ISRAEL Law and Practice Contributed by: Yaron Mehulal, Nataly Davidai and Shalom Hershkovitz, FISCHER (FBC & Co.)
Trust Tax Regime Trusts (including foundations) are subject to Israeli taxation and reporting obligations if they have at least one Israeli tax resident settlor or beneficiary, or if they have an Israeli asset. Similar to the taxation of individuals described above, an Israeli tax resident trust is liable to tax on its world - wide income, whereas a non-Israeli tax resident trust (ie, a trust that has no Israeli tax resident settlor and/ or Israeli tax resident beneficiaries, and never had any Israeli tax resident beneficiary) is only subject to tax on its Israeli-sourced income. The applicable tax regimes applying to trusts in Israel are set out below. Israeli Resident Trust A trust qualifies as an Israeli Resident Trust if, at the date of the trust’s settlement, there was at least one Israeli tax resident settlor and one Israeli tax resident beneficiary, and in the assessed tax year there is one Israeli tax resident settlor, or one Israeli tax resident beneficiary, or all the trust’s settlors have passed away and in the assessed tax year at least one beneficiary is an Israeli tax resident. In addition, a trust shall also be considered as an Israeli Resident Trust if it does not qualify as either a Foreign Resident Beneficiary Trust, a Foreign Residents Trust or a Relatives Trust. An Israeli Resident Trust is subject to tax in Israel on its worldwide income. Israeli Beneficiary Trust A trust qualifies as an Israeli Beneficiary Trust if it was settled by a non-Israeli tax resident who continued to be a foreign resident from the date of the trust’s settle - ment until the date of tax assessment, and has at least one Israeli beneficiary. An Israeli Beneficiary Trust is subject to tax in Israel on its worldwide income. Relatives Trust A trust qualifies as a Relatives Trust if: • it meets the definition of Israeli Beneficiary Trust; • the settlor is the parent, grandparent, spouse, child or grandchild of each of the beneficiaries (if the settlor and the beneficiaries are relatives of second degree – including siblings, siblings’ issue
sive activity” (a term broadly defined) of any substan - tial shareholder active in the company, exceeding a profitability rate of 25%. The amendment applies both to “substantial shareholders” (ie, shareholders whose holdings in the company exceed 30%), even if seemingly they are not active in the company, and to shareholders (who are not substantial shareholders) if the company’s income stems from their own personal exertion. Certain exemptions apply, including in cases where the “closely held company” has accumulated profits in an amount not exceeding ILS750,000, and/ or where the income attributed to each of the “con - trolling shareholders” (shareholders whose holdings in the company exceed 10%) exceeds ILS30 million. National Insurance Israeli residents over 18 years are also subject to obligatory national insurance contributions and health insurance contributions from their monthly income (which includes the employee’s salary and benefits, as well as in-kind benefits the employee receives from their employer, such as a car, meals and mobile phones) up to a ceiling of approximately USD14,000 a month, at the following rates: • employees: 3.5–12%; • self-employed: 5.97–17.83% (can be reduced to 15.62% for women above the age of 62 and men above the age of 67); • household employees: 2%; • non-working individual with income: 9.61–12%; and • early pension (women below the age of 62 and men below the age of 67): 3.49–11.79%. Unemployed individuals with no income pay approxi - mately USD69 a month. It should be noted that, in addition to the national insurance contributions paid by the employees as detailed above, employers also pay national insurance contributions on behalf of each employee, as follows: • employees generally: 3.55–7.6%; and • household employees: 5.25%.
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