How does that affect people who have dual U.S. and Israeli
citizenship? Does one country give a credit for taxes paid
to the other? Which country collects at its full rate?

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"D. Stussy" <kd6lvw[at]bde-arc.ampr.org> wrote:
- quote -

Actually, Israel has just switched (as of 1/1/03) to the US
system of taxing citizens on wortldwide income.

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Den wrote:

- quote -

"Because it can?" There are two other countries, Norway and
? (some African country), which tax their citizens on
worldwide income.

- quote -

That depends on the amount of income earned.

- quote -

No.

The logjams have to deal with the tax treaties.

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Any thoughts about why the US is the only significantly
sized economic power to tax it's non-resident citizens on
their worldwide income.

When the US foreign earned income exclusion and offsetting
of foreign tax is allowed for, I assume that the income to
the US is relatively small. Am I correct?

Surely with increasing mobility this is going to create
administrative logjams for the IRS (as well as for the
individual). Has there ever been any thought about doing
away with this?

Your thoughts?

D

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