News Flash – passed by Knesset: amendments to the income tax ordinance regarding the exchange of information

Following our News Flash below, the amendments to the law have now been passed by Knesset.

The following are the key take-away points:

  • All current new immigrants within the 10-year exemption who have personal assets, do not need to submit a report on their worldwide assets and income.
  • If current new immigrants have a trust, according to Section 135B of the Ordinance they are obligated to submit a notice regarding the controlling persons, for the year 2025 and onwards.
  • New Immigrants and returning residents who move to Israel from 1 January 2026 will be obligated to report all worldwide assets and income, whether personal or under a trust.

We reiterate that the amendments do not affect the current 10-year exemption on paying taxes in Israel, where applicable.

NEWS FLASH – AMENDMENTS TO THE LAW WILL OBLIGATE NEW IMMIGRANTS AND RETURNING RESIDENTS TO REPORT WORLDWIDE ASSETS AND INCOME DURING THEIR 10-YEAR TAX HOLIDAY

Since 1 January 2007, new immigrants to Israel, returning residents (who resided abroad for over 10 years) and various types of trusts to which they are parties, have enjoyed a 10-year exemption from reporting and paying taxes on foreign assets and income (passive). This has meant a lack of transparency regarding the “Ultimate Beneficial Owners” (UBOs) of entities and legal arrangements.

The OECD (Organisation for Economic Co-operation and Development) has warned Israel that they could be blacklisted and subject to economic sanctions due to the reporting exemption associated with the 10 year tax holiday, as it fails to properly satisfy international rules of transparency and creates a tax haven to assist in hiding assets.

According to section 135B of the Israeli Income Tax Ordinance (read together with the Prohibition Against Money Laundering Law, 2000, as well as the provisions of FATCA and CRS regulations) a UBO is defined as an individual who has the ability to direct the activities of a corporation, directly or indirectly, alone or together with others or through them. An individual will be considered the controlling person if he or she holds 25% or more of some type of means of control, and where there is no such person, then it will be the chairman of the board, corresponding officer, and CEO.

As a direct result, the Israeli Ministry of Finance has issued a draft amendment to the law, to bring Israel in line with OECD policies and FATF obligations, and which would require:

  • reporting and disclosing information on company and trust UBOs, during the 10-year tax holiday; and
  • reporting on and disclosing worldwide assets and income during the 10-year tax holiday.

This means that trustees will have the following new obligations during the 10-year tax holiday:

  • must notify the Israeli Tax Authority upon the creation of a new trust, and upon any changes in the UBOs of the trust, within the specified timeframes;
  • existing trusts to disclose details of the UBOs and their tax residency.
  • annual reporting of trusts to the Israeli Tax Authority, including information on the UBOs;
  • Maintain accounting records in accordance with accepted accounting principles in Israel, and keep them in accordance with the law;

With regard to trusts which were not required to submit a report according to Section 131(a)(5b) of the Tax Ordinance until this amendment, the trustee will be required to submit a notice to the Israeli Tax Authority , within 90 days from the date of publication of the amendment, regarding the creation of the trust detailing the details of the controlling persons of the trust as well as their residences. New trusts formed after this amendment will have to submit such notice within 90 days.

With regard to companies, a list of UBO’s (Israeli or foreign) who directly or indirectly control the company, together with the details of their residences, will have to be submitted together with the companies’ annual reports.

The proposed amendment and new requirements are expected to be effective from the 2024 tax year, meaning 2024 assets and income would need to be reported in 2025, and will also apply to new immigrants or returning residents as from 1 June 2025.

It is important to note in closing that the proposed amendments to the law will not affect the current 10-year exemption on paying taxes in Israel, where applicable.

This News Flash only covers the analysis of the draft amendment passed in first reading. Currently, the wording of the amendment is being negotiated between private tax advisors, the legal department of the finance committee and the Israel Tax Authority. The final wording of the draft will be finalized soon.

Michael Shine & Partners is the leading and most well-established law firm in Israel in the Private Client field, specializing in international tax planning, the establishment and administration of trusts, trust taxation and the appropriate reporting to the tax authorities, multi-national asset protection, and family wealth preservation.

As a full-service law firm with a close network of professional advisors and service providers around the world, including M.S.A. Shine Global Family Office Ltd., *Alphen Asset Management A.G., and **Alphen Trust Company A.G., Michael Shine & Partners offers solutions to even the most complex legal and structuring issues in virtually every area of the private client sphere. With our experience and expertise, we provide our clients with integrated legal services that are individually tailored to meet their needs.

Should you require any assistance, or for more information, please contact us on +972 (9) 953-1953 or [email protected]

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This News Flash is for informational purposes only; it does not constitute legal advice, should not be construed as such, and should not be relied upon for that purpose. This News Flash does not create any obligation or liability whatsoever by Michael Shine and Partners (“MSP”) or anyone acting on its behalf towards any person/corporation. MSP shall not be held liable for any direct or indirect damage/s that may be caused to anyone as a result of the use of or reliance on this News Flash.