For the first time since Israel began taxing trusts, the Israeli Tax Authority (ITA) has sent inquiries to some trusts seeking a declaration of worldwide assets and liabilities as of December 31, 2019. We have heard that this declaration may be required of all trusts in the future; however, this has not been officially announced.
For U.S. trusts with Israeli resident beneficiaries, this declaration is significant and must be prepared carefully.
According to an Israeli tax professional, the declaration must provide summaries of investment portfolios held with banking and other financial institutions, including the cost of the individual investments (or, if not available, their fair market value, which can be supported by a year-end statement).
ITA is also asking for details about:
- financial investments, including their cost
- other investments, including private companies and partnerships
- investments in real estate, including the original cost and date of acquisition of such investments
- debtors and creditors
- loans made and received and mortgage loans owed
- underlying companies, wholly owned by the trust, including assets and liabilities contained in those companies
Note: All items listed in the declaration must be accompanied by supporting documentation.
Currently, the required Capital Declaration form distributed by the ITA is only in Hebrew, but we expect Israeli tax professionals will soon develop an appropriate form in English. Further, Israeli professionals will likely discuss this disclosure with the ITA to clarify the information needed.
Most of the Capital Declaration forms relating to trusts already known to the ITA should be received by the Israeli filing professional directly. If trustees receive these forms, they should be forwarded to the filing professional as soon as possible.
At this time, trustees who have received such notification from the ITA should begin collecting the information and supporting documentation listed above.