For many years, extensive tax benefits have been extended under Israeli law to individuals who became Israeli residents for the first time or returned after more than a decade abroad.
The rationale behind these benefits was Israel's intention to encourage immigration and to reverse the country's brain drain. The legislator at the time granted extensive benefits to those "immigrants" or "returnees," thus almost eliminating tax considerations when deciding whether to relocate to Israel for a ten-year period.
One of the well-known benefits was the exemption from reporting obligations in Israel for ten years from the date of a person's conversion to Israeli residency regarding income and/or assets outside of Israel. In practice, this created a situation where many individuals were not required to report income and/or assets anywhere in the world for an uninterrupted period of time.
Meeting the global standard
In recent years, with the expansion of transparency and reporting among countries (especially among OECD member countries), criticism has arisen regarding the existing policy, particularly by the Global Forum operating under the OECD.
In March 2024, before the draft recommendations of the Global Forum were published, a bill was proposed (and already approved on April 1, 2024), revoking the exemption from reporting obligation for first-time Israeli residents and returning residents (effective from 2025), and implementing the necessary adjustments regarding trusts that include individuals who benefited from the same exemption (the trustees are obliged to file a report).
It is important to emphasize that while this entails the revocation of a significant benefit, it does not negate the exemption from taxes to which those residents are entitled upon their arrival in Israel.
Effects on trusts and trustees
For trusts and their trustees currently benefiting from the ten-year benefits period, it is crucial to understand that reporting requirements will extend to these trusts starting in 2026, regardless of whether individuals have completed the ten-year period. So, what's changing?
Dvir SaadiaPhoto: Tomer JakobsonFirst, trustees, who prior to the amendment were not obliged to file any report or statement to the Israeli Tax Authority (due to the benefit period), will now have to include details about the ultimate beneficiaries and all relevant personnel (such as the settlor, beneficiaries, trustee and even the protector – regardless to whether the trust was already entitled to the past benefits) in the annual tax return.
Additionally, in case the trustee is an Israeli resident, they must provide these details even for foreign trusts without Israeli assets, meaning trusts not subject to reporting and taxation in Israel still require this information to be filed.
Amit GottliebPhoto: Tomer JakobsonGiven that numerous trusts are overseen by trustees from abroad, and the growing use of the trust mechanism in Israel, it is strongly advised that trustees seek guidance concerning the reporting requirements that such trusts must adhere to.
- Dvir Saadia (CPA) is a senior associate, and Amit Gottlieb is a partner and head of the Private Client Tax department at YETAX - Yaron-Eldar, Paller, Schwartz & Co.