Jersey solutions for Israeli residents; and - Is Israel the next Silicon Valley? Inbal Faibish Wassmer Rosenberg Abramovich Keren-Polak & Co., Advocates Tel Aviv and Zurich
Topics Interesting facts and Figures Israel in the international taxation world : an introduction A practical view on the taxation of trusts and foundations following the 2014 reform Exchange of information Voluntary disclosure and tax agreements in Israel Changing of residency and immigrating to Israel pre-and post planning guide Possibilities and opportunities What s next global outlook, and couple of words about planning Q&A 2
Taxation of Trusts in Israel 1 Until 2006 Revocable / irrevocable trusts Foreign control First reform in taxation of trusts - 2006 2013 Taxation at trust level trustee liability Resident / non-resident trusts 4 categories of trusts: 1. Israeli Resident Trust 2. Foreign Resident Settlor Trust 3. Foreign Resident Beneficiary Trust 4. Trust by Will Second reform in taxation of trusts as of 2014 1. More categories of trusts 2. Foreign Resident Settlor Trust abolished 3. More focus on residency of beneficiary 4. Less trusts are out of scope 5. Reporting duties on cash distributions made to an Israeli beneficiary, even if not taxable. 3
Taxation of Trusts in Israel 2 as of 2014 Trust Category Applies to Taxation of Creation and Income Israel Resident Trust Foreign Resident Beneficiary Trust Israeli resident, or Deceased non-resident settlor, or Resident beneficiary Irrevocable trust where there is Resident settlor Non-resident beneficiaries Worldwide accrued income Taxable on creation if assets would be taxable on direct transfer from settlor to beneficiary. Only Israeli-sourced income is taxable Taxation of Cash Distributions Not taxable Not taxable 4
Taxation of Trusts in Israel 3 as of 2014 Trust Category Applies to Taxation of Creation and Income Israeli Resident Beneficiary Trust Relatives Trust Non-resident settlor Israeli beneficiary Israeli Resident Beneficiary Trust where -settlor, or settlor s spouse, is still living, and -settlor beneficiaries are related in certain degrees Same as Israeli Resident Trust - Worldwide accrued income is subject to tax in Israel Trustee may choose Taxation of distributions to resident beneficiaries (30%), or accrued income attributed to resident beneficiaries (25%) Taxation of Cash Distributions Not taxable Depends on trustee election 5
Taxation of Trusts in Israel 4 as of 2014 Trust Category Applies to Taxation of Creation and Income Foreign Residents Trust Testamentary Trust / Trust by Will Non-resident settlors only Non-resident beneficiaries Israeli public purpose beneficiaries (in which case, no resident beneficiary in the past) Cases where deceased testator was Israeli resident Only Israeli-sourced income is taxable If at least one resident beneficiary taxed as an Israeli Resident Trust if all beneficiaries are non-residents taxed as a Foreign Resident Beneficiary Trust Taxation of Cash Distributions Not Relevant Not taxable 6
Exchange of Information To date, Israel has not entered into any Tax Information Exchange Agreements DTA exchange of information articles in the tax conventions (over 50) are the old version of the OECD model article. January 2014 - new law to amend the Ordinance (passed 1 of 3 readings) in order to enable the ITA to provide information to other governments, even where there is no tax convention between the two countries. Conditions: The information required is the same type of information that may be used by the ITA to enforce the law in Israel; Secrecy undertaking by the recipient country; Use of information is restricted to enforcement of tax laws and cannot be disclosed to any other body in the recipient country Israel and the United States signed on June 2014 FATCA Model II bilateral agreement (entrance into force September 2015) 7
Voluntary Disclosure in Israel Framework Possible Routes Application before Assessing Officers in the whole country Trust arrangements New Routes valid until Sep. 2015 1. Anonymity 2. Green Route fast track for smaller accounts (< ILS 2M) 3. Time limit Three main Scenarios, completely different results: 1. Active Income 2. Passive Income Gift, Inheritance etc. 3. Trusts, Foundations, Special Relationship - Special (and better) treatment What s coming soon? 8
Immigration to Israel 1 Law of Return and the Jewish Agency Categories: New Residents, Veteran Returning Residents, Returning Residents ; all entitled to very generous tax exemptions on foreign source income. Veteran Returning Resident is an individual who was a former resident, and after being a non-resident for at least ten consecutive years, has returned permanently to Israel in 2007 or afterwards. There is no formal notice to the ITA which is required upon immigration or returning residency. 9
Immigration to Israel 2 Fiscal residence is the place where the individual has his center of life ; rebuttable presumption: presence in Israel during 183 days or more during any tax year, or 425 or more during a tax year and the two previous ones. Returning Resident an individual who was a former resident, and after being a non-resident for at least six consecutive years has returned permanently to Israel. enjoy reduced exemptions on foreign source income: five-year exemption on passive income only; ten-year exemption on capital gains, but only from assets acquired before immigration. Returning Residents cannot benefit from the management and control exception of non resident companies. 10
Immigration to Israel 3 Taxation of New and Returning Residents Subject Tax exemption on foreign passive income (not including capital gains) Tax exemption on foreign business/vocational/salaried income Tax exemption on capital gains Companies controlled by a New Resident or a Returning Resident Adaptation period Reporting duties Current benefits 10-year exemption, both for New Residents and Returning Residents (10-year absence) 10-year exemption, both to New Residents and Returning Residents on all three types of income, without the existing restrictions. 10-year exemption, both for New Residents and Returning Residents (6-year absence) In the first 10 years the company will not be subject to the "management and control" residence test, and its income will be exempt. First year from the date of immigration to be a tax-exempt "adaptation period", for both New Residents and Returning Residents ; possible to elect for no adaptation period No reporting duties, for both New and Returning Residents 11
Immigration to Israel 4 The Effect of the Tax Holiday on the Taxation of Trusts If a non-resident settlor/contributor of a Relatives Trusts or Foreign Residents Trusts becomes a New Resident, these Trusts are reclassified as an Israeli Resident Trust,, but the trust income becomes eligible to the same tax benefits granted to the New Resident settlor under the Tax Holiday, as long as the beneficiaries are also eligible for the Tax Holiday, and/or are non-residents or Public Purpose Beneficiaries. If the New Resident immigrated to Israel before August 1, 2013 (but after 2007), then the Trusts will continue to enjoy the said benefits even if the beneficiaries are not eligible for the Tax Holiday. 12
Immigration to Israel 5 points worth mentioning Forthcoming possible reporting obligations Trust for the benefits of New and Returning Residents Use of offshore companies by returning residents purchased residency not a possibility 13
International Implications and outlook 1 st Category - Global Looking around lists and leaks what does it mean to us? Enhanced international cooperation, bilateral and multilateral agreements OECD membership 2 nd Category Jersey-IL Relationship CRS Direct contact 3 rd Category - Domestic No expeditions / active actions as yet? Official and unofficial calls to disclose System interconnectivity Change of Anti-Money Laundering Laws the new Zionism 14
Planning and (re)structuring using Jersey solutions R U N 15
Thank you inbal@rosak-law.com www.rosak-law.com +41 43 501 0500 +972 3 608 14 51
Inbal Faibish Wassmer (LL.M., TEP) is heading the Zurich offices of the firm Rosenberg Abramovich Keren-Polak & Co., Advocates (ROSAK), an international boutique law firm, with offices in Tel Aviv and Zurich. She advises individuals and corporations in international taxation, insurance, trusts, wealth planning and international commercial law matters. Inbal is an advocate admitted to the Israel Bar. She obtained both a law degree and a Bachelor in Economics from the University of Haifa. She has a Master in Law and Economics from the Erasmus Mundus Program in Law and Economics (University of Bologna, Italy and University Paul Cézannes, Aix- Marseilles III, France) and LL.M. from the University of Haifa. Inbal specializes in international taxation, trusts, estates, wealth planning, insurance, financial regulations and immigration. Inbal presents regularly on various taxation, estate and wealth planning topics in professional forums, and participated in various publications on Israeli tax and commercial issues. She is a board member of the Switzerland-Israel Chamber of Commerce.