Israeli Taxes on Swiss Properties

Transcription

1 Israeli Taxes on Swiss Properties Israel s Appetite for Swiss Real Estate Zurich, 29 March 2012 George Rosenberg & Inbal Faibish Wassmer Rosenberg Abramovich Keren-Polak Epelman, Advocates

2 Topics Taxation of Resident Individuals Taxation of Resident Companies Taxation of Foreign Rental Income Taxation of Sale of Foreign Real Estate Operation through a non-resident SPV SPV invested in Swiss real estate Treaty considerations Three Ways to Invest in Foreign Real Estate (Individual; Company; Trust)

3 Taxation of Israeli Resident Individuals 1 An Israeli Resident is taxed on his worldwide assets. A person is deemed an Israeli Resident according to the Center of Life Test, divided between objective and subjective tests. Refutable presumptions of residency if an individual spent in Israel: 183 days (or more) during the given tax year; or 30 days (or more) during the given tax year, and a total of 425 days (or more) during the given tax year and the two previous years. Tax rates for individuals business income at progressive rate (10% - 48%)

4 Taxation of Israeli Resident Individuals 2 Investment income: dividends and capital gains are taxed at 25%, or 30% in case of substantial shareholders (holding 10% or more of the means of control) Where a shareholder/member holds at least 10% of the means of control in a company (controlled foreign company CFC ) in which 50% or more of the means of control are held by Israeli residents (or 40% by residents and 10% by non-resident relatives) and which has undistributed passive income taxed at a rate below 20%, then the said shareholder is taxed personally on his proportional share of that income (deemed dividend), at the general rate of 25% (30% for Substantial Shareholders) New and Returning Residents enjoy 10-year exemption from tax and reporting obligations on every type of foreign-sourced income, including capital gains.

5 Taxation of Israeli Resident Companies Companies incorporated in Israel and foreign companies that their business is managed and controlled from Israel are deemed resident and subject to corporate tax on a world-wide basis. Current corporate tax rate - 25% New and returning residents are exempt from management and control test applied in defining the Israeli residence of foreign companies.

6 Taxation of Foreign Rental Income Two options available to individuals: (A) Taxation at progressive rates - up to 48% full deduction of expenses and credit against foreign taxes. (B) If not business income taxation at flat rate of 15% no deduction of expenses, except depreciation, and no credit against foreign taxes.

7 Taxation of Sale of Foreign Real Estate The tax treatment of foreign real estate is the same as any other foreign asset (Israeli real estate is subject to a tax regime different from other assets) Capital gains tax rate on sale by individual: 25% as of 1 January 2012 On sale of shares: 30% or 25% if not substantial shareholder

8 Special Purpose Vehicles Using a Swiss Company to hold Swiss Real Estate is a common method when purchasing Swiss Real Estate, but use of company may not be advisable because of tax consideration as per previous slide Israeli tax considerations irrelevant if total Swiss tax equals or exceeds total Israeli tax Application of tax treaty

9 Treaty Considerations 1 Switzerland has the right to tax Israeli Residents on income from Swiss real estate, including (Article 6) accessory property and certain rights related to real estate Income from property held by an enterprise Switzerland has the right to tax Israeli Residents on gains derived from Swiss real estate, including sale of shares of a company the property of which consists, directly or indirectly, principally (i.e. more than 50%) of real estate (Article 13) Dividends 5 % inter- company / 15 % in general But note permanent establishment (PE) provision (mere ownership does not create PE)

10 Treaty Considerations 2 Business profits are taxed where the company is located, except in case of PE Israel has a secondary right to tax the above income or gains, but the tax paid in Switzerland is deductible from the tax payable in Israel (Article 23(2))

11 Three Ways to Invest in Foreign Real Estate 1 1. Direct ownership by an individual: If not a business maximum tax: 25%; personal exposure 2. Through a company: Israeli company: Commercially comfortable; eventually - two tier taxation; Treaty not favorable (no Israeli relief on inter-company dividends) Non-resident company: No credit in Israel on underlying taxes in Switzerland unless nonresident company taxed in Israel (Section 163 of the Ordinance); CFC considerations.

12 Three Ways to Invest in Foreign Real Estate 2 3. Through a family company or trust structure Both are transparent for tax purposes i.e. basically same tax liability as in case of individual, by avoiding two-tier taxation Certain trust structures may enable interesting tax planning Goal: Rental income tax: limit the to maximum 30% and possibly lower (option) Capital gains tax: limit to 25%, assuming no business

13 Thank you