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Israel’s parliament has passed new legislation that introduces significant reporting obligations for trustees and new tax residents, marking a notable shift in the country’s tax regulation framework.
These changes, which aim to enhance transparency and prevent tax evasion, will come into effect over the next few years.
Starting from the 2025 tax year, trustees of taxable Israeli trusts will be required to file annual reports detailing the trust’s ‘controlling individuals.’
These individuals include the settlor, trustees, protector, and beneficiaries, as well as the controlling individuals of any beneficiary corporations. This information must be included with the trust’s annual tax return.
Additionally, from 1 January 2026, all trustees residing in Israel must report the trust’s controlling individuals and their places of residence to the Israeli tax authorities.
This requirement is mandatory even if the trust is not subject to Israeli reporting and taxation, such as when none of the settlors or beneficiaries are Israeli residents.
The reports must be submitted within 90 days of the creation of the trust, or by April 2026 for trusts established before the implementation of this amendment.
The legislation also alters the reporting exemptions for new Israeli tax residents and veteran returning residents.
Previously, these individuals enjoyed a ten-year exemption from reporting foreign assets and income after becoming Israeli residents.
Under the new law, this exemption will be abolished for individuals who become Israeli residents starting from 1 January 2026.
Although these new residents will still benefit from a tax exemption on foreign-earned income during the grace period, they are now required to report this income.
The amendments extend to the rules governing controlled foreign companies (CFCs).
Under the current framework, a foreign company is not considered an Israeli resident during the exemption period if it is controlled and managed by an individual who is a new or returning tax resident.
The new legislation grants the Israeli tax authority the power to demand that such CFCs provide necessary information or file tax returns in Israel, enhancing the government’s ability to monitor and tax these entities.
These legislative changes underscore Israel’s commitment to tightening its tax regulations and aligning with global standards to combat tax evasion and enhance financial transparency.
Trustees, tax residents, and entities affected by these changes should prepare to comply with the new requirements.
It is advisable for stakeholders to consult with legal and tax professionals to understand the full implications of these amendments and ensure compliance with the updated regulations.
The introduction of these reporting obligations reflects a broader trend of increasing tax regulation and enforcement seen in jurisdictions worldwide, as governments seek to secure revenue and prevent tax base erosion.
As the effective dates for these changes approach, affected parties will need to stay informed and take proactive steps to adapt to the new regulatory landscape in Israel.
If you have any queries about this article on the New Reporting Requirements for Trustees and New Tax Residents, or tax matters in Israel more generally, then please get in touch.
In a significant regulatory update, the Canadian federal government has introduced new trust reporting requirements effective for taxation years ending after 30 December 2023.
The first reporting deadline for trusts with a 31 December 2023, year-end is 2 April 2024.
This development introduces an expanded scope of reporting, bringing a wider array of trusts under the purview of mandatory filing, including certain bare trusts.
Here’s what you need to know about these new requirements and their potential impact.
The amendments mandate more extensive filing for trusts, including those that were previously exempt under certain conditions. Key changes include:
More trusts are now required to file T3 trust income tax and information returns, extending to certain bare trusts previously exempt.
Most trusts must provide additional information, including details about trustees, beneficiaries, settlors, and anyone with influence over the trust’s decisions.
The new rules specifically target express trusts resident in Canada or foreign trusts deemed resident, eliminating previous exemptions for certain types of trusts.
However, a list of “listed trusts,” such as registered charities and mutual fund trusts, continues to enjoy exemptions.
Trusts mandated to file under the new rules must complete the new Schedule 15, disclosing comprehensive information about the involved parties.
This includes their names, addresses, taxpayer identification numbers, and their roles within the trust.
Failure to comply with these updated reporting requirements could lead to substantial penalties, especially in cases of gross negligence.
Penalties are pegged at 5% of the trust’s property value or $2,500, whichever is higher.
In a move to facilitate a smoother transition, the Canada Revenue Agency (CRA) has announced a waiver for the normal failure-to-file penalty for the 2023 taxation year, specifically for trusts qualifying under the bare trust exclusion.
Given the significant changes and the potential for hefty penalties, it’s crucial for trustees and beneficiaries to familiarize themselves with the new requirements.
This includes understanding which trusts now need to file, the expanded information requirements, and ensuring compliance to avoid penalties.
For those involved in trust administration or planning, staying informed about these developments and their implications is essential.
This article merely serves as a starting point, but further guidance and clarification from the CRA may be necessary as taxpayers work to comply with the new framework.
If you have any queries on this article around Canada’s Enhanced Trust Reporting Regulations, or Canadian tax matters more generally, then please get in touch.
Business Assets Disposal Relief (“BADR”), formerly known as Entrepreneurs Relief, is an important relief in the UK tax system.
The relief offers significant savings (though not as significant as it once did!) on capital gains from the sale of qualifying businesses.
BADR is primarily accessible upon the sale of shares in a private trading company, assuming specific conditions are met.
A fundamental criterion is the notion of the “personal company.”
This concept encompasses individuals who have been directors or employees holding a minimum of 5% of the company’s shares for at least two years leading up to the sale.
Notably, before 2019, the required holding period was one year.
The scope of BADR also extends to trustees, particularly when dealing with life interest trusts.
Here, the relief is applicable if the trustees sell shares in a company that is the personal company of the life tenant — the beneficiary entitled to the trust’s income.
The catch, however, lies in meeting the personal ownership requirement of 5% of the shares by the life tenant.
The stringent nature of BADR’s conditions was starkly highlighted in the First Tier Tax Tribunal case of Trustees of the Peter Buckley Settlement v HMRC.
Here, in tax year 2015-16, the settlement lodged a claim for Entrepreneurs’ Relief (ER), now BADR, on the disposal of a solitary share in Peter Buckley Clitheroe Ltd (PBCL) dated 8 November 2015.
PBCL acted as a trading entity with Peter Buckley (PB) serving as a director from its inception until 9 November 2015.
The company’s equity was comprised of one Ordinary voting share initially allocated to PB but subsequently transferred to the settlement on 9 September 2012.
In January 2018, HMRC initiated an inquiry into the settlement’s ER claim and, by May 2021, issued a Closure notice.
This notice rejected the settlement’s ER claim and imposed an additional Capital Gains Tax (CGT) liability of £251,280.
HMRC contended that to legitimately claim ER on the share sale, PB was required to personally possess a minimum of 5% of PBCL’s shares for a year within the three-year period preceding the settlement’s share disposal, a criterion that was unfulfilled since the sole PBCL share was in the settlement’s possession since 2012, not in PB’s personal capacity.
The trustees appealed to the First Tier Tribunal (FTT).
The FTT established that PB, in his capacity as a trustee of the settlement and not as an individual owner, held the sole PBCL share.
The trustees, despite having the authority to terminate the settlement in PB’s favor, did not execute this before 8 November 2015.
Consequently, the PBCL share was invested in the settlement immediately before its sale.
Given that PB did not personally own the PBCL share as mandated by s169S(3) TCGA 1992, HMRC’s rejection of the ER claim was justified.
The tribunal underscored that the legislative intent was clear: to qualify for ER, PB had to personally hold at least 5% of the shares and voting rights in PBCL for one year within the three years before the disposal, which he did not, leading to the disallowance of ER and the dismissal of the appeal.
The complexities of trust ownership and the stringent requirements of BADR converged to result in the trustees being denied relief on the sale of company shares, leading to a significant tax liability.
This case serves as a crucial reminder of the meticulous planning required when considering shareholding structures, especially in the context of trusts.
In conclusion, while BADR presents a valuable opportunity for tax savings, its intricate conditions and interplay with trust structures underline the need for diligent planning and expert guidance.
As entrepreneurs and trustees seek to navigate these waters, proper tax advice remains key.
If you have any queries about this article on Business Asset Disposal Relief for Trusts and Trustees or any UK tax matters, then please get in touch.
The Cayman Islands offers a unique form of statutory trust called a “STAR Trust,” which stands for Special Trusts Alternative Regime.
STAR Trusts, as governed by Part VIII of the Trusts Act (revised).
A STAR trust might provide increased flexibility when compared to traditional trusts. This might include in the following areas:
The key uses of STAR Trusts include:
Technical requirements for STAR Trusts include explicit written creation, clear intent to opt-in to the STAR Regime, and the same legal framework as traditional trusts except where variations are introduced by the STAR Regime.
Enforcers play a unique role in STAR Trusts, with their standing to enforce the trust being reserved as a right or duty.
Enforcers have the same rights and remedies as beneficiaries under ordinary trusts, providing them with significant control and oversight.
Trustees of STAR Trusts must include at least one trust corporation, as per Cayman Trusts Act requirements.
STAR Trusts ensure certainty and reform of purposes, allowing the trust terms to confer powers to resolve uncertainties.
The Cayman court has jurisdiction to reform the trust when execution becomes impossible, impractical, or obsolete.
While they cannot directly own land in the Cayman Islands, they are permitted to hold interests in entities that own land for business purposes.
Practical uses for STAR Trusts include creating special purpose vehicles, orphaning private trust companies, holding operating companies with limited trustee involvement, and supporting social benefit projects.
Recognition of these vehicles outside the Cayman Islands has generally been positive, with most countries recognizing them as valid trusts.
Due to the flexibility and versatile nature of STAR Trusts, they are expected to play a significant role in offshore transactions and arrangements for the foreseeable future.
If you have any queries about this article, trusts or the Cayman Islands, then please get in touch.
On 31 January, HMRC changed its guidance on unauthorised unit trusts, including Jersey Property Unit Trusts (JPUTs).
This new guidance has perhaps put a cat among the pigeons.
Previously, HMRC advised that neither authorised nor unauthorised unit trusts needed to be registered on HMRC’s trust register unless the unit trust became liable to certain UK tax liabilities.
However, the guidance for unauthorised unit trusts has now changed, meaning that JPUTs may need to be registered even if they don’t have a liability to UK tax.
JPUTs will need to be registered if they acquire UK land directly or intend to do so since 6 October 2020.
There are only two situations in which a JPUT may need to be registered: when it becomes liable for UK tax or when it acquires UK land after 6 October 2020.
If a JPUT is required to be registered, the relevant information, including contact details for each trustee and unit holder, will need to be compiled and submitted via HMRC’s online system.
The change in HMRC’s guidance means that many more JPUTs will be required to be registered on HMRC’s trust register.
Trustees and advisers should urgently check whether they have any trusts which should now be registered, and ensure they comply with the registration requirements.
Although HMRC is currently adopting a light-touch approach to penalties, trustees and advisers should not rely on this and should ensure they comply with the registration requirements.
If you have any queries relating to JPUT or tax matters more generally, then please do not hesitate to get in touch.
The content of this article is provided for educational and information purposes only. It is not intended, and should not be construed, as tax or legal advice. We recommend you seek formal tax and legal advice before taking, or refraining from, any action based on the contents of this article.
The EU introduced trust sanctions in respect of Russia last year. However, the effect of these sanctions has had international impact.
Despite announcing its intention to introduce trust sanctions some time ago, the UK trust sanctions, provided for in Russia (Sanctions) (EU Exit) (Amendment) (No. 17) Regulations 2022 (“The Regulations”), only came into force last month.
However, there are some important differences between the regimes.
The UK sanctions include a prohibition on providing trust services to or for the benefit of a person connected with Russia or to a ‘designated person’ (unless the services were provided immediately prior to the regulations coming into force).
The Regulations came into force on 16 December 2022. They amend the Russia (Sanctions) (EU Exit) Regulations 2019 (SI 2019/855).
The amendments define “trust services” as follows:
A person is broadly considered “connected with Russia”:
The EU’s sanctions focus on the nationality or residence of a trust’s settlor or beneficiary. As such, there are some notable differences.
Firstly, under the UK’s rules, a private individual who is a Russian national but is resident elsewhere will not automatically be considered connected with Russia for these purposes.
The UK rules also provide helpful guidance about when trust services are “for the benefit” of a person. This includes circumstances where services are provided to a person:
The new rules are ‘forward-facing’. As such, these sanctions won’t apply to trust services that are already being provided under an existing relationship at 16 December 2022. A key question is whether additional or different work can be provided under this existing relationship or whether a ‘new instruction’ is a new relationship?
Additionally, The Office of Financial Sanctions Implementation (“OFSI”) has confirmed that it will consider granting licences for trust work if that work falls within certain exceptions. This might include charitable pursuits.
Of course, UK trust provides, and those providing services in Crown Dependencies and British Overseas Territories, will need to be mindful of these sanctions. In terms of how they might apply to new relationships and the extent to which new instructions by existing clients within the scope of these rules might constitute a new relationship.
If you have any queries on UK expands Russian sanctions to trust services or UK tax matters more generally, then please do not hesitate to get in touch.
The content of this article is provided for educational and information purposes only. It is not intended, and should not be construed, as tax or legal advice. We recommend you seek formal tax and legal advice before taking, or refraining from, any action based on the contents of this article
Dovetailing the robust growth of private banking and wealth management industries and strong growth in Singapore trust services, Singapore strengthened its status as an international financial centre.
Singapore is seen as an enticing base for trusts based on its;
Asian family businesses form the backbone of the economy in the Asia Pacific region, with 85% of companies owned by a family group.
A research study found that 20% of the top 750 global family businesses are Asia-based, with combined revenue of USD2 trillion.
Many family businesses will be undergoing a transition in the next five years. It is anticipated that over 30% will undergo a generational change.
A well-planned trust structure is a flexible vehicle ensuring a smooth succession of assets and protecting wealth for the next generation.
It allows you to maintain confidentiality while ensuring that your wealth will be well cared for.
Pre-IPO trusts are also valuable for securing wealth and liquidity created during an IPO.
Trusts are not legal entities. It is best described as an arrangement where the asset is transferred to a trustee who then holds that asset for
the gain of specified people or objects.
The lack of formal requirements for trusts, and the flexibility of a trust, make them uniquely useful for estate and succession planning.
In Singapore, trusts are regulated principally by the Trustees Act. The Act was significantly revised in 2004. Singapore trust laws are primarily based on English trust law.
Here are the essential features of Singapore trust law:
Many Singaporean and foreign High Net Worth Individuals are choosing Singapore trusts as their preferred vehicle for succession planning and wealth management because of the advantages Singapore offers as a trust jurisdiction.
If you have any general queries about this article on Singapore Trusts or Singapore tax matters, please do not hesitate to get in touch.