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    ARTICLE - Israel

    New Reporting Requirements for Trustees and New Tax Residents

    14 Apr

    New Reporting Requirements for Trustees and New Tax Residents - Introduction

    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.

    Key Changes for Trustees

    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.

    Changes for New Israeli Tax Residents

    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.

    Adjustments to Controlled Foreign Company (CFC) Rules

    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.

    Implications and Compliance

    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.

    New Reporting Requirements for Trustees and New Tax Residents - Conclusion

    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.

    Final thoughts

    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.
    ResidencyTrusts

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