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Your Taxes: What France and Israel Offer Each Offer

 

Carole Bourgeois & Leon Harris

Following the tragic news in Paris, it is important to exude business as usual.  What do Israel and France have in common?

On the business and tax side the following will be helpful: the  France-Israel tax treaty, the France-Israel social security treaty, the EU-Israel free trade agreement, and a host of EU support programs which Israeli companies are allowed to participate in.

These EU programs include: EUREKA, EUREKA Clusters, Eurostars, Enterprise Europe Network in Israel, GALILEO, NEW INDIGO, SWITCH4FOOD, MEDOLICO and the 2014-2020 Horizon 2020 – research and innovation framework program.

For details visit: http://www.matimop.org.il/multinational.html

By way of example, we review below two topical subjects : French furnished flats and Israeli tax breaks for immigrants from France and elsewhere.

Are Furnished Flats in France a Good Investment?

Overview of the French rented furnished accommodation market:

The rented furnished accommodation market is very important to the French economy, forming the mainstay of the French tourist accommodation infrastructure. Rented tourism accommodation covers a broad range of properties. As well as holiday residences and hotels, private investors often purchase flats and entrust them to management companies such as Pierre & Vacances, which will then be responsible for renting them out to tourists

Based on the last available statistics, France is the single most visited country in the world. Nearly 60% of all accommodation available in ski resorts is accounted for by privately-owned flats as is much of the tourist accommodation in Paris and at coastal resorts.

 

Investment mechanisms :

The investment can be made in a variety of ways. It is recommended to go through an expert. Investing in a property should be done on a long-term basis and the most important consideration should be the actual location of the property.

 

What French tax benefits are available?

After registering with the French Tax Administration, you will have to submit a yearly tax return – it is recommended to hire a French accountant.

The French tax regime permits the deduction of fees linked to the purchase itself (e.g. legal fees, electricity bills, etc.) as well as mortgage interest and building depreciation. Should a loss occur, no  French tax will generally have to be paid. Losses can be carried forward for French tax purposes without any limitation of time.

Such a  scheme allows for the purchase, rental and use of properties, with only property taxes to be paid in France. When property taxes are paid, it is possible to continue earning revenues without having to pay any French income taxes, for example through the amount of amortisation being carried forward.

In the end, when the flat is sold, the asset value will be increased by 22.5% and tax relief will be available dependent upon the duration of ownership. No income tax will need to be paid after 22 years.

France also allows for property ownership to be transferred to children and grand-children while maintaining the use of the flat, making the transfer less expensive.

French tax rates, when applicable,  will depend on the circumstances. In Israel, new immigrants may be exempt for 10 years (see below) while other Israeli residents can credit any French income and capital gains taxes against Israeli tax at various rates, depending on the circumstances.

 

Israeli Tax Breaks for Immigrants (“Olim”)

For Israeli tax purposes, “New Residents” and “Senior Returning residents” (“Olim”) who took up Israeli since January 1, 2007, residence in Israel since January 1, 2007, are entitled to a special package of tax benefits. Senior returning residents are Israeli individuals, who have lived abroad for at least ten years continuously.

The most notable benefit for New Residents and Senior Returning Residents is a ten-year Israeli tax holiday (exemption) regarding all foreign source income (including income from salary, business, pensions, investments, etc.) and capital gains, even if the foreign assets were acquired after moving to Israel.

Individuals may waive the 10 year  exemption although there are few circumstances where this option is preferable

Returning Residents only get the exemption  for foreign assets acquired while they were living abroad. Exempt income and related assets do not need to be reported to the Israeli Tax Authority for the whole ten years.

During the 10 year tax holiday, there is also immunity from anti-avoidance rules regarding “management and control,” “controlled foreign companies” and ”foreign professional companies”.

If a foreign asset is sold more than 10 years after the individual arrived in Israel, a partial exemption is granted pro rata to: (1) the period from purchase to 10 years after arrival in Israel, divided by (2) the total period of ownership of the asset.Less favorable tax breaks applied to individuals that arrived before 2007.

For example, Mr Mover acquired a property in New York, where he then lived, on January 1, 2000, became a new Israeli resident on January 1, 2010 and sold the property on January 1, 2025. He will be exempt on 80% (=20 years/25 years) of the inflation adjusted capital gain from the property and be taxed in Israel on 20%. This is after crediting French taxes on the same deal in the same ratio….

With regard to income derived in Israel (not abroad) by new and returning residents , no Israeli tax exemption applies. However, they receive extra personal tax credits, known as “credit points”.

Credit points are deducted from the tax liability (not from income). Each credit point is currently worth NIS 218 per month.

A man generally receives 2.25 credit points (which reduces tax by NIS 491 per month), and a woman receives 2.75 credit points (which reduces tax by NIS 599). Extra credit points are available for children.

However, new immigrants and Returning Residents may receive in their first 3.5 years in Israel:

  • three extra credit points in the first 18 months after their immigration, saving them Israeli tax of NIS 654 per month in 2015,
  • two extra credit points in the next 12 months, saving them Israeli tax of NIS 436 per month in 2015,
  • one extra credit point in the next 12 months, saving them Israeli tax of NIS 218 per month in 2015.

 

New residents are also exempt from paying tax on interest income from a “Patach,” (Pikadon Toshav Chutz) foreign currency time deposit of at least three months at an Israeli bank . This exemption runs for a period of 20 years for new residents or for five years if you are a returning resident.  Deposits in non-Israeli banks are covered by the above 10-year exemption granted to all non-Israeli source income.

There is no inheritance tax in Israel, only capital gains tax on asset sales, unless the 10 year tax holiday applies.

The above is extremely brief and general. Always consult experienced tax advisors in each country at an early stage in specific cases.

[email protected] , le[email protected]

Carole Bourgeois is a French Chartered Accountant at Qantea, France. Qantea  is a founder member of INAA GROUP,  an International Association of Auditors and Accountants .

Leon Harris is an Israeli  Certified Public Accountant and UK Chartered Accountant at Harris Consulting & Tax Ltd, Israel