Nefesh BNefesh

Guest Contributor: Jeff Broide, CPA

Israeli Trust Tax Alert: 10 Highlights

1. Foreign-registered trusts may be subject to taxes in Israel; do review with care!
2. The tax status of the settlor/grantor (amongst others) determines the residence of the trust. A settlor/grantor includes any person or entity which transfers assets to the trust. There may be more than one settlor/grantor. 
3. Control (direct or indirect) of the trust may render the "controller" a settlor or grantor of the trust.
4. If the settlor/grantor is considered an Israeli resident, then the trust will generally be taxable in Israel, irrespective of the source of the income. 
5. An arrangement, whereby a trustee holds assets for a beneficiary, may be defined as a trust, even where not formally established under Trust Law, locally or abroad. 
6. Under certain conditions, the settlor/grantor may report to the Tax Authority (and thus be the taxable entity) and not the trustees.
7. Where all the beneficiaries of a trust are foreign, and subject to satisfying various conditions, a trust settled by an Israeli resident may not be taxable in Israel; it is, however, required to report. 
8. Even where an Israeli-resident beneficiary is not obligated to report receipt of a distribution from a trust, there is a requirement to report on distributions "in-kind." 
9. The income of an underlying company held by a trust will generally be taxed as trust income. (The assets of the company are deemed those of the trust.)
10. Where the trust is foreign, local income will be taxed (or exempt) according to the regulations governing taxation of foreign persons in Israel.