The management and control test
Under the Income Tax Ordinance, a company is an Israeli resident if it is incorporated in Israel or if control and management of its business are exercised from Israel. For an owner-managed company, that usually means: where are strategic decisions really made? If the answer after Aliyah is "at my kitchen table in Tel Aviv", the company may become Israeli-resident and be taxed in Israel on its worldwide profits at the corporate rate, with dividends then taxed again in your hands.
Treaties may contain tie-breaker rules for companies resident in two countries, but they need careful application and do not remove the Israeli risk on their own.
Your exemption vs. the company's position
The 10-year exemption applies to you as an individual on foreign-source income. Dividends from a company that stays genuinely foreign are foreign-source. A company that becomes Israeli-resident produces Israeli-source dividends, and the exemption does not help.
US LLCs
Americans often hold businesses or real estate through single-member LLCs that are disregarded for US tax. Israel has generally treated LLCs as separate companies, which can mean timing and credit mismatches between the two systems. Relief options and ITA positions exist for some cases; review them before you move rather than after the first mismatched return.
Controlled foreign company rules after the exemption
Once the exemption ends, Israeli controlled foreign company (CFC) rules can attribute undistributed passive income of a foreign company to its Israeli controlling shareholders. Structures that work in years 1–10 may need changes before year 11.
Before-the-move checklist
- Document who the directors are and where board meetings take place.
- Consider appointing directors or managers outside Israel where that reflects reality.
- Separate your personal work in Israel (which may be taxable salary) from the company's foreign management.
- Check LLC classification in both countries.
- Keep minutes and travel records that support where decisions were made.
Sources
- Income Tax Ordinance [New Version], Section 1 (definition of "resident" for a body of persons) and Section 75B (controlled foreign company).
- Israel Tax Authority circulars on the tax treatment of LLCs (gov.il).
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