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The Israeli government has proposed a generous set of new tax incentives designed to tempt new immigrants, and encourage former Israeli residents to return home, reversing what Finance Minister Ronnie Bar-On calls a "brain drain" on the national economy.

The reform package has been proposed by the Absorption Ministry and the Tax Authority as part of the 'Returning Home for Israel's 60th' campaign, and includes a series of exemptions from taxes on income earned overseas.

Under the proposals, new immigrants, including Israeli returnees, would be exempt from taxes and tax reporting on income earned abroad for a period of ten years. This exemption would cover all forms of foreign income, such as employment income, capital gains, business income, real estate gains and rents.

The qualifying period would be reduced to five years in 2008 and 2009 if that person was a foreign resident on January 1st, 2008.

Under current Israeli tax law, returning residents qualify for five- or ten-year tax exemptions on dividends, interest, rent, royalties, pensions and capital gains sourced from abroad if they have resided permanently overseas for at least three years, and acquired the assets while living abroad.

Arguing in favour of the new proposals, Bar-On told a press conference that: "The tax reforms for new immigrants and returning citizens will help to reverse the brain drain, will strengthen the Israeli economy and increase growth."

According to Israel's Channel 10, the government is also considering extending the scheme to include other forms of income for wealthy returnees to Israel, particularly if they invest in certain under-privileged communities outside of the major towns and cities.