What is loyalty?
Fiduciary relationships are legal relationships created by agreement, in which an asset owner (hereinafter referred to as "the grantor") transfers"Loyalty Creator") Assets belonging to him to another person (hereinafter: "The Trustee") so that the latter will manage it for the benefit of a third party (hereinafter: "nodding"The trustee is obligated to manage.
In effect, the creator of the trust creates it because they are interested in continuing to manage their assets until a.
Until the amendment to the law, the trust model served as a successful substitute for inheriting assets outside of Israel, as long as the trustee in the trust was a foreign resident, the Israeli beneficiaries were entitled to receive the assets from the trust at the time determined by the trust creator., Exempt from all taxes And they were not obligated to report on it.
However, this is the legal situation that existed in the past and up to August 1, 2013, when Amendment .
In fact, the Tax Authority understood that the tax exemption granted to foreign resident trusts with Israeli beneficiaries, as mentioned above, was being misused for the purpose of transferring undeclared capital between countries, and therefore initiated a change in the taxation of these trusts through amendment no. 197 to the Ordinance.
The main changes following the amendment to the order are as follows:
Adding the concept of "Resident Beneficiary Trust"
The substantive change in the trusts chapter is in relation to the taxation of trusts for non-residents where there is, or was in the past, at least one beneficiary who is an Israeli resident and will henceforth be referred to as:"Loyalty enjoys an Israeli resident".
Hence, the legal status after the amendment to the law is that a trust benefiting an Israeli resident will be subject to income tax in Israel on all its income starting from 01/01/14 (hereinafter: "The deciding day"And in fact, only a trust whose beneficiaries – the creator and the beneficiaries, residents abroad – will be a trust of a resident abroad that will not be subject to income tax.
"Enjoy the user acting as "creator"
Following the amendment to the Order, the Tax Authority will also examine the extent of the beneficiary's involvement in the trust. The greater the beneficiary's involvement, meaning the more control and influence the beneficiary has over the trust, the more they will be considered the "creator" of the trust, and it will hereinafter be referred to as: Loyalty The user enjoys being the creator. Such a trust will be classified as an Israeli resident trust (a trust in which at least one of the creators is an Israeli resident), regardless of the actual residency of the trust's creator, whether they are an Israeli resident or not.
These dramatic changes in the command, To cancel the exemption from tax and reporting for "beneficiary resident of Israel" trust income, as was the previous legal situation, thereby harming a common model that served as an efficient and economical tool for the inheritance of assets to future generations by non-residents.
So, what is The law regarding an Israeli beneficiary as of 2014?
Beginning January 2104, when the creator is a non-resident and the beneficiary is an Israeli resident, the trust may be considered a "close relative trust," thereby enabling beneficiaries to report their income from the trust according to one of the following options, at their discretion:
Option 1 – Annual taxation based solely on the trust’s income at a tax rate of 25%, with the actual distribution being tax-exempt to the beneficiary.
Option 2 – At the time of the future distribution to the beneficiary, a tax at a rate of 30% will apply to the distribution proceeds.
