As we indicated in our Tax Alert No. 2 (August 25, 2008), the 147 Income Tax Ordinance Amendment has introduced a new tax regime of trusts into the Israeli tax law. Amendment 147 (effective date January 1, 2006) also imposed certain reporting requirements on trusts that were created prior to Amendments 147.  A detailed tax amendment (Amendment 168) that was issued on June 11, 2008 and its Regulations has changed the reporting requirement: it requires the trustee to provide certain information regarding the four kinds of trusts and in addition it replaces the reporting requirement with a mere formal notification to the Income Tax Authority (“ITA“).

Notification requirements in relation to the four kinds of trusts under the Israeli law include:

• An Israeli Residents Trust (IRT) – a trust in which the settlor is an Israeli resident: the settlor shall notify the ITA within 90 days of any trust creation, a transfer of asset / income from an asset to the trust. In addition, there is no reporting requirement in case of a trust created prior to January 1, 2006 ;
•  A Foreign Settlor Trust (FST) – in case of an immigration of the settlor to Israel, the settlor will have to report on this change of the trust classification to the ITA until April 30 of the following tax year; It should be noted that any change of a trust classification should be similarly reported.
•  A Foreign Resident Beneficiary Trust (FRBT) – where the beneficiary received a benefit in kind, he should  notify the ITA until April 30 of the following tax year;
• The Testamentary Trust (TT) – the trustee must notify the IRA within 90 days from the day the will’s provisions regarding the trust are effective;

Where a trust agreement of an IRT or TT  ceases to be effective, the trustee is required notify the ITA until April 30 of the following tax year.

Special notification requirements regarding trusts that were created prior to January 1, 2009:

The Amendment requires notification in relation to trusts that were created prior to the enactment of Amendment 147.  There were few postponements of the notification deadline (June 11, 2008, September 9, 2008) and the current deadline is October 31, 2009. This date also applies to tax filings (Section 131).  In addition, specific forms were published by the ITA. These forms are in both Hebrew and English. A set of formal rules was also published in order to elaborate the process of opening an  ITA File (with the relevant Tax Assessing Officer, mainly with Tax Assessing Officer Tel Aviv 1 or 3 that will be formally regarded as the Tax Assessors of Trusts).