Did a little-noticed tax exemption law turn Israel into a criminals’ paradise?

Is there a single thread that runs through these disparate trends? Why has Israel become so rich, yet seemingly corrupt? How can it be so successful while 80 percent of income earners can’t afford an apartment unless they have family money?

It would be ridiculous to suggest a single, pat answer. Yet some observers point to the year 2008 as a time when Israel made a sharp turn onto its current trajectory, or perhaps when trends that already existed in Israeli society began to accelerate. 2008 was the year of the global financial crisis. It was the year the United States began its crackdown on Swiss banking secrecy. It was the year when Israeli apartment prices began their steep climb, rising 114 percent in fewer than 10 years. It was the year Israel’s first major binary options company was founded.

And 2008 was also the year Israel passed an unprecedented tax law amendment that its critics say was essentially a nudge and a wink to would-be tax evaders and money launderers worldwide to settle in Israel and launder their money here.

Ostensibly a piece of legislation meant to encourage aliyah (immigration to Israel) by Jews living abroad, Amendment 168 to the Income Tax Ordinance was signed into law in September 2008 by prime minister Ehud Olmert. The change (which was retroactively applied starting January 1, 2007) grants a 10-year tax exemption on income earned abroad to olim hadashim (new immigrants) as well as toshavim hozrim vatikim (returning residents who have lived abroad for at least 10 years) and other eligible new residents. In addition, the amended law gives a 10-year exemption on reporting earnings abroad to people in these categories.

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