Shine, Michael: Israel – Foreign Resident Settlor Trusts and Further Tax Reform

shineisrael2.rtf
Archive
  • The International Tax Planning Association Library – Israel – Foreign Resident Settlor Trusts and Further Tax Reform by Michael Shine
    • Israel – Foreign Resident Settlor Trusts and Further Tax Reform by Michael Shine
      INTRODUCTORY
      Israel has recently progressed its radical tax reform, initiated as of 1 January 2003. Under that initial programme, its tax regime was converted from a territorial liability base to a personal worldwide base with respect to residents of Israel. On 25 July 2005, the Knesset enacted Amendment 147 (“the Amendment”) of the Income Tax Ordinance ? New Version, 5721-1961 (“the Ordinance”) providing for broad-based variations and innovations, which are slated to kick in, in the main, on 1 January 2006. Local and international tax advisers will particularly wish to focus on the tax treatment of Trusts, which is addressed comprehensively in the Amendment and presents, for the first time in the Israeli legislature, a codified infrastructure of detailed rules pertaining to the use and application of Trusts in the local Israeli context. The broad-based exemptions now afforded to Foreign Resident Settlor Trusts, as well as Foreign Resident Beneficiary Trusts, merit particular interest and are dealt with in this presentation in some detail. Dwelling briefly on the initial 2003 Reform, it is pertinent to address the new definition of “Israeli Resident”, which impinges on the overall taxability of Israeli residents. “Residence” in the post-2003 era follows predominantly the traditional English domiciliary test ? where is the centre of the subject resident’s life? Prima facie, a person could be resident in Israel considerably less than the normative 183 days in a given tax year and still be deemed “resident for tax purposes”, if his life, family, social and personal direction are centralised in Israel. Nevertheless, the legislation introduced certain finite presumptions to be applied on a concurrent basis, where the centrality of life is considered moot: primarily, residence will be presumed where the assessee spends 183 days or more in Israel during the tax year (following the Gregorian calendar) or where he spent 30 days or more in Israel during the tax year in question and, with the addition of his residence in Israel during the immediate previous two tax years, he spent at least 425 days in Israel. Ultimately, the test of residence is a subjective one, varying with the individual circumstances of each situation.TAX TREATMENT OF TRUSTS Turning to the specific provisions of the Amendment legislating for the tax treatment of trusts ? Chapter 4 Sections 75C through 75R ? the Ordinance now distinguishes between four types of Trust:- A. Foreign Resident Settlor Trust; B. Israel Resident Settlor/Beneficiary Trust; C. Foreign Resident Beneficiary Trust; D. Testamentary Trust.A. Foreign Resident Settlor Trust This is a Trust where at the date of its creation and during the subject tax year, all the Settlors are Non-Residents (of Israel) or in the subject tax year alone all the Settlors and Beneficiaries are Non-Residents.B. Israel Resident Settlor Trust This is a Trust where at the date of its creation at least one Settlor and one Beneficiary are Israeli Residents and, moreover, during the subject tax year one Settlor or one Beneficiary are residents of Israel.C. Foreign Resident Beneficiary Trust This is a Trust which must by its terms, form and substance be irrevocable and where all the Beneficiaries are Non-Residents, their identity is known and where at least one Settlor is an Israeli Resident. In this connection, a Trust will be deemed revocable, inter alia, where the foreign Beneficiaries are under 18 and are the children of the Settlor, so long as the Settlor or his/her spouse are alive, and/or where the Protector or the Trustee is a relative of the Settlor.Default Provision If a Trust qualifies neither as a Foreign Resident Settlor Trust nor as a Foreign Resident Beneficiary Trust it it shall be deemed to be an Israeli Resident Settlor Trust.D. Testamentary Trust This is a Trust created pursuant to a Last Will and where all the Settlors, being the Testator/s, were Israeli Residents at the date of their demise.TAX LIABILITY / EXEMPTION As to taxability, the Foreign Resident Settlor Trust will be taxed on the basis of attributing the Trust’s assets and income to the Settlor, as if they accrued to the Settlor. Thus, non-Israeli sourced Trust assets and income and capital gains accruing and realised thereon and awards made to Israeli resident Beneficiaries therefrom will be tax exempt. Israeli sourced assets will not necessarily be exempt. Likewise, the Israeli Resident Settlor Trust will be taxed as if the assets and income accrued to the Settlor. Accordingly tax will be levied, generally at 20-25%, as from 1 January 2006. Conversely, a Foreign Resident Beneficiary Trust and a Testamentary Trust will be taxed as if the Trust income and assets are attributable to the Beneficiary. However, a Foreign Resident Beneficiary Trust will be deemed a non-resident of Israel and non-Israeli sourced assets and income of such Trust will be exempt from Israeli tax. Liability for payment of the tax by a Foreign Resident Beneficiary Trust or by a Testamentary Trust rests with the Trustee – even where the Trustee is non-Resident and the Trust is governed by foreign law -and it is the latter who is generally obliged to file timeous annual tax returns on behalf of the Trust. In the case of an Israeli Resident Settlor Trust, a final tax assessment can also be collected from the Settlor; likewise, a final assessment on the Trustee can be collected from any Beneficiary, irrespective of the class of Trust, provided, however, that such collection can be effected solely out of the proceeds of a distribution to such Beneficiary.WHO IS A SETTLOR ? BENEFICIARY CONTROL OF A TRUST In the new era of tax planning for trusts in Israel, it is of paramount importance to note that in determining who is the Settlor of a Trust, of whichever category, the fiscus will deem a person or body to be a Settlor, where the latter directly or indirectly settles assets on the Trust, and will include the following categories of Settlor (Section 75D(a) of the Amendment):

yeezy boost 350 oxford tan adidas yeezy 350 boost oxford tan release date moonrock yeezy 350 boost legit real fake adidas yezzy boost 350 pirate black moonrock restocking yeezy boost 350 moonrock raffle yeezy boost 350 moonrock 331592665172 is the adidas yeezy boost 350 turtle dove releasing again yeezy boost 350 turtle dove AQ4832 fse 082415 p se yeezy boost 350 adidas yeezy 350 boost where to buy yeezy boost 350 v2 black white adidas yeezy boost 350 pirate black adidas yeezy boost 350 v2 black white adidas yeezy boost 350 v2 blackwhite reservations open december 15 confirmed app buy black friday yeezy boost 350 v2 yeezy boost 350 v2 black white adidas yeezy boost 350 v2 official images adidas yeezy boost 350 v2 restock info adidas yeezy boost 350 v2 beluga solar red adidas yeezy boost 350 v2 beluga launches tomorrow news.23913.html yeezy boost 350 v2 black white release date adidas yeezy yeezy boost 350 v2 bw raffle store list for the black white adidas yeezy boost 350 v2 release news.26285.html adidas yeezy boost 350 v2 black white release procedure announced news.26233.html yeezy boost 350 v2 black white raffle