Looking for new opportunities in terms of international business tax planning, we examined the Israeli foreign trust regulations and found this vehicle indeed worth of attention. Israel is a low-profile jurisdiction with a wide network of double-tax treaties, attractive tax treatment of certain offshore income and no tax haven connotations.
Israel Facts and Benefits
- The State of Israel, located at the east coast of the Mediterranean Sea, is a respectable jurisdiction, enjoying the confidence and support of the international community.
Israeli law is a civil law based system.
- Official languages are Hebrew and Arabic, with English being the primary language for international relations. Among those non-official languages, Russian is one of the most widely spoken. Generally, you can hardly have any language barrier when doing business with Israel.
- Israeli banking system is known as highly developed.
- The country is not part to EU Savings Tax Directive or other EU regulations.
- Israeli companies enjoy protection of a wide network of double-tax treaties.
Israel Foreign Trust
Israel foreign trust, or Israel offshore trust, is a trust, where the settlor (or grantor) and the beneficiaries are non-residents of Israel during the tax year. The structure obviously requires a local Israeli trustee. All parties to the trust deed, settlor, trustee and beneficiary, can be individuals or corporate bodies.
You can incorporate a local company to serve as the trustee. As soon as the Trust Deed is signed, the settlor can transfer its assets to the corporate trustee, and the Israeli company becomes then a front company for all business transactions. From a third person’s point of view, the company is acting in its own capacity. Trust agreement and real beneficiary is behind the curtain.
Offshore income of such trust, that is any income from sources outside of Israel, is free of tax in Israel.
Israeli Trustee company is a regular limited company entitled to formal remuneration for its trustee services and subject to Israeli tax and reporting with this income. There are no statutory requirements in this regard, but the company’s remuneration should be economically reasonable. As a matter of example, you may count on the figures of 5% of income in case of passive investments and 10% in case of active trading operations.
Israeli foreign trusts may have their bank accounts in Israel, as well as in any other country of the world without extra permissions from Israeli authorities.
There is no requirement for such a company to have local directors/managers. Unless a local stuff is hired, the company is only to report to tax authorities once, in the end of the year. Annual audit is also required.
You can use Israeli trust structure as the owner of your international business, for asset protection purposes, and as an active business instrument, for tax savings.
List of Double-Tax Treaty Countries
Availability of protection by a double tax treaty provisions makes this legal structure even more attractive. The list of DTT countries covers:
Austria, Belarus, Belgium, Brazil, Bulgaria, Canada, China (People’s Rep.), Croatia, Czech Republic, Denmark, Ethiopia, Finland, France, Germany, Greece, Hungary, India, Ireland, Italy, Jamaica, Japan, Korea (Rep.), Latvia, Lithuania, Luxembourg, Mexico, Moldova, Netherlands, Norway, Philippines, Poland, Portugal, Romania, Russia, Singapore, Slovak Republic, Slovenia, South Africa, Spain, Sweden, Switzerland, Thailand, Turkey, Ukraine, United Kingdom, United States, Uzbekistan.
Each treaty requires individual consideration by professionals.
Israel Agency Company
The jurisdiction of Israel provides for more tax efficient option for active international trade operations. You can use an Israeli company as an intermediary under an agency agreement with the principal located in a tax-advantageous zone. Here again Israel contributes to attractive international image of your business and allows you to save on taxes.
It is worth to mention that Israeli trust and agency company are cost-effective solutions, keeping in mind its benefits and comparing to similar options from other jurisdictions.