1. Pre-entry Tax Planning

 1.1 In your jurisdiction, what pre-entry estate and gift tax planning can be undertaken?

There is currently no gift tax in Israel (except on gifting Israeli real
estate). However, the gifting of certain assets located outside of
Israel may trigger a CGT exposure.

 1.2 In your jurisdiction, what pre-entry income and capital gains tax planning can be undertaken?

Effective 1 January 2007, ‘New Immigrants and Returning Residents’
(Israeli citizens who have lived abroad for at least 10 years) are entitled
to a package of tax benefits, the most valuable being a 10-year tax
holiday (exemption) on all non-Israeli sourced income and capital
gains, even if the foreign assets are acquired after immigrating to Israel.

1.3.In your jurisdiction, can pre-entry planning be undertaken for any other taxes?

If a new immigrant settles a trust during the 10-year tax holiday
in favour of non-Israeli beneficiaries only (e.g. his children/
grandchildren), then the trust continues to be exempt from tax in
Israel in perpetuity, provided it is irrevocable within the meaning of
Amendment 147 to our Income Tax Ordinance.

2. Connection Factors

2.1 To what extent is domicile or habitual residence relevant in determining liability to taxation in your jurisdiction?

There is a clear-cut distinction in Israel between obtaining Israeli
citizenship and Israeli tax resident status. One could be an Israeli
citizen but not deemed an Israeli tax resident if their habitual
residence is not in Israel. The definition of an Israeli tax resident is
set out in our Income Tax Ordinance.

2.2 If domicile or habitual residence is relevant, how is it defined for taxation purposes?

Israeli tax residency is acquired on the basis of the “centre of life” tests.                                                                                                                                                                                                                             The number of days spent in Israel also affects tax residence status
and is deemed an important factor by the Israeli Tax Authority.
An individual will be deemed to be resident for tax purposes if he
spends 183 days or more in Israel in any given tax year (a tax year
commencing 1 January and ending 31 December), or if during the
current tax year, he has spent at least 30 days in Israel and the total
accumulated duration of his stay in Israel in the three preceding
tax years is at least 425 days. The Israeli Tax Authority, having
published several circulars on this issue, may determine someone to
be a tax resident even if he spends less days in Israel. For the latter
definition, specific advice should be sought.

2.3 To what extent is residence relevant in determining liability to taxation in your jurisdiction?

Once an individual is categorised as an Israeli tax resident under the
terms and conditions set out in the Israeli Income Tax Ordinance,
he immediately becomes subject to tax on his worldwide income,
unless he is entitled to a 10-year tax holiday as described in question
1.2 hereinabove. In many cases, it is advisable to obtain a legal
opinion from Israeli tax counsel, on the tax residency status of
an individual, which also takes into account case law precedents,
rulings issued by the Israeli Tax Authority and Circulars published
by them.

2.4 If residence is relevant, how is it defined for taxation purposes?

An Israeli resident is defined as an individual whose centre of life
is in Israel, taking into account the person’s family and economic
and social links. Additionally, as mentioned in question 2.2 above,
the number of days spent in Israel is an extremely important factor.

2.5 To what extent is nationality relevant in determining liability to taxation in your jurisdiction?

It is not relevant at all. One can be an Israeli national and not be
deemed an Israeli tax resident and vice versa.

2.6 If nationality is relevant, how is it defined for taxation purposes?

It is not relevant, as explained in question 2.5 hereinabove.

2.7 What other connecting factors (if any) are relevantin determining a person’s liability to tax in your jurisdiction?

An Israeli tax resident is taxed on his worldwide income and a non-
Israeli tax resident is taxed only on Israeli-sourced income.

3. General Taxation Regime

3.1 What gift or estate taxes apply that are relevant to persons becoming established in your jurisdiction?

In Israel, there is no gift tax other than on gifting of real estate
assets, in which case specific legal advice should be sought. As an
example, under ordinary circumstances, the gifting of a residential
property by a parent to a child over 18 will be subject to one third
of the usual purchase tax and exempt from capital gains tax (CGT).
It should be noted that whilst there is no gift tax in Israel, if the asset
gifted is located outside of Israel and is not liquid (e.g. cash) the gift
may trigger a CGT exposure.
Estate tax in Israel was abolished in 1981.

3.2 How and to what extent are persons who become established in your jurisdiction liable to income and capital gains tax?

An Israeli tax resident, as defined by our Income Tax Ordinance, is
liable to report and pay taxes in Israel on his worldwide assets.

3.3 What other direct taxes (if any) apply to persons who become established in your jurisdiction?

The direct taxes include: capital gains tax; dividend tax; tax
on interest earned; tax on rental income; and tax on real estate
transactions (purchase tax and land betterment tax).

3.4 What indirect taxes (sales taxes/VAT and customs & excise duties) apply to persons becoming established in your jurisdiction?

There is a VAT of 17% on products and professional services.Import duties apply at different rates depending on the product.

3.5 Are there any anti-avoidance taxation provisions that apply to the offshore arrangements of persons who have become established in your jurisdiction?

We are not aware of such provisions; however, the banking
institutions in Israel will not allow funds to enter the country from
abroad unless the new immigrant can prove they were taxed in the
jurisdiction he emigrated from, prior to arriving in Israel.

3.6 Is there any general anti-avoidance or anti-abuse rule to counteract tax advantages?

Yes, there are various anti-avoidance rules, for example: Clause 196
of our Income Tax Ordinance states that a trust holding company,
even if incorporated, managed and controlled in Israel, will not be
deemed as an “Israeli Resident” for the purpose of double taxation
treaties Israel is signed on.

4. Taxation Issues on Inward Investment

4.1 What liabilities are there to tax on the acquisition,holding or disposal of, or receipt of income from investments in your jurisdiction?

There is capital gains tax at 30% on disposal of assets (the equivalent
is land betterment tax for real estate). There is a 25% dividend tax
and 25% income tax on interest earned. The CGT exposure may be
reduced or eliminated in certain circumstances, especially on the
disposal of real estate, where certain statutory relief is granted.

4.2 What taxes are there on the importation of assets into your jurisdiction, including excise taxes?

There are various rates of importation and excise taxes depending on the product imported. Each product has its own rate of tax.

4.3 Are there any particular tax issues in relation to the purchase of residential properties?

Yes, the rule is that any purchase of real estate is subject to Purchase
Tax (to be paid by the purchaser).
Under certain conditions, one may be tax exempt or may be entitled
to a reduced tax levy.
For example:
Purchase tax on residential homes is calculated on a sliding scale. One
scale applies to purchasers buying a residential apartment or house
when the property purchased is the purchaser’s sole residential home
in Israel (single home-purchaser) and another significantly higher
scale applies to those buying additional home/s beyond their first one
(multiple home-purchaser). Purchase tax for a single home-purchaser
starts at 0%, whereas the tax rate for a second home starts at 5%.
Please note that non-Israeli residents will not be entitled to this
exemption unless they prove that they do not own a home in their
home country.

5. Taxation of Corporate Vehicles

5.1 What is the test for a corporation to be taxable in your jurisdiction?

Any corporation is deemed to be resident in Israel if its activities
are managed and controlled from Israel and/or if it is organised and
incorporated under the laws of the State of Israel.

5.2 What are the main tax liabilities payable by a corporation which is subject to tax in your jurisdiction?

Israeli resident companies are subject to tax on worldwide profits and gains.
Corporate tax is currently 26.5%.

5.3 How are branches of foreign corporations taxed in your jurisdiction?

A non-resident company is subject to tax only on Israeli-sourced
profits, which includes income derived from an Israeli permanent establishment or income accrued and generated in Israel, as well as
capital gains from the sale of Israeli assets.

6. Tax Treaties

6.1 Has your jurisdiction entered into income tax and capital gains tax treaties and, if so, what is their impact?

Israel has entered into many Tax Treaties (52 in total), and such
Treaties are highly enforced by the Tax Authority and courts of
law and are taken into consideration by professionals when giving
advice and when producing written legal opinions.

6.2 Do the income tax and capital gains tax treaties generally follow the OECD or another model?

The Treaties generally follow the OECD model.

6.3 Has your jurisdiction entered into estate and gift tax treaties and, if so, what is their impact?

No, because there is no estate or gift tax for Israeli residents’ recipients.

6.4 Do the estate or gift tax treaties generally follow the OECD or another model?

In general, there is no estate tax or gift tax. However, the Tax
Authority does usually recognise gift or inheritance tax paid in
another jurisdiction for the purpose of stepping-up on the value of
assets held abroad by Israeli tax residents.

7. Succession Planning

7.1 What are the relevant private international law (conflict of law) rules on succession and wills, including tests of essential validity and formal validity in your jurisdiction?

According to the Succession Law, the courts in Israel have the
authority to judge in matters of inheritance of any person who
resided in Israel at the time of their death or a person who lived
abroad but has an estate in Israel.
The choice of law is also set out in the Succession Law: the Israeli
court will apply the succession laws of the place of domicile of the
deceased at the time of death. This is the basic rule where there is
a conflict of laws.
There are three exceptions to the said basic domicile rule:
(a) Certain assets that fall under Section 138 of the Succession
Law will be subject to the laws of their location if the “lex
situs” expressly excludes the application of any foreign law
on these assets. In these specific cases, the Israeli court will
apply the foreign laws presented to it by an appropriate legal
report.
(b) The capacity to make a Will – the laws applicable when
dealing with questions of capacity are those of the place of
domicile of testator at the time of making the Will.

(c) The form of the Will – a Will with international aspects is
valid under the Israeli Succession Law if it is deemed valid,
by the law of the country where it was written, by the law
of the country of residence, ordinary place of domicile or
citizenship of the testator at the time of signing the Will or at
the time of death, and if the Will relates to real estate – also
by the laws of the jurisdiction where the real estate is located
(lex situs).

7.2 Are there particular rules that apply to real estate held in your jurisdiction or elsewhere?

According to the Succession Law, the courts in Israel have authority
to judge in matters of the inheritance of every person who resided in
Israel at the time of their death or a person who left property in Israel
at the time of their death.

8. Trusts and Foundations

8.1 Are trusts recognised in your jurisdiction?

Yes. Although there are no rules of equity in Israeli law, trusts are
indeed recognised under the provisions of the Israeli Trust Law (the
Trust Law-1979).

8.2 How are trusts taxed in your jurisdiction?

All trusts, including foreign trusts, are subject to taxes in Israel
unless there are no Israel-resident beneficiaries.
The rule is that a trust is subject to tax in Israel on its worldwide
income and it is the trustee, including any foreign trustee, who is
under the obligation to report the trust annually to the Israeli Tax
Authority.

8.3 How are trusts affected by succession and forced heirship rules in your jurisdiction?

Trusts are generally not affected by our Succession Law. It is
arguable that Israeli Trusts terminate after the death of the settlor
and that the assets of the trust form part of his personal estate. This
would not be the case when a foreign trust is used.
There are no forced heirship rules in Israel.

8.4 Are foundations recognised in your jurisdiction?

Yes, foreign foundations are recognised, however, this type of entity
cannot be formed under local Israeli law.

8.5 How are foundations taxed in your jurisdiction?

Please see question 8.2 hereinabove, since a foundation is defined as
a trust for taxation purposes.

8.6 How are foundations affected by succession and forced heirship rules in your jurisdiction?

There are no forced heirship rules in Israel.
The foundations are not affected by succession rules.

9. Matrimonial Issues

9.1 Are civil partnerships/same sex marriages permitted/recognised in your jurisdiction?

Same sex partnerships/marriages are neither permitted nor recognised in Israel.

9.2 What matrimonial property regimes are permitted/recognised in your jurisdiction?

In Israel, the Property Relations Between Spouses Law, 5733-
1973 provides that in the case of divorce or termination of the
marriage by the death of a spouse, the assets are divided equally.
The exception to this equal division is where there is a gift and/
or inheritance received during the marriage and/or any property is
agreed in writing specifically to be excluded.

9.3 Are pre-/post-marital agreements/marriage contracts permitted/recognised in your jurisdiction?

Yes, such agreements are fully recognised, so long as they have been
entered into before the marriage, the agreement is signed before a
Notary Public and if during the marriage, are signed and sealed
before a Family Court Judge.

9.4 What are the main principles which will apply in your jurisdiction in relation to financial provision on divorce?

In Israel, the Property Relations Between Spouses Law, 5733-1973
applies and relates to all couples married after 1 January 1974,
whereby if the couple have not entered into a specific property
arrangement as described in question 9.3 hereinabove, then they
shall be deemed to have agreed to the equal division of assets.

10. Immigration Issues

10.1 What restrictions or qualifications does your jurisdiction impose for entry into the country?

Israel has visa exemption agreements with many countries. The
exemption applies only to visas for visits (not to laissez passer/
travel document).
In other cases, those who are not an Israeli citizen must obtain an
immigrant visa or other visa under the Entry Into Israel Law, 5712-
1952:
1. A/1 Temporary Resident visa.
An A/1 Temporary Resident visa is given to a person who
is eligible for immigration under the law of return (aliyah)
and has completed the examination process with the aliyah
representative of the Jewish Agency, and whose application
has been examined and approved by the Israeli diplomatic /
consular representative.
2. B/2 Visitor’s visa.
A B/2 visa is granted to someone who wishes to stay in Israel
for only a short time (for a visit, tourism, a business meeting
or Hebrew studies). A person who enters Israel on a B/2 visa
is not allowed to work in the State of Israel.
A B/2 visa is valid for up to three months from the date of
issue.

3. A/2 Student visa.
This visa is granted to those who want to study in Israel. The
visa is valid for up to one year and for multiple entrances and
exits. Recipients of this visa are not permitted to work in Israel.
4. A/3 Clergy visa.
This visa is granted to clergymen or women for the purpose
of fulfilling their clerical duties among their religious
communities in Israel, pursuant to the invitation of a
recognised religious institution in Israel.
A clergyman or woman who goes to Israel for a visit and
requires an entry visa will receive the regular B/2 visa. The
mission will only issue the visa with the prior approval of
the Ministry of the Interior. The validity of the visa will be
in accordance with Ministry of Interior guidelines, with the
option of renewal only in Israel.
5. A/4 visa for the spouses and children of recipients of A/2 or
A/3 visas.
6. B/1 Work visa.
This visa is for a person whose stay in Israel is approved for
a limited period of time for the purpose of work. This visa
is given to experts and artists, among others, and is granted
solely with the approval of the Ministry of the Interior.

10.2 Does your jurisdiction have any investor and/or other special categories for entry?

Only the Entry into Israel Law No. 5712-1952, described in question 10.1 hereinabove.

10.3 What are the requirements in your jurisdiction in order to qualify for nationality?

Israeli Nationality law defines the categories under which a person
can be granted citizenship:
1. Citizenship by residence – is intended for a non-Jewish
resident of the British Mandate of Palestine (Arabs, Druze,
Bedouins, etc.) who were considered to be associated with
Palestine during the period immediately prior to the 1948
Arab-Israeli War. If they were still within the territorial
confines of Israel after the war, they were granted full Israeli
citizenship.
2. Citizenship by descent – a child of an Israeli citizen (including
children born outside of Israel as first generation out of Israel)
is considered an Israeli citizen. Persons born outside Israel
are Israeli citizens if their father or mother holds Israeli
citizenship, acquired either by birth in Israel, according to the
Law of Return, by residence, or by naturalisation. This type
of citizenship is limited to only one generation born abroad.
3. Naturalisation – adults may acquire Israeli citizenship through
naturalisation, except in the case of enemy nationals. For this,
a person must have resided in Israel for three years out of the
previous five years. In addition, the applicant must have a
right to reside in Israel on a permanent basis. All the requests
are, however, at the discretion of the Minister of the Interior.
4. Citizenship by marriage – Israel traditionally automatically
granted citizenship to spouses of Jewish-Israeli citizens by
virtue of the Law of Return.
5. The Law of Return – grants all Jews the right to immigrate to
Israel, the right to live in Israel and to gain Israeli citizenship.
The Israeli nationality law formally grants the Israeli
citizenship. In the 1970s, the Law of Return was expanded
to grant the same rights to the spouse of a Jew, the children of
a Jew and their spouses, and the grandchildren of a Jew and
their spouses, provided that the Jew did not willingly practice
a religion other than Judaism.

10.4 Are there any taxation implications in obtaining nationality in your jurisdiction?

No, there are not.

10.5 Are there any special tax/immigration/citizenship programmes designed to attract foreigners to become resident in your jurisdiction?

The policy of the Israeli government is to encourage the immigration
of Jews to Israel, by granting tax breaks to Jewish new immigrants
under the provisions of the Immigration Law, which entitles Jewish
new immigrants the enjoyment of income tax and capitals gains tax
benefits.

11. Reporting Requirements/Privacy

11.1 What automatic exchange of information agreements has your jurisdiction entered into with other countries?

Under current legislation, the Israeli tax law allows only the signing
of bilateral treaties for avoiding double taxation. This is going to
change soon.
The new legislation will implement the new Automatic Exchange of
Information agreements, on a Reporting Standard.

11.2 What reporting requirements are imposed by domestic law in your jurisdiction in respect of structures outside your jurisdiction with which a person in your jurisdiction is involved?

Certain reporting requirements are imposed in Israel on foreign
trusts (including irrevocable and discretionary trusts), depending on
the tax resident status of the settlors and/or beneficiaries and/or the
location of the trust assets. In accordance with the Israeli Income Tax Ordinance, the trustees
(including foreign resident trustees) are obligated by law to open
a tax file with the Israeli Tax Authorities and file a report on the
relevant trust in the following circumstances:
1. if at least one of the settlors is an Israeli resident; or
2. if at least one of the beneficiaries is an Israeli resident; or
3. if all beneficiaries and settlors are non-Israeli residents but
the trust holds assets in Israel.
Prior to 31 December 2013, a trust created by a foreign settlor
with at least one Israeli beneficiary was exempt from reporting
requirements in Israel. As of 1 January 2014, all such trusts must
be reported to the Israeli Tax Authorities before 31 December 2015.
If, however, the settlor is classified as a New Immigrant or a Senior
Returning Resident in accordance with Israeli law, then the trust
is exempt from the above reporting requirements and taxes for the
duration of the 10-year tax holiday (exemption), so long as the trust
assets and income derived are outside of Israel.
Expert advice should be sought by the trustees for each and every
situation to confirm the trustees’ reporting obligations and to ensure
that the report is submitted correctly and in the correct timeframe.

11.3 Are there any public registers of owners/beneficial owners/trustees/board members of, or of other
persons with significant control or influence over companies, foundations or trusts established or
resident in your jurisdiction?

There is no public register for trusts and foundations.
There is a public registry for companies, i.e. the Company’s
Registrar – all shareholders and directors appear on the company’s
extract.