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Taxation of a Trust in Israel: “Relatives Trust”

In accordance with section 75H1(b) of the Ordinance. A Relative Trust is an IRBT in which all Settlors and Beneficiaries are bound in close family relations, as defined in the Israeli Tax Ordinance. For example: parents and their children, grandfather, and his grandchildren etc.

Please note that sibling relationships aren’t considered basically as relative relations, without the approval of the tax official.

Classification as a Relative Trust means that the transfer of property from the Settlor to the trust, without receiving any remuneration, will not be considered as sale and rather will be considered as a direct transfer between the Settlor to the Beneficiary.

The income of the trust shall be considered as a foreign resident income and as such will be tax exempt in Israel, except for income sourced in Israel or relate to Israeli beneficiary. However, the distribution of an asset made by the trustee to the Israeli Beneficiary might be in principle subject to either 25% or 30% tax rate in Israel.

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