The "Shark" and the tax: Why might the new "Likud" recruit have to part with millions of dollars?

Concept

Exit Tax: A tax imposed by a country on individuals or companies that change their tax residency and leave it.

Actual Context

Prime Minister Benjamin Netanyahu announced his intention to place businessman Oren Dobronsky (also known from the program "The Sharks") on the Likud list. However, internet users and media figures were quick to draw the candidate's attention to the fact that membership in the Knesset could cost him millions of dollars. Why? In two words: Exit Tax. Here are the details.

What is an Exit Tax?

An Exit Tax in general is a tax imposed by a country on individuals or companies that change their tax residency and leave it. The main purpose of the tax is to prevent a situation where assets accumulated under the protection of one country are sold in another country without paying tax on the accumulated profits.

The Exit Tax has several key characteristics common to many countries around the world:

"Deemed sale" mechanism: The tax is calculated as if the person sold all their assets at their market value on the day of departure, even if no sale actually took place.
Mobile financial assets: The tax usually applies to assets such as stocks, options, investment funds, and business rights, while local real estate is mostly excluded because the state can tax it upon future sale.
Thresholds and exemptions: Many countries set entry thresholds, for example, applying the tax only to those holding assets worth more than one million euros or dollars, or granting exemptions for short-term residents.
Deferral options: In many countries, especially in the European Union, there is an option to defer the actual tax payment until the date when the asset is truly sold in the destination country, sometimes subject to providing guarantees.

In Israel, the Exit Tax is imposed under Section 100a of the Income Tax Ordinance, according to which an asset of an individual who ceases to be an Israeli resident shall be deemed to have been sold on the day before the day they ceased to be an Israeli resident.

Implications for serving in the Knesset

According to media reports, Dobronsky — who has lived in the USA since 2000 — made most of his fortune there. However, Section 16a of the Basic Law: The Knesset states that if a member of the Knesset holds additional citizenship, they must renounce it before they can declare allegiance and enjoy the rights of a member of the Knesset. Therefore, if Dobronsky wants to serve in the Knesset, he must renounce his American citizenship.

This triggers the American "Expatriation Tax." According to US immigration laws, a citizen who renounces their citizenship is forced to pay a tax on their unrealized gains, calculated as if they had sold their assets at the time of renunciation.

Although the Exit Tax applies only to American citizens whose net worth is higher than $2 million and whose annual income is higher than $171,000, estimates suggest that the value of Dobronsky's assets safely exceeds this threshold. If he chooses to serve in the Knesset and renounce his American citizenship, he may incur a tax liability estimated at millions of dollars.

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