May 24, 2016
During April 2016, the Israel Tax Authority (hereinafter: “the ITA”) announced several changes that will impact many taxpayers located in Israel and abroad. Here is a short summary of the main changes:
- New annual reporting requirement for foreign residents: This is a major change that the ITA made which will increase the number of people that are required to file an annual report with the ITA. Starting 2016, anyone who could be considered under Israeli tax law as an Israeli tax resident but claims not to be, because he/she is residing in another country, will now be obligated to submit to the ITA a report with supporting documentation including his/her Israeli income. For example an Israeli resident who relocated abroad and believes that he/she is no longer an Israeli resident for Israeli tax purposes will now have report to the ITA and attach documents to support his/her position.
- The reporting obligation of the beneficiary of a trust: Every resident of Israel, over the age of 25 years who is a beneficiary of a trust, i.e., entitled to receive the income generated from the trust and/or benefit from the assets held in a trust, will be required to submit an annual report, provided that the value of the trust assets at the end of the tax year is over half a million Shekels. Trust assets include cash, deposits, securities and real estate, both in Israel and abroad.
- Reporting obligation of money transfers abroad: Any Israeli resident who transfers out of Israel, within a 12 month period, the total of half a million Shekels or more, will now be required to submit to the ITA an annual report not only for the year in which the amount was transferred, but for the subsequent year as well.
- Forfeiture of funds that were undeclared to the ITA: an amendment to the Anti-Money Laundering Law now allows the ITA and the Anti-Money Laundering Authority to foreclose, confiscate and seize funds, bank accounts, real estate and other assets that were obtained from money that was not reported to the ITA.
- Taxation on activities of foreign companies: The ITA has now formulated its position regarding the taxation of foreign companies active in Israel through the Internet. In Israel there are many foreign companies that do not pay taxes in Israel since they are not considered Israeli companies. Some of them do not even have any physical presence in Israel. The ITA has decided that the decision regarding the country, to which tax needs to be paid on the provided service, is determined according to the geographic location of the end user of the service, and not according to the geographic location of the company. So for example although Google and Facebook are registered as U.S. companies, if their end users are located in Israel, these companies will pay tax to the ITA on any income that was produced from their Israeli consumers.
The content of this article is intended to provide a general guide to the subject matter and is not a substitute for legal consultation. Specific legal advice should be sought in accordance with the particular circumstances.