Filenews 20 March 2024
The extensive business activity of Israeli investors in Cyprus is at the center of investigations conducted recently by the Israeli tax authorities, according to statements by the head of Israel's Tax Department, Sai Aharonovic, included in an extensive report by the country's authoritative financial newspaper, Globes.
In particular, the issue being investigated by the Israeli tax authorities is whether Israeli investors should be considered as 'permanent residents abroad' or whether they manage their business activities in Cyprus from their permanent tax residence, which, according to the relevant Israeli law, remains Israel.
To this end, the Israeli tax authorities have started to control the frequency of air tickets from Israel to Cyprus and vice versa, issued in the name of specific investors and entrepreneurs operating in the high-tech and real estate sectors.
An additional reason that aroused the interest of the Israeli tax authorities, according to the Globes report, is the significantly lower corporate income tax rate in force in Cyprus (tax bracket up to 12.5%) compared to the corresponding Israeli one, which can reach up to 50% of taxable income.
The large difference in income tax scales makes Cyprus essentially a tax haven for Israeli investors and entrepreneurs. According to the data available to the Israeli tax authorities, it is estimated that a total of about 10 to 20 thousand Israeli taxpayers reside in Cyprus (in the free areas and in the occupied areas), while it is being investigated how many of them maintain their permanent residence in Israel and manage their business activities on the island from Israel – and therefore have to pay the tax corresponding to their income coming from Cyprus.
One issue highlighted by the Globes in its report is the lack of a legislative control framework, an issue that is pending making the detailed audit that Israeli tax authorities seek to complete difficult.
Finally, the Israeli tax authorities are examining whether the purchase, resale and exploitation by an Israeli taxpayer of immovable property located in Cyprus should be regarded as a 'taxable business activity', even though the Israeli investor does not carry out that activity on a professional basis.
According to officials of the Israeli tax authority, as well as local legal experts, if it is eventually found that Israeli investors in Cyprus maintain Israel as their permanent residence and the focus of their livelihoods – regardless of whether they employ employees in Cyprus to manage their business activities – they are likely to be taxed with the highest possible tax brackets of up to 50% of their taxable income.
As the Globes newspaper reports, citing the head of the Income Department of the country's Tax Authority, Sai Aharonovic, written notices have already been sent to Israeli businessmen operating in Cyprus.
CNA
