A Trust Holding Company (“Trust Company“) is defined in the trusts section in the Israeli Income Tax Ordinance as:

“A body of persons holding the trust assets for the trustee, directly or indirectly”

The definition indicates that the trust company is transparent and serves as a “vessel” to hold the trustee assets. The trust company has no obligation to submit annual reports to the Israeli Tax Authorities (“ITA“), and naturally is not subject to tax in Israel. The report requirements and the tax liabilities, if any, are on the trustee. In some cases it might be imposed on the settlor or one of the beneficiaries. The characteristics of such a company, established legally in a country without any requirement to report or pay tax in that country, has some resembles to the characteristics of a company incorporated in a preferable tax regime. Although the State of Israel is not considered around the world as having a preferable tax regime characteristics, in the framework of the trust legislation, which is in force since 1.1.2006, a company with these characteristics was in did recognized. An interesting use with a “trust company” can be done by foreign residents that hold and manage assets (mostly assets abroad), without having to report to the ITA. Under the assumption that there is a double taxation treaty between Israel and the state where the business activity occurs, it may be claimed that since the company is resident in Israel, the provisions the treaty must be applied. One of the explanations to this claim is that body of persons is defined as “Resident” in the treaties and the abovementioned company is a resident of Israel. The ITA standpoint in this case is that the tax treaties provisions do not apply in connection to the “Trust Company”, due to its unique characters, as mentioned in the trust section, in the Israeli income tax ordinance. To conclude, a “trust holding company” may be incorporated in Israel and despite that fact1 would not be required to report and pay tax, meaning that it would act as a company in a preferable tax regime. Many uses may be preformed with such a company1 mostly by foreign residents who seek for companies incorporated in common tax regime countries, in opposed to tax regime countries that are considered as unacceptable.