Using An Israeli Company (That Has No Tax Heaven Connotations) In A Trust Structure As An Exceptiona
You can use an Israeli company as the owner of your international investments or business activity and have full exemption from Israeli tax and tax reporting requirement.
In general, an Israeli company is subject to Israeli corporate tax of 25% on its global income (distribution of dividend is subject to additional tax of 25% subject to tax treaties in force). However, if the Israeli company serves as a trustee or owned by a trustee (foreign or Israeli individual or corporate bodies) in a certain trust structure, whether revocable or not, its income and gains from foreign sources are exempt from Israeli tax and tax reporting requirements.
This exemption applies to a foreign resident settlor trust, as defined by law - a trust formed entirely by non-resident settlors with entirely non-resident settlors in the tax year concerned, or a trust with entirely non-resident settlors and beneficiaries in the tax year concerned.
In such arrangement, the Israeli company's assets and income are seen as if held/generated by an individual foreign resident for taxation purposes. Consequentially, income derived outside Israel and assets held outside Israel are exempt from Israeli tax and tax reporting requirements. Moreover, certain income and gains from Israeli sources, such as gains from the sale of Israeli securities, interest income on traded bonds and interest income from Israeli bank deposits, are exempt from Israeli tax.
The Israeli company which serves as a trustee or an underlying company owned by a trustee is a regular limited liability company. The Israeli company is a front company for all transactions and is acting in its own capacity. Only for Israeli tax purposes, the Israeli company is transparent and its assets and income is attributed to a foreign resident.
Once trust agreement is signed and the Israeli company is incorporated, the foreign settlor can transfer its assets or income to the Israeli company which in turns holds them for the benefit of other persons as the beneficiaries or even for the benefit of the settlor himself.
The Israeli company can open a bank account in Israel or in any other country in the world and hold assets under its own name or through underlying companies.
In case the trust is formed by a foreign resident settlor, the exemption is valid even if there is an Israeli resident as a beneficiary. However, in such case, the Israeli beneficiary must have no ability to control or influence the trust, otherwise he will be seen as a settlor of the Trust as well and the Trust will be classified as an Israeli residents trust which generally is taxable in Israel at a rate of 45% on its worldwide income. Nevertheless this should not be an obstacle when structured well.
All in all, using an Israeli company (which has no tax heaven connotations) in a trust structure can be an exceptional tax planning tool and if correctly structured it will produce substantial savings in taxes.
In general, an Israeli company is subject to Israeli corporate tax of 25% on its global income (distribution of dividend is subject to additional tax of 25% subject to tax treaties in force). However, if the Israeli company serves as a trustee or owned by a trustee (foreign or Israeli individual or corporate bodies) in a certain trust structure, whether revocable or not, its income and gains from foreign sources are exempt from Israeli tax and tax reporting requirements.
This exemption applies to a foreign resident settlor trust, as defined by law - a trust formed entirely by non-resident settlors with entirely non-resident settlors in the tax year concerned, or a trust with entirely non-resident settlors and beneficiaries in the tax year concerned.
In such arrangement, the Israeli company's assets and income are seen as if held/generated by an individual foreign resident for taxation purposes. Consequentially, income derived outside Israel and assets held outside Israel are exempt from Israeli tax and tax reporting requirements. Moreover, certain income and gains from Israeli sources, such as gains from the sale of Israeli securities, interest income on traded bonds and interest income from Israeli bank deposits, are exempt from Israeli tax.
The Israeli company which serves as a trustee or an underlying company owned by a trustee is a regular limited liability company. The Israeli company is a front company for all transactions and is acting in its own capacity. Only for Israeli tax purposes, the Israeli company is transparent and its assets and income is attributed to a foreign resident.
Once trust agreement is signed and the Israeli company is incorporated, the foreign settlor can transfer its assets or income to the Israeli company which in turns holds them for the benefit of other persons as the beneficiaries or even for the benefit of the settlor himself.
The Israeli company can open a bank account in Israel or in any other country in the world and hold assets under its own name or through underlying companies.
In case the trust is formed by a foreign resident settlor, the exemption is valid even if there is an Israeli resident as a beneficiary. However, in such case, the Israeli beneficiary must have no ability to control or influence the trust, otherwise he will be seen as a settlor of the Trust as well and the Trust will be classified as an Israeli residents trust which generally is taxable in Israel at a rate of 45% on its worldwide income. Nevertheless this should not be an obstacle when structured well.
All in all, using an Israeli company (which has no tax heaven connotations) in a trust structure can be an exceptional tax planning tool and if correctly structured it will produce substantial savings in taxes.
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