Team members at Doron Tikotzky Kantor Gutman Cederboum have extensive experience in Government Financial and Taxation Agencies, which enables them to see complicated Tax issues from several angles. The Firm is also supported by Counselors, each of whom is a leading expert in the Legal arena.

Under Israeli Law and according to Amendment 147 to the Tax Ordinance, the following types of Trusts were available:

  • A Trust created by an Israeli residents
  • A Trust created by a non-resident
  • A Trust in which the beneficiary is a non-resident
  • A Trust according to a Will

The general rule in these trusts was that the Taxation of the Trust was determined according to the residency of the Trust creator. Thus, generally speaking, when the Trust creator was not an Israeli resident, the Trust assets a of a non-resident, and likewise the income that was derived from these assets (i.e. income, the production of which was not attributed to Israel), was not taxable in Israel, and, in fact, was taxed only up on the transfer of these assets from the Trust to an Israeli resident beneficiary.

Furthermore, existing legislation stated that a non-resident Trust creator would continue to be considered a non-resident even after his death, and so the status of the Trust was indefinite.

Trust Taxation Regime Principles According to the New Tax Regime

New legislation in that area has changed the Trust taxation rules. Technically, the new legislation set types of trust, some different from  existing types:

  • Non-resident trust
  • Trust  in which  the beneficiary is a non-resident
  • Trust  in which the beneficiary is a resident (note that there is also a sub division between Trusts that are related  and Trusts that are not related)
  • Israel resident trust
  • Trust by a will
  • Trust for a public purposes

It seems generally safe to say that the emphasis of the taxation trigger, was shifted from reliance almost exclusively on the creator of the Trust, to parallel review of the creator and the beneficiaries of the Trust, together.

Thus, the new Trust Taxation Regime applies to both new and existing trusts.

Notable Changes Due to Changes in the Taxation Regime

The new Trusts Taxation Regime significantly expands Trusts that are subjected to Israeli Taxation, mainly in cases where non-residents are involved in Trust arrangements.

Accordingly, there is a heavier tax burden in a situation in which the Trust was created by a non-resident (one or more), which has at least one Israeli resident as a beneficiary, or, when the Trust creators died over the years, for a Trust created by a non-resident, which has an Israeli resident as a beneficiary.

Moreover, in a certain Trust situations by the new Law (such as: “Trusts created by Israeli residents” and all its creators had died) the Taxation Laws follow the beneficiary, mostly in his adverse. For example, when the beneficiary is an Israeli resident, the other beneficiaries are seen as Israeli residents, even if they are non-Israeli residents.

Some Thoughts

The new legislation has created a situation in which one may find it hard to find a way through this conundrum, and it is thus advisable to obtain specialized legal advice from experts in this field, who will be able to guide them to a desired outcome.

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