A little less known fact about Israel is that it is a country built on immigration. About 40% of the country's resident were born outside of it. A 2016 study by international consultancy New World Wealth, suggests that there is one cohort of people who have moved to Israel and that is millionaires.

 

The company’s survey of millionaire migration describes Israel as the fourth most popular destination worldwide for migrating millionaires in 2015, after Australia, the United States and Canada. The survey claims that 4,000 high-net-worth individuals relocated to Israel in 2015. Since the number of immigrants and returning residents was around 37,000, that makes approximately one in nine new arrivals to the country a millionaire.

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One of the likely incentives for the well-to-do to relocate to Israel, was the passing of an unprecedented tax law in 2008, that grants new immigrants (called “Olim”) as well as returning residents who have lived abroad for at least 10 years a 10-years tax exemption on income earned abroad. Exempt income and related assets do not need to be reported to the Israel Tax Authority for the same 10 years.  All types of income and capital gains are covered by the exemption if they are derived from non-Israeli sources, such as income from salary, business, pensions, investments, etc. 

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Taking into account not only the waves of antisemitism and terror attacks that enhanced in the last few years but also a very vibrant life-style one can find in Israel, the country has become appealing for new immigrants, mostly from Europe and the Americas. 

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The new waves of immigrations are indeed in part the result of the tax incentive and benefits, but at the end of the day, immigration waves of recent years are no different than previous economic-fueled immigration. Beyond obvious considerations such as experience, expertise and reputation, their advisor is a partner that needs to understand the complexity and the unique goals of each family. Therefore, advisors have shortly become the clients’ representation in every aspect: correspondence with financial institutions, networking within the local business community and point of contact with all experts. 

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And so, whether it is the considerations accompanying gifts between family members (as there is no gift tax between family members under the Israeli jurisdiction), or the Succession Law for example - where the testamentary freedom under the Succession Law enables families to establish non-conventional wills and testaments (which would not be possible in many other jurisdictions) – these every-day life experiences are all of a sudden becoming complex when not all family members have relocated to Israel or are not planning to relocate at the same time: how does one distributes family assets among the members of the family in the most beneficial way?

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The financial ecosystem has changed in the last few years, but Israeli banks had struggled to adapt and were not fully prepared to provide the full extension and assistance for this important wealth creation. We experienced in various aspects uncertainty in terms of handling bank accounts openings, selection of appropriate investment solutions in line with the 10 years tax holiday. Also, as many families are coming closer to the end of their 10 years tax holiday, clients expect advisors to suggest and prepare an action plan to reduce their future taxable capital gains. 

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Even those who had decided to maintain their relation with the same foreign banks they used to work with from their country of origin, often find themselves tangled in long-lasting discussions with their bankers as Israel's bureaucracy and local legislation has not yet been fully comprehended . 

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Israel's Tax Authority does not always possess full information in order to assess whether a person qualifies for tax exemption. Therefore, the OECD’s Multilateral Convention on Mutual Administrative Assistance, which allows for the automatic exchange of information at the end of 2017 will be done via the banks and information will start moving around because of the common reporting standard. In other words, as financial institutions will take no risk when it comes to tax reporting, it makes having a local expert more essential now than ever.

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As the Israeli government does not have worldwide sovereignty, new residents should check if they are still taxable in their origin country. They should analyze the whole family situation, taking into account all the jurisdictions the family is subject to and family members should be able to provide if necessary a proof of their new status locally ("Teudat Toshavut", a Residency Certificate provided by the Israeli authorities). 

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Naturally, another concern and interest of New Residents is their willing to better familiarize themselves to the Israeli business community, mainly driven by innovation in the Hi-Tech and healthcare industries. People are interesting to demonstrates their continuing commitment to innovation (businesswise and philanthropy) and a local advisor could guide them through the local pool of investment options.

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In conclusion, an absence of common language and cultural barriers contributes to a lack of comprehension, collaboration and trust. Left unchecked, these factors often inhibit solid decision-making and undetermined role clarity and a common sense of purpose to the business of family investing. The inevitable consequence of these missteps can result in mistrust, an "us and them" mentality, slow or no decision making. However, when properly executed, a foundation of trust and confidence can be created that will sustain a healthy and long-term relationship between the family and investment staff. 

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Karen Schwok is the CEO of Lucid Investments that offers comprehensive Family Office and Wealth Management services for High-Tech entrepreneurs and mostly bi-national families that relocated to Israel.  Karen has Wealth Management expertise from over 15 years in the field. She is the former CEO of Pictet Wealth Management in Israel, has an MBA from Tel-Aviv University. She serves as Board Member of various associations such as the Chamber of Commerce Israel-Switzerland & Liechtenstein and the Association of Foreign Banks in Israel.