Tax Authority wants army tech veterans tied to Israel

Israel's Tax Authority is advancing a controversial bill that would subject veterans of the IDF's technological units to Israeli taxation for a decade after their military service, even if they relocate abroad. The proposed legislation, revealed by Tax Authority director Adv. Shay Aharonovich, aims to tie these veterans and any tech companies they found to Israel for tax purposes.

Under the draft bill, veterans of units focused on research and development, cybersecurity, or technological intelligence would be considered Israeli residents for tax purposes for 10 years post-discharge. Any company they establish within this period would be registered as an Israeli-domiciled company and would need to be dissolved in Israel. This means they would pay income tax on worldwide earnings, regardless of their physical location or center of economic interests.

The justification for the move, according to Aharonovich, is that the knowledge and tools provided by the state during military service are leveraged by veterans to build successful ventures, but the state does not always share in that success. Currently, Israeli residents pay tax on global income, while non-residents are taxed only on income generated in Israel.

However, tax and tech experts have strongly opposed the proposal, labeling it "draconian" and "unconstitutional." They are preparing to challenge the Tax Authority's initiative, which would override standard criteria for determining tax residency, such as the location of one's home, workplace, and economic interests, as well as days spent in Israel.

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We are examining the possibility of promoting legislation in which, for 10 years after discharge, a company founded by someone who was released from a technological unit will be considered an Israeli domiciled company, with the tax implications arising from this.