Itzik Libster, Partner Israeli Tax Department
Partner since 2014
Specializations: Israeli taxation, Land Appreciation Tax, retirement planning
How did it all start?
Looking back it’s funny to see how as a young man I ended up in the accounting profession that I now love so much. I come from an ultra-Orthodox and scholarly background, until the age of 20 I studied in a yeshiva every day, at a certain point I decided to enlist in the army and from there the road to Bar Ilan University was challenging but safe. I remember the deliberations of what profession to study and the great joy I felt when I discovered that studying accounting and especially tax studies is somewhat reminiscent of the gemara study that I have studied all my life. In a way this resemblance accompanies me to this day and this is especially true in taxation. I started my professional career in the audit department but very quickly I realized that taxation is much more magical to me. It is a field full of subtle intricacies and changes that makes me learn something new every day, understand something out of nothing and give smart solutions to my clients.
What makes me get up in the morning?
I have worked in Aboulafia over 20 years. Some of the power of professional accounting and taxation in particular is the ability to help people. I meet customers in all kinds of complicated situations with the tax authorities in Israel and abroad and I succeed in giving them a complete and proper solutions. This ability to assist the customer in a tangle of laws is the most wonderful thing in the profession. I really help the client and the reward is immediate! There is a wonderful sense of joy when I talk to a concerned client and hear in his voice the relief and calm he felt when I managed to save him payments and a lot of headache from the bureaucracy of the tax authority, which is for me the motivating factor for getting up for another morning of action.
It’s important to me that they know …
As I mentioned in the tax area is huge, but since we are a unique office that provides a solution to many customers who have dual citizenship or activity in foreign markets, it is important to me to note two issues in particular:
Redemption of retirement grant – can cause a tax accident whose consequences for the customer are an economic disaster! Dual citizens with a desire to redeem their grant are not even aware of the double taxation they owe, they will usually consult with their employer who does not understand anything about international taxation and give them bad advice that could reduce the amount of their retirement grant by 25%. This tax liability usually catches them just when they want to use that money for something significant in their life like financing a wedding for one of the children, or planning a coveted trip they are looking forward to towards the end of their work years. And when I meet them after redeeming the money unfortunately I cannot help them as I would like – I really see their dreams thrown in the trash, but … if they would turn to us before redemption of the retirement grant we would succeed through tax planning and payment schedule to completely save them from this tax accident – that are cumulative to significant amounts.
I have a case of a client with dual Israeli and American citizenship who was about to redeem his retirement grant from work. His employer gave him advice that it would be better for him to take the redemption as exempt income to avoid paying income tax in Israel. It is important to understand that this is what most employers in Israel will recommend simply because they are not aware of the double taxation that exists for people with dual citizenship. And seemingly this even makes sense, since every person who retires is entitled to an exemption for each year of work in the amount of about NIS 12,000, so if that person has worked for 20 years he is entitled to an exemption of – NIS 240,000. But, and this is a big but, if he has tax liability on his grant revenue abroad he will pay taxes up to 25% of the total retirement allowance. The amounts involved are certainly significant. And there is also another consequence and that once the customer decides to implement the tax exemption on the redemption of the grant that exemption is in expense of the pension exemption. The law says that every exempt NIS 1 is equal to NIS 1.35 exemption of pensions. This means that a customer loses twice, the grant exemption retirement does not give him an exemption from tax liability abroad for which he will have to pay and it reduces significantly the percentage of the tax exemption that could accrue to him in favor of the pension.
The great luck of the client is that he did not heed the advice of his boss and came to us for advice , thanks to the appropriate tax planning we managed to save him NIS 30,000 for the retirement grant and another NIS 5,000 a year for retirement until the end of his life. It accumulates to huge amount of thousands of Shekels and more. It is important for me to note that we handle dozens of such cases a year, these are significant cases that I know for sure that I will be able to save our client thousands of Shekels.
Therefore, it is very important for me to emphasize to employees with dual citizenship – if you are facing retirement or if you have benefits, executive compensation funds, consult a tax expert before redemption. Retirement planning is a dynamic and individual job that should be examined in detail in order to see the implications and see the good of the client over time. Personally I can say that professionally retirement planning is a very challenging job as it requires us to think outside the box and constantly look for creative solutions for our clients both because the solutions in this regard are not standard and also because there are often changes in treaties and tax laws as a result of power changes.
And what else?
10 year exemption – Another issue I come across quite a bit is the tax exemption given to new immigrants over a period of 10 years. This is a significant tax relief and a wonderful benefit but here too it is important to understand and read the fine print of the law. Many immigrants turn to me in surprise after receiving income tax warning letters for tax liability in Israel and are sure that this is a mistake. So I want to warn, This privilege is valid only for new immigrants within the 10 years for income that the source is provision of services actually provided abroad. That means that if that immigrant provides consulting services or any other service in Israel or runs a business in Israel, he should go to consult an expert immediately, since he is subject to tax liability, IRS and Social Security. This is also a classic case that begins with incorrect assumptions and may end up in fines and debts. I am very happy that my team and I succeed through smart tax planning to save those customers multiple taxes, fines and extra payments.
Another 5 years…
I am not a prophet, but I expect taxation and in particular international taxation to continue to be fertile ground. I see around me how global markets continue to evolve, new and entrepreneurial ventures reaching new geographical locations require both brilliant taxation solutions and the ability to see and understand many aspects including human psyche and aspirations.
A closing sentence
I am glad to have the privilege of helping our clients, urge you to contact us with any problem and in particular the issues I have mentioned. And I will end with a wish for peaceful days to whole of Am Yisrael and a happy Shavuot holiday in my name and in the name of the office staff, “who will give and we will happily reap the fruits of our labor”!
Always at your service
Itzik Libster | PartnerIsraeli Tax Department