tax planning dividends
Using An Israeli Company (That Has No Tax Heaven Connotations) In A Trust Structure As An Exceptional Tax Planning Tool
You can use an Israeli company as the owner of your international investments or business activity and have full exemption from Israeli tax and tax reporting requirement.
In general, an Israeli company is subject to Israeli corporate tax of 25% on its global income (distribution of dividend is subject to additional tax of 25% subject to tax treaties in force). However, if the Israeli company serves as a trustee or owned by a trustee (foreign or Israeli individual or corporate bodies) in a certain trust structure, whether revocable or not, its income and gains from foreign sources are exempt from Israeli tax and tax reporting requirements.
This exemption applies to a foreign resident settlor trust, as defined by law – a trust formed entirely by non-resident settlors with entirely non-resident settlors in the tax year concerned, or a trust with entirely non-resident settlors and beneficiaries in the tax year concerned.
In such arrangement, the Israeli company’s assets and income are seen as if held/generated by an individual foreign resident for taxation purposes. Consequentially, income derived outside Israel and assets held outside Israel are exempt from Israeli tax and tax reporting requirements. Moreover, certain income and gains from Israeli sources, such as gains from the sale of Israeli securities, interest income on traded bonds and interest income from Israeli bank deposits, are exempt from Israeli tax.
The Israeli company which serves as a trustee or an underlying company owned by a trustee is a regular limited liability company. The Israeli company is a front company for all transactions and is acting in its own capacity. Only for Israeli tax purposes, the Israeli company is transparent and its assets and income is attributed to a foreign resident.
Once trust agreement is signed and the Israeli company is incorporated, the foreign settlor can transfer its assets or income to the Israeli company which in turns holds them for the benefit of other persons as the beneficiaries or even for the benefit of the settlor himself.
The Israeli company can open a bank account in Israel or in any other country in the world and hold assets under its own name or through underlying companies.
In case the trust is formed by a foreign resident settlor, the exemption is valid even if there is an Israeli resident as a beneficiary. However, in such case, the Israeli beneficiary must have no ability to control or influence the trust, otherwise he will be seen as a settlor of the Trust as well and the Trust will be classified as an Israeli residents trust which generally is taxable in Israel at a rate of 45% on its worldwide income. Nevertheless this should not be an obstacle when structured well.
All in all, using an Israeli company (which has no tax heaven connotations) in a trust structure can be an exceptional tax planning tool and if correctly structured it will produce substantial savings in taxes.
About the Author
Adi Mantel is an Israeli lawyer who handles all areas of tax law while focusing on international taxation. Mr. Mantel works in the Law firm Ori Calif & Co. which provides legal services in a wide range of areas in the tax field: direct taxation, indirect taxation, employee incentive taxation, capital markets, capital investment incentives and more. The firm advises individuals and companies regarding transactions and international ventures, structural activity, reorganization, investments in real estate abroad, investment in Israel by foreign residents, transfer pricing, tax benefits for returning citizens and new immigrants, residency and change of residency, tax treaties, trusts and others. adi@califtax.co.il www.califtax.co.il Tel: +972 36096770 Fax: +972 36096775
Will Obamas tax plan crash the stock market?
The current dividend tax is at 15%. Obama’s plan is to increase that to 39%.
If you have any money invested in stock market, IRA, mutual funds, college funds, life insurance, retirement accounts, or anything that pays or reinvests dividends, you will now
be paying nearly 40% of the money earned on taxes. Won’t higher tax rates on dividends and capital gains crash the stock market?
He is promising free college. Can’t I just take my 401K and pay for my kids college myself?
Please help! I’m trying to understand the Obama plan. I just can’t see where it is helping to cut the deficit or helping the tax payers at all!
Please read the facts before posting an answer. Or can Obama followers read?
$4000 is about $1000 per year tax credit. That is way less than 39% of my 401k. Not a benefit at all!!!!!
No.
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