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22 June 2015

Taxation of trusts - part 5, Israeli-Resident Beneficiary Trust & Non-Israeli Resident Beneficiary Trust

The Israeli Resident Beneficiary Trust

This is any trust whereby the settlor is a non-resident of Israel and has been since settling the trust. Furthermore, at least one beneficiary is an Israeli resident in the current tax year.

If there is a family relationship between the settlor and beneficiaries, the trust is deemed a Relative Trust (see here for more details). If not, the trust is a regular Israeli Resident Beneficiary Trust. The taxation is treated in the same way as for a regular Israeli Resident Trust (see here for more).

Foreign Beneficiary Trust

This is the opposite situation. The settlor is an Israeli resident, but the beneficiaries are not. In such a case, there is no Israeli taxation on assets and income outside Israel.

However, there are very strict rules surrounding the details as to when a trust can qualify as a Foreign Beneficiary Trust:

(1) The trust is deemed irrevocable (see here for more).
(2) All beneficiaries (including those not yet born) can be identified and are non-resident in Israel.
(3) The trust deed forbids any Israeli resident becoming a beneficiary, and any non-resident beneficiary loses their status when they become Israeli resident.

It is this last clause that will normally cause a trust not to be classified as a Foreign Beneficiary Trust.

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