Dear Clients, Friends, and Colleagues,

 

We are pleased to update you that the proposed bill, aimed at canceling the reporting exemption of New Immigrants and imposing reporting obligation on Israeli companies and trusts with respect to their Ultimate Beneficial Owners, has been enacted and became law on April 2nd, 2024.

 

This new law introduces two key amendments –

 

1. Cancellation of Reporting Exemptions for New Immigrants and Veteran Returning Residents

Under the previous legislation, new immigrants and veteran returning residents enjoy exemptions from reporting non-Israeli source income and assets. The new legislation limits these exemptions in three significant ways:

 

• Mandating reporting of non-Israeli income and assets, despite tax exemptions. The scope of the reporting obligation is not clear at this stage.

 

• Authorizing the assessing officer to demand financial statements from non-Israeli companies managed by new immigrants or veteran returning residents. These companies will be required to annually prepare financial statements under Israeli GAAP.

 

• Removing the reporting exemptions for trusts with new immigrants or veteran returning residents as settlors or beneficiaries.

 

Despite these changes, the bill and protocols of the discussion held in the legislation process clarified that tax exemptions (but not reporting exemptions) on foreign-sourced assets and income for new immigrants and veteran returning residents will remain intact.

 

The new legislation will apply to individuals becoming Israeli residents from January 1, 2026.

 

2. Introduction of Beneficial Owner Reporting for Israeli Companies and Trusts

The new legislation introduces two key amendments in connection with reporting of beneficial owners of Israeli companies and trusts:

 

a. Reporting the Beneficial Owner in the Annual Tax Return

 

• • Israeli companies and trusts are required, as part of their annual tax return, to report the identity of their “controlling owners” up to the level of individuals and to specify the tax residence of each of them.

• • This information will be submitted to the Israeli Tax Authority but will not be included in any public register.

• • For this purpose, the term “Controlling Owners” is defined in the Money Laundering Prohibition Law, 5760-2000. In general, with respect to companies, it includes those individuals who have the ability to direct the activity of the company as well as those who hold at least 25% of the interest in the company.  With respect to trusts, this term includes the settlors, the beneficiaries, the trustees and the protectors.

• • The new legislation will apply with respect to tax returns required to be submitted by Israeli companies and trusts for the tax year 2025 and onwards.

 

b. Reporting by Israeli Resident Trustees

 

• • An Israeli resident trustee is required to report the identity of the “controlling owners” of the trust up to the level of the individuals and to specify their tax residences, even if the trustee is not obligated to submit an annual tax return (e.g., the trust is a non-Israeli resident trust). This reporting is required to be made within 90 days from the date the trust was settled or within 120 days from January 1, 2026, in the event that the trust was settled prior to the date on which the new law was published.

• • For this purpose, the term “Controlling Owners” includes the settlors, the beneficiaries, the trustees, and the protectors.

 

The new legislation contains clauses designed to ensure that information received by the ITA under this new law and under certain provisions of the AML law, will not be used by the ITA, unless a foreign tax authority requested this information according to an agreement for exchange of information.

 

 

 

Our tax department is ready to advise on the implications of these obligations.

Sincerely,

The Tax Department

Herzog Fox & Neeman