• Monte Silver, Tax lawyer

The Repatriation tax and the 962 election - Jerusalem Post, Friday June 1

The U.S. 2017 tax reform has made it very problematic for an American residing in Israel to conduct business through an Israeli corporation. Operating through an Israeli corporation exposes the expat to two new taxes: Repatriation and GILTI. This article will discuss the little known 962 election, how it can be used to reduce Repatriation tax liability, and some issues that must be considered before doing so.

A numerical example is helpful. An American living in Israel has been operating a CPA sole practice or family restaurant for 30 years through a wholly owned Israeli company. After paying Israeli corporate income tax on profits over the years, the company has $500,000 in retained earning in its bank account, which the expat is counting on for retirement. Under the Repatriation tax, the expat is now personally liable for $87,700 (17.54% * $500,000) of that amount.

How is this tax paid? In eight annual payments, with the first payment of 8% (or $7,016) being due June 15, 2018. Should that or any other annual payment be a single day late, the entire $87,700 is due immediately.

Lets assume that the expat has no personal foreign tax credits to use to offset to the Repatriation tax. use . In other words, in previous years the expat has already used all personal income tax paid in Israel to offset U.S. income tax.

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