OrdinanceTax Law
Income Tax Ordinance [New Version]
פקודת מס הכנסה [נוסח חדש]
Published: 1961-04-25Last amended 2026-06-08✓ Amendment status checked against the Knesset legislation record on 2026-09-04
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Chapter IV-B: Trusts
Definitions§
75c.
In this Chapter –
"means of control", "material shareholder", "relative" and "consideration" – as defined in section 88;
"trustee income" – income produced or accrued from the trustee's assets;
"conveyance" – the transfer of an asset to a trustee in trust, without consideration;
"trust asset holding company" – a company that holds the trustee's assets on behalf of the trustee, directly or indirectly, in which all of the following conditions are met:
(1)it was established solely for the purpose of holding the trust assets;
(2)with respect to a company holding assets of a residents-of-Israel trust or assets of a resident-of-Israel beneficiary trust or assets of a testamentary trust in which there is a beneficiary who is a resident of Israel or trust assets that are in Israel – notice of its incorporation and status as such was given to the assessing officer within 90 days from the date of incorporation;
(3)the trustee holds all of its shares, directly or indirectly; for the purposes of this paragraph, "indirect holding" – only holding through another company that is a company in which the conditions of paragraphs (1) and (2) are met and the trustee holds all of its shares;
"distribution" – the transfer of an asset or income by the trustee to a beneficiary or for the benefit of a beneficiary, in the course of the existence of the trust or by reason of its termination;
"settlor", of a trust – within its meaning in section 75d;
"trust protector" (Protector) – a person who, under the trust documents, has the authority to appoint or remove the trustee, to give instructions to the trustee, or whose approval is required for acts of the trustee;
"trustee" – a person to whom assets or income from assets have been conveyed, or who holds assets in trust; wherever in this Chapter reference is made to a trustee, its meaning is the trustee in that capacity, in the trust in question; for this purpose, a conveyance to a trust asset holding company shall be treated as a conveyance to the trustee, and a corporation as listed in the First Schedule A shall be treated as a trustee; the Minister of Finance may, by Order, add corporations to the First Schedule A;
"trust" – an arrangement under which a trustee holds the trustee's assets for the benefit of a beneficiary, made in Israel or outside Israel, whether or not it is defined under the law applicable to it as a trust and whether it is defined otherwise;
"irrevocable trust" – a trust that is not a revocable trust, provided that a duly authenticated declaration by the settlor of the trust and by the trustee attesting to its being an irrevocable trust has been submitted to the assessing officer, in the form and at the time prescribed by the Administrator;
"revocable trust" – a trust in which at least one of the following conditions is met:
(1)there is the possibility of revoking it or transferring or returning an asset or income to the settlor, their spouse, their estate or a held body of persons, all directly or indirectly;
(2)one or more of the beneficiaries is the settlor or their spouse, or the settlor or their spouse may become a beneficiary;
(3)one or more of the beneficiaries is a child of the settlor who has not yet reached 18 years of age in the tax year, or there is the possibility of transferring an asset or income to such a child, directly or indirectly, provided that the settlor or their spouse is still alive;
(4)one or more of the beneficiaries is a body of persons, other than a public institution as defined in section 9(2), in which 10% or more of any class of means of control is held by the settlor, by their spouse or by their child who has not yet reached 18 years of age in the tax year if the settlor or their spouse is still alive, all directly or indirectly (in this definition – a held body of persons);
(5)the trustee or the trust protector is the settlor or a held body of persons;
(6)the trustee or the trust protector is a relative of the settlor, unless it has been proved to the satisfaction of the Administrator that there was special justification for the appointment of the relative as trustee and that the appointment does not indicate an ability to direct the trustee's activity or to give the trustee instructions in respect of the trust; for the purposes of this definition, "relative" – as defined in paragraphs (1) to (3) of the definition of "relative" in section 88;
(7)the settlor or their relative has the ability to direct the trustee's activity, or to give instructions to the trustee regarding the manner of management of the trust, its assets, the change of beneficiaries therein, or the distribution of the trustee's assets and the trustee income to beneficiaries, or their approval is required for acts of the trustee, or they have the ability to direct the revocation of the trust or the replacement of the trustee, other than on a ground established by law, all directly or indirectly;
(8)the identity of one or more of the beneficiaries is unknown, or the identity of a shareholder, directly or indirectly, in a beneficiary that is a body of persons is unknown, unless it has been proved to the satisfaction of the assessing officer that such beneficiary cannot be the settlor, their spouse, a child of the settlor who has not yet reached 18 years of age, or a held body of persons;
(9)the beneficiaries of the trust have been replaced or new ones have been added, without such instruction having been given in the trust documents;
(10)a duly authenticated declaration has not been submitted in the form and at the time prescribed by the Administrator, as referred to in the definition of "irrevocable trust";
"non-resident settlor trust" – a trust as referred to in section 75i;
"testamentary trust" – a trust as referred to in section 75l;
"non-resident beneficiary trust" – a trust as referred to in section 75j;
"resident-of-Israel beneficiary trust" – a trust as referred to in section 75h1;
"relatives trust" – a trust as referred to in section 75h1(b);
"beneficiary for public purposes" – a body listed in section 97(a)(4), a similar corporation exempt from tax under a law in Israel, or a public body prescribed by the Administrator, with the approval of the Finance Committee of the Knesset;
"residents-of-Israel trust" – a trust as referred to in section 75g;
"beneficiary", in a trust – within its meaning in section 75e;
"asset" – any property, whether real property or movable property, as well as any right or benefit, whether contingent or vested, all whether in Israel or outside Israel;
"trustee's assets" – assets conveyed to the trustee or acquired or received by the trustee, including when held on the trustee's behalf by a trust asset holding company, even if registered in its name;
"non-resident", in relation to a settlor – (deleted)
"resident of Israel" – including an Israeli citizen who is a resident of the Area as defined in section 3a.
Settlor of the Trust§
75d.
(a)The settlor of a trust is a person who conveyed an asset to the trustee, directly or indirectly, and the following shall also be treated as a settlor:
(1)a person who was a material shareholder, directly or indirectly, in a body of persons at the time when the body of persons conveyed the asset to the trustee;
(2)a person who held one or more of any class of means of control, directly or indirectly, in a body of persons at the time when the body of persons conveyed the asset to the trustee, and that person or their relative is a beneficiary in that trust;
(3)where a trustee conveyed an asset or income to another trustee after the last of the settlors has died or after the beneficiaries of the trust have been changed, all without such instruction having been given in the trust documents, the beneficiary shall also be treated as a settlor in the trust under which the other trustee acts or in the trust in which the beneficiaries were changed as aforesaid, as the case may be, unless it has been proved to the satisfaction of the assessing officer that the beneficiary had no influence whatsoever on the conveyance as aforesaid or on the change of beneficiaries;
(4)where a beneficiary had the ability to control or influence, directly or indirectly, the manner of management of the trust, the trustee's assets, the determination of beneficiaries other than by virtue of a determination by the settlor, the appointment or replacement of trustees, or the distribution of the trustee's assets or trustee income to beneficiaries, the beneficiary shall also be treated as a settlor;
(5)where an asset whose source is an asset transferred from a resident of Israel who is or whose relative who is a resident of Israel is a beneficiary in the trust has been conveyed to the trustee in a relatives trust, that resident of Israel shall be treated as a settlor in that trust.
(b)Where a trustee conveyed an asset or income to another trustee, the settlor who conveyed the asset or income to the trustee shall be treated as having conveyed them to the other trustee, and the trustee shall not be treated as a settlor.
Beneficiary in a Trust§
75e.
A beneficiary in a trust is a person who is entitled to benefit from the trustee's assets or from the trustee income, directly or indirectly, including the following:
(1)a person who will be entitled to be a beneficiary as aforesaid upon the occurrence of a condition or upon the arrival of a date stipulated in the trust documents; however, a person whose rights are contingent on the death of the settlor or of another beneficiary shall not be treated as a beneficiary for as long as the settlor or the other beneficiary is still alive;
(2)a beneficiary who has not yet been born;
(3)an indirect beneficiary through a chain of trusts or through another beneficiary in the same trust;
(4)a person who holds one or more of any class of means of control, directly or indirectly, in a beneficiary that is a body of persons other than a public institution as defined in section 9(2).
Liability of Trustee Income to Tax§
75f.
(a)Trustee income shall be subject to tax in the tax year in which it was produced or accrued.
(b)Trustee income shall be treated as the income of the settlor or as the income of the beneficiary, as the case may be, as detailed in sections 75g, 75h1, 75i, 75j or 75l.
(c)The trustee shall be the person subject to assessment and liable to tax in respect of the trustee income and in respect of transactions in the trustee's assets.
(d)The rate of tax at which trustee income shall be subject to tax is the maximum tax rate prescribed in section 121.
(e)Notwithstanding the provisions of subsection (d), where a special tax rate has been prescribed for a particular type of income of an individual, trustee income of that type shall be subject to tax at the rate so prescribed.
(f)Trustee income shall not be subject to a tax exemption granted in respect of income subject to a ceiling, and the provisions of section 11 or the provisions of Chapter III of Part 3 shall not apply thereto.
(g)The determination of trustee income or taxable income thereof shall be made in accordance with the provisions of this Ordinance, even if the trustee is a non-resident and even if the trust is under foreign law or provisions of foreign law apply to it.
(h)Losses incurred by the trustee (in this Chapter – trustee losses) may not be set off against the income of the settlor or of the beneficiary, and the tax applicable to trustee income may not be set off against the tax applicable to the income of the settlor or the beneficiary, unless expressly stated otherwise in this Chapter.
(i)The losses of the settlor and the beneficiary may not be set off against trustee income, and the tax applicable to the income of the settlor and the beneficiary may not be set off against the tax applicable to trustee income, unless expressly stated otherwise in this Chapter.
(j)For the purposes of the calculation of capital gain on a sale by the trustee of an asset whose conveyance to the trustee was exempt from tax or was not subject to tax, which was conveyed to the trustee without consideration, and for the purposes of the calculation of depreciation in respect of such an asset, the original cost of the asset, the balance of the original cost and the acquisition date of the asset shall be determined as they were in the hands of the settlor, and the amount of depreciation shall be the amount that the settlor was entitled to deduct in respect of that asset.
(k)The residence of a beneficiary who has not yet been born shall be determined according to the residence of their parents.
Charging of Trustee Income to Settlor or Beneficiary§
75f1.
(a)Notwithstanding the provisions of section 75f(c), the person liable to assessment and liable to tax in respect of the trustee's income and in respect of transactions in the trustee's assets –
(1)in a residents of Israel trust – shall be a settlor who is a resident of Israel in the tax year, and if there was more than one settlor who is a resident of Israel in the tax year, only one of them (hereinafter – representative settlor);
(2)in a testamentary trust that is considered a resident of Israel under section 75l(c)(1) – shall be a beneficiary who is a resident of Israel in the tax year, and if there was more than one beneficiary who is a resident of Israel in the tax year, only one of them (hereinafter – representative beneficiary);
provided that all the conditions set out in subsection (b), as applicable, are fulfilled in the said trusts, and the provisions of subsection (c) shall apply.
(b)
(1)there is no trustee who is a resident of Israel in the trust;
(2)the trustee in the trust has given notice of its election to apply the provisions of this section and has declared that it undertakes to provide the representative settlor or the representative beneficiary, as the case may be, with all information required by that person in order to obtain full knowledge of the trustee's income or the trustee's assets;
(3)with respect to a residents of Israel trust – all the settlors, including the representative settlor, have given notice of their election of the representative settlor as the person liable to assessment and liable to tax and of the application of the provisions of this section;
(4)with respect to a testamentary trust that is considered a resident of Israel under section 75l(c)(1) – all the beneficiaries, including the representative beneficiary, have given notice of their election of the representative beneficiary as the person liable to assessment and liable to tax and of the application of the provisions of this section;
(5)a notice as referred to in paragraphs (2) and (3) or (4) shall be submitted in the form prescribed by the Administrator to the assessing officer together with the return under section 131(a)(5b)(4) for the first tax year in which the trustee and all the settlors, or the trustee and all the beneficiaries, as the case may be, elected to apply the provisions of this section.
(c)
(1)the election of the trustee and the settlor, or the trustee and the beneficiary, as the case may be, shall also apply in the tax years following the first tax year referred to in subsection (b)(5), and they shall not be entitled to retract their election so long as the representative settlor or the representative beneficiary, as the case may be, is still alive and is a resident of Israel and so long as there is no trustee who is a resident of Israel in the trust;
(2)the provisions of section 75f, except subsection (c) thereof, shall apply to the representative settlor or to the representative beneficiary, as the case may be, and all in the manner and in the amount in which the trustee would have been assessed or charged had there been no election of the provisions of this section;
(3)the provisions of any law with respect to payment of tax, reporting, collection and penalties shall apply to the representative settlor or to the representative beneficiary, as the case may be, in respect of the trustee's income and in respect of the trustee's assets;
(4)a final tax debt of the representative settlor or of the representative beneficiary, as the case may be, may be collected from the trustee, and with respect to a final tax debt of the representative settlor – also from each of the settlors, even if that settlor has ceased to be a resident of Israel; for this purpose, "final tax debt" – as defined in section 75o(f);
(5)the provisions of section 75o(d) shall apply, provided that instead of "accrued to the trustee" it shall be read "accrued to the representative settlor or to the representative beneficiary, as the case may be".
(d)Wherever in this section reference is made to a representative settlor and to a representative beneficiary, the intention is to the trust in which they are referred to.
Residents of Israel Trust§
75g.
(a)
(1)A residents of Israel trust is a trust in which, at the time of its creation, at least one settlor and at least one beneficiary were residents of Israel, and in the tax year at least one settlor or at least one beneficiary therein was a resident of Israel, and also a trust in which all its settlors have died and in the tax year at least one beneficiary therein is a resident of Israel;
(2)A trust that is not a non-residents trust, is not a foreign-resident beneficiary trust and is not a relatives trust shall also be regarded as a residents of Israel trust;
(3)Notwithstanding the provisions of paragraphs (1) and (2), a testamentary trust shall not be regarded as a residents of Israel trust;
(4)A trust shall be regarded as a residents of Israel trust whether it is a revocable trust or an irrevocable trust.
(b)In a residents of Israel trust, the trustee's income shall be regarded as the income of the settlor and the trustee's assets shall be regarded as the assets of the settlor; in a residents of Israel trust in which all its settlors have died, the trustee's income shall be regarded as the income of an individual who is a resident of Israel and the trustee's assets shall be regarded as the assets of an individual who is a resident of Israel.
(c)A residents of Israel trust shall be considered a resident of Israel, even if the settlor has ceased to be a resident of Israel, and the trustee's income shall be regarded as the income of an individual who is a resident of Israel and the trustee's assets shall be regarded as the assets of an individual who is a resident of Israel.
(d)A conveyance to the trustee in a residents of Israel trust by an individual, made without consideration, shall not be regarded as a sale for the purposes of the provisions of Part 5.
(e)Where the trust became a residents of Israel trust after one of its settlors became a new immigrant, a veteran returning resident or a returning resident, as referred to in section 14(a) or (c) (in this subsection – entitled settlor), the provisions under sections 14(a), (c) or (d), 16 or 97(b) or (b3), as applicable, shall apply to the trustee's income in addition to the provisions of section 75f, provided that all the beneficiaries are entitled settlors to whom the said provisions apply or are non-residents of Israel.
(e1)Subsection (e) shall also apply to a residents of Israel trust in which all its settlors are new immigrants or veteran returning residents, as referred to in section 14(a), and which was established during the period as its meaning in section 14(a).
(f)A distribution of an asset in a residents of Israel trust shall be liable to tax, or shall be exempt from tax, for the purposes of the provisions of Part 5, as would have been the case had the asset been transferred directly from the settlor to the beneficiary; for this purpose, the settlor shall be regarded as a resident of Israel even if at the time of distribution that settlor was a non-resident of Israel; where there are several settlors in the trust and a transfer from at least one of them to the beneficiary would have been liable to tax had it been made directly, the distribution shall be liable to tax.
(g)The provisions of section 75f(a) through (i) and (k) and of subsections (b), (c) and (e) shall not apply to the trustee's income in a residents of Israel trust that is an irrevocable trust, which has been distributed to a beneficiary who is a resident of Israel, and it shall be regarded as the income of the beneficiary, all provided that all the following conditions are fulfilled:
(1)the distribution was made before the end of six months from the end of the tax year in which the income was derived or accrued, or by the date of submission of the return for the said tax year, whichever is earlier;
(2)the income was included in the return submitted by the trustee under section 131 as income that was distributed and was not taken into account in computing the trustee's income or taxable income;
(3)the income was included in the return submitted by the beneficiary under section 131 for the same tax year;
(4)the trustee and the beneficiary attached to the return they submitted under paragraphs (2) and (3), as applicable, a notice of the distribution and of their election that the trustee's income that was distributed shall be regarded as the income of the beneficiary;
(5)if the income was derived or accrued from various income sources – the distribution shall be regarded as having been made proportionately from each such income source, unless it is specified in the trust deed that the income distributed is designated for the same beneficiary to whom it was distributed.
(h)The provisions of section 75f and of subsections (b) through (e) shall not apply with respect to a residents of Israel trust that is a revocable trust in which there is only one settlor, who is a resident of Israel, if the settlor and the trustee have given notice of their election that the person liable to assessment and liable to tax in respect of the trustee's income shall be the settlor; for this purpose, a settlor and that settlor's spouse shall be regarded as one settlor, provided that the spouse is a resident of Israel; an application as aforesaid shall be submitted to the assessing officer together with the return under section 131 for the tax year in which the trust was created; where such an application has been submitted, the following provisions shall apply:
(1)the person liable to assessment and liable to tax in respect of the trustee's income shall be the settlor and the settlor shall be obliged to submit a return thereon under section 131 if the settlor is still alive;
(2)a final tax debt in respect of the trustee's income that accrued to the settlor may also be collected from the trustee's assets and from the trustee's income;
(3)the election of the settlor and the trustee shall also apply in the following tax years and they shall not be entitled to retract their election if the settlor is still alive and is a resident of Israel;
the provisions of this subsection shall apply so long as the settlor is a resident of Israel.
(i)The provisions of section 100a shall not apply with respect to a residents of Israel trust on the day on which the settlor ceased to be a resident of Israel, so long as the trust is such a trust.
Trust that Has Ceased to Be a Residents of Israel Trust§
75h.
(a)A trust shall cease to be a residents of Israel trust as from the time at which the conditions prescribed in section 75g(a) are no longer fulfilled therein (in this section – the termination date).
(b)Where a trust ceased to be a residents of Israel trust and became a foreign-resident beneficiary trust, the trustee's assets shall be regarded, for the purposes of the provisions of Part 5, as if they had been sold on the termination date to a non-resident of Israel.
(c)Where the trust ceased to be a residents of Israel trust and became a foreign-resident settlor trust, the provisions of section 100a shall apply on the termination date, with the necessary modifications.
(d)Where the last of the settlors in a residents of Israel trust who is a resident of Israel has died and all the beneficiaries therein are non-residents of Israel, the provisions of section 75l shall apply to the trust.
Foreign-Resident Beneficiary Trust and Relatives Trust§
75h1.
(a)A foreign-resident beneficiary trust is a trust in which, from the time of its creation until the tax year, all its settlors are non-residents of Israel and in the tax year there is at least one beneficiary therein who is a resident of Israel; for the purpose of this section, a beneficiary for public purposes shall not be regarded as a beneficiary.
(b)A relatives trust is a foreign-resident beneficiary trust in which between all its settlors and all the beneficiaries therein who are residents of Israel there exist relations of kinship as detailed in paragraphs (1) or (2):
(1)the settlor is a parent, grandparent, spouse, child or grandchild of the beneficiary;
(2)between the settlor and the beneficiary there exist relations of kinship as referred to in paragraphs (1) or (2) of the definition of "relative" in section 88, other than as referred to in paragraph (1), and the assessing officer is satisfied that the establishment of the trust and the conveyances to the trustee were made in good faith and that the beneficiary did not give consideration for that beneficiary's right in the trust assets.
(c)The provisions applicable to a residents of Israel trust shall apply to a foreign-resident beneficiary trust that is not a relatives trust; however, notwithstanding the provisions of section 75g(b), in such a trust the trustee's income shall be regarded as the income of an individual who is a resident of Israel and the trustee's assets shall be regarded as the assets of an individual who is a resident of Israel.
(d)The following provisions shall apply to a relatives trust:
(1)the trustee shall notify the assessing officer of the trust being a relatives trust, within 60 days from the date of its establishment or from the date of its becoming such;
(2)a distribution from the trustee to a beneficiary who is a resident of Israel that originates from income derived or accrued outside Israel shall be liable to tax at a rate of 30%; however, if the trustee has proven that the distribution to the beneficiary, in whole or in part, is of an asset conveyed to the trustee and which, had it been transferred directly from the settlor to the beneficiary, would have been exempt from tax (in this section – the principal), the distribution of that asset shall be exempt from tax; for this purpose –
(a)the distribution that is not of the principal shall be regarded as if it had been made before the distribution of the principal;
(b)where the distribution was made to several beneficiaries, the distribution of the principal to a beneficiary who is a resident of Israel shall be regarded as having been made in accordance with that beneficiary's proportional share in the distribution;
(3)notwithstanding the provisions of paragraph (2), the trustee may elect, by notice submitted to the assessing officer within 60 days from the date of establishment of the trust or from the date of its becoming such, whichever is later, that the trust's income designated for distribution to a beneficiary who is a resident of Israel, as the trustee shall specify in the notice, which was derived or accrued outside Israel, shall be liable to tax in the tax year in which it was derived or accrued, as income of a resident of Israel, and tax at a rate of 25% shall apply thereto; where tax as aforesaid has been paid on the designated trust income, the portion of the distribution in the amount of the designated income shall be exempt from the tax referred to in paragraph (2) at the time of distribution; where the trustee has given notice of such an election, the trustee may not retract it so long as the trust is a relatives trust;
(4)the provisions of section 75f(a), (d) and (e) shall apply to the income of the trustee in a relatives trust that was derived or accrued in Israel.
(e)A trust shall be regarded as a foreign-resident beneficiary trust whether it is a revocable trust or an irrevocable trust.
(f)For the purposes of the provisions of Part 5, in a conveyance to the trustee in a relatives trust, the asset shall be regarded as if it had been transferred directly from the settlor to the beneficiary.
(g)Where the trust became a relatives trust after one of its beneficiaries became a new immigrant, a veteran returning resident or a returning resident as referred to in section 14(a) or (c) (in this subsection – entitled beneficiary), the provisions under sections 14(a) or (c), 16 or 97(b) or (b3), as applicable, shall apply to the trustee's income or the beneficiary's income, according to that beneficiary's share; the provisions of this subsection shall also apply to a relatives trust established by a non-resident of Israel for the benefit of entitled beneficiaries only, for the remainder of the period as its meaning in those sections, as applicable, that applies to them.
(h)Where one of the settlors in a relatives trust has died, the trust shall become a residents of Israel trust from the date of death onwards; however, notwithstanding the provisions of section 75g(b), in such a trust the trustee's income shall be regarded as the income of an individual who is a resident of Israel and the trustee's assets shall be regarded as the assets of an individual who is a resident of Israel; where there is one or more beneficiaries in the trust who is an entitled beneficiary as referred to in subsection (g), the provisions under sections 14(a) or (c), 16 or 97(b) or (b3), as applicable, shall continue to apply to the trustee's income or the beneficiary's income, according to that beneficiary's share; the provisions of this subsection shall not apply so long as the spouse of the settlor who died is still alive, provided that the spouse was such at the time of one of the conveyances of the assets to the trustee.
(i)Where a trust has ceased to be a relatives trust to which the provisions of subsection (d)(1) apply, and has become a foreign-resident beneficiary trust that is not a relatives trust or a trust of another type as referred to in this Chapter, the provisions of subsection (d)(1), with the necessary modifications, shall apply to distributions originating from profits derived before the day on which the trust ceased to be a relatives trust, to a beneficiary who was a resident of Israel at the time those profits were derived, and every distribution shall be regarded as if it originates from profits derived before the said date, unless proven otherwise.
(j)The Administrator may prescribe forms for the purposes of this section and also provisions with respect to the manner of computing the portion of the principal in a distribution.
Non-Residents Trust§
75i.
(a)A non-residents trust is a trust in which in the tax year all its settlors and all its beneficiaries are non-residents of Israel, or in which all its settlors are non-residents of Israel and all its beneficiaries are beneficiaries for public purposes or non-residents of Israel, and there were no beneficiaries who were residents of Israel therein from the time of its creation, and also a trust in which all its settlors have died and all its beneficiaries in the tax year are non-residents of Israel, or in which all its settlors have died and all its beneficiaries are beneficiaries for public purposes or non-residents of Israel, and there were no beneficiaries who were residents of Israel therein from the time of its creation.
(a1)A trust shall be regarded as a non-residents trust whether it is a revocable trust or an irrevocable trust.
(b)The provisions of section 75g, except subsections (a), (c) and (h) thereof, shall apply to a non-residents trust, with the necessary modifications.
(c)A non-residents trust shall be considered a non-resident of Israel, and the trustee's assets shall be regarded as assets held by a non-resident of Israel and the trustee's income shall be regarded as income of an individual who is a non-resident of Israel; where the settlors are residents of several foreign states, the trustee's assets shall be regarded as held proportionately by individuals who are residents of the states of residence of the settlors and the trustee's income shall be regarded as if it had been derived or accrued proportionately by individuals who are residents of those states, in accordance with the value of the assets conveyed to the trustee by each settlor, as it was at the time of the conveyance.
Foreign-Resident Beneficiary Trust§
75j.
(a)A foreign-resident beneficiary trust is a trust in which all the following conditions were fulfilled in the tax year, provided that the condition referred to in section 75g(a)(1) is not fulfilled therein and it is not a testamentary trust:
(1)it is an irrevocable trust; for the purposes of this section a trust shall not be regarded as a revocable trust solely by reason of the provisions of section 75d(a)(3) or (4);
(2)all the beneficiaries therein are individuals who are non-residents of Israel, whose identities are known; for this purpose a beneficiary who has not yet been born shall be regarded as a beneficiary whose identity is known;
(3)at least one settlor therein is a resident of Israel; for this purpose a settlor who was a resident of Israel at the time of that settlor's death shall also be regarded as a settlor who is a resident of Israel;
(4)if at the time of its creation the conditions referred to in paragraphs (1) through (3) were fulfilled, the following were also fulfilled –
(a)it is expressly specified in the trust documents that it is not possible to add a beneficiary who is a resident of Israel thereto;
(b)in the notice submitted by the settlor under section 75p1, it was declared that there is no beneficiary who is a resident of Israel therein, or a beneficiary who is a resident of Israel whose entitlement in the trust is contingent upon that beneficiary ceasing to be a resident of Israel, and it is not possible to add such a beneficiary thereto.
(b)In a foreign-resident beneficiary trust, the trustee's income shall be regarded as the income of the beneficiary and the trustee's assets shall be regarded as the assets of the beneficiary.
(c)A foreign-resident beneficiary trust shall be considered a non-resident of Israel, and the trustee's assets shall be regarded as assets held by an individual who is a non-resident of Israel and the trustee's income shall be regarded as income of an individual who is a non-resident of Israel; where the beneficiaries are residents of several foreign states, the trustee's assets shall be regarded as held proportionately by residents of the states of residence of the beneficiaries and the trustee's income shall be regarded as if it had been derived or accrued proportionately by residents of those states, according to their proportional share in the trustee's income and in the trustee's assets.
(d)For the purposes of the provisions of the Ordinance, a conveyance to the trustee in a foreign-resident beneficiary trust shall be liable to tax as would have been the case had the asset been transferred directly from the settlor to the beneficiary who is a non-resident of Israel.
(e)A distribution to a beneficiary in a foreign-resident beneficiary trust shall not be regarded as a sale for the purposes of the provisions of Part 5.
(f)The trustee shall attach, annually, to the return submitted under section 131, a notice in the form prescribed by the Administrator, regarding every distribution made in the tax year, including the names of the beneficiaries and the amounts distributed to them, as well as a declaration as referred to in subsection (a)(4)(b); however, if the trustee is not required to submit a return under section 131 for that tax year – the trustee shall submit to the assessing officer a declaration as aforesaid by 30 April of the year following the tax year.
Trust that Has Ceased to Be a Foreign-Resident Beneficiary Trust§
75k.
(a)Where one of the beneficiaries in a trust became a new immigrant, a veteran returning resident or a returning resident, as referred to in section 14(a) or (c), the trust shall cease to be a foreign-resident beneficiary trust; as from that time, the provisions of section 75g shall apply to the trust, as well as the provisions under sections 14(a), (c) or (d), 16 or 97(b) or (b3), as applicable, as they would have applied had the income been derived directly by the beneficiary who became a resident of Israel.
(b)Where the trustee did not submit a notice and declaration as referred to in section 75j(f), for a particular tax year, it shall be deemed as if in that tax year there was a beneficiary who is a resident of Israel in the trust and the provisions of section 75g shall apply.
(c)Where the assessing officer found that, notwithstanding the declarations of the settlor and the trustee, the conditions referred to in section 75j(a)(4)(b) were not fulfilled or that the trust was a revocable trust, the trust shall be regarded as if it had never been a foreign-resident beneficiary trust from the outset and the assessing officer shall assess the trustee's income accordingly; for the purposes of this section, a trust shall not be regarded as a revocable trust solely by reason of the provisions of section 75d(a)(3) or (4); where the trustee had, at the time of the making of the assessment as aforesaid, final assessments for previous years, the assessing officer may, notwithstanding the provisions of any law, assess the trustee's income in those years, within two years from the end of the tax year in which the assessing officer so found.
Testamentary Trust§
75l.
(a)A testamentary trust is a trust in which all of the following conditions are met:
(1)the trust was created pursuant to a will;
(2)all the settlors of the trust are testators who, at the time of their death, were residents of Israel.
(b)In a testamentary trust, the income of the trustee shall be treated as the income of the beneficiary, and the assets of the trustee shall be treated as the assets of the beneficiary.
(c)
(1)If there is in a testamentary trust at least one beneficiary who is a resident of Israel, the trust shall be deemed to be a resident of Israel, and the income of the trustee shall be treated as the income of a resident of Israel and the assets of the trustee shall be treated as assets held by a resident of Israel;
(2)If there is no beneficiary who is a resident of Israel in a testamentary trust, the provisions of subsections (c) and (e) of section 75j shall apply to the trust.
(d)A conveyance to a trustee in a testamentary trust and a distribution to a beneficiary in such a trust shall not be deemed a sale for the purposes of the provisions of Part 5.
(e)The provisions of section 75f and of this section, except for subsections (d) and (g), shall not apply to a testamentary trust in which there is only one beneficiary who is a resident of Israel, if the beneficiary and the trustee requested that the beneficiary be the person assessable and liable to tax; for this purpose, a beneficiary and their spouse shall be treated as one beneficiary, provided that the spouse is a resident of Israel; such a request shall be submitted to the assessing officer as provided in section 75g(h), and the provisions set out in paragraphs (1) to (3) of that section shall apply, with the necessary modifications.
(f)The provisions of section 75g(g) shall apply, with the necessary modifications, also with respect to a testamentary trust.
(g)If there is in a testamentary trust at least one beneficiary who is a new immigrant, a veteran returning resident or a returning resident, as referred to in section 14(a) or (c), and in the tax year there is no other beneficiary in the trust who is a resident of Israel, the provisions of sections 14(a), (c) or (d), 16, or 97(b) or (b3), as the case may be, shall apply to the income of the trustee, in addition to the provisions of section 75f.
(h)If the beneficiary in a testamentary trust ceases to be a resident of Israel, the provisions of section 100a shall apply at that time, with the necessary modifications.
Conveyance by a Body of Persons§
75m.
Where a body of persons conveyed an asset to a trustee, the following provisions shall apply:
(1)the conveyance shall be treated as a sale for the purposes of the provisions of this Ordinance;
(2)the asset conveyed shall be treated as a dividend distributed to the individual shareholders who hold rights in that body of persons, directly or indirectly.
Distribution to Beneficiaries upon Termination of Trust§
75n.
(a)If a residents of Israel trust or a non-residents trust has terminated, and after the distribution of its assets there remain in it losses that have not been offset and which, had they been profits, would have been liable to tax in Israel, the losses shall be treated as losses of the settlor; if there are several settlors in the trust, a proportionate share of the losses shall be treated as the loss of each of the settlors, in accordance with the value of the assets conveyed to the trustee as it was at the time of the conveyance; for the purpose of this subsection, "residents of Israel trust" — excluding a residents of Israel trust all of whose settlors died before the tax year.
(b)If a non-resident beneficiary trust, a testamentary trust, a resident beneficiary trust, or a residents of Israel trust all of whose settlors died before the tax year has terminated, and after the distribution of its assets there remain in it losses that have not been offset and which, had they been profits, would have been liable to tax in Israel, the losses shall be treated as losses of the beneficiary; if there are several beneficiaries in the trust, a proportionate share of the losses shall be treated as the loss of each of the beneficiaries, according to their proportionate share in the distribution of assets and income, as it was during the period of four years ending at the close of the year in which the trust terminated.
(c)Upon the termination of the trust, the losses of the trustee shall be classified according to the source of income in accordance with their classification in the hands of the trustee, and the losses of the trustee carried forward from previous tax years shall be treated as carried-forward losses of the settlor or of the beneficiary, as the case may be.
(d)For the purpose of computing capital gain in the hands of a beneficiary to whom an asset has been distributed, and for the purpose of computing the depreciation in respect of the asset, the original cost of the asset, the balance of its original cost and its acquisition date shall be treated as they were in the hands of the trustee, and the amount of depreciation shall be the amount that the trustee was entitled to deduct in respect of that asset.
Provision Regarding Payment of Tax, Collection, Reporting and Penalties§
75o.
(a)The provisions of any law regarding payment of tax, reporting, collection and penalties shall apply to the trustee in respect of the income of the trustee and in respect of the assets of the trustee, unless expressly stated otherwise in this Chapter.
(b)In a residents of Israel trust, a final tax debt of the trustee may be collected from any one of the settlors, even if the settlor has ceased to be a resident of Israel.
(c)The provisions of subsection (b) shall apply also if the assessing officer has found, with respect to a non-resident beneficiary trust, that notwithstanding the declarations of the settlor and the trustee, the conditions referred to in section 75j(a)(4)(b) were not met.
(d)If the trustee has a final tax debt, it may also be collected from any beneficiary to whom a distribution was made after the commencement of the tax year in respect of which the debt exists, whether or not the trust has terminated, provided that no more shall be collected from the beneficiary than the final tax debt or the amount or value of the assets received in the distribution, whichever is lower.
(e)A trustee in a non-residents trust, a trustee in a non-resident beneficiary trust, and also a trustee in a testamentary trust in which there was no beneficiary who is a resident of Israel, shall not be required to submit a return under section 131 in respect of the income of the trustee that was produced or accrued outside Israel, even if the trustee is a resident of Israel and even if the trustee submitted a return under section 131 in respect of income produced or accrued in Israel.
(f)In this section, "final tax debt" — as defined in section 119a(d), and also a fine imposed under this Ordinance or under the Tax Law (Late Payment Penalty), 5741-1980.
General Provisions§
75p.
(a)If there is more than one trustee in a trust, the trustees shall be jointly and severally liable for the tax applicable to the income of the trustee.
(b)A trust asset holding company shall not be required to submit a return under section 131 or to pay tax in respect of the income of the trustee or in respect of the assets of the trustee held by it on behalf of the trustee.
(c)The fact that a trustee is a resident of Israel shall not impose a tax liability or a liability to submit a return in respect of the income of the trustee, in addition to the liabilities set out in this Chapter, that would not have existed had all the trustees been non-residents of Israel.
Duty to Submit Notice by Settlor§
75p1.
(a)A settlor who is a resident of Israel and who created a trust in the tax year or conveyed an asset or income from an asset to a trustee in the tax year shall be required to submit a notice to the Director within 90 days from the date of creation of the trust or from the date of the conveyance, as the case may be.
(a1)(Repealed)
(b)A notice as referred to in subsection (a) shall be submitted in a form prescribed by the Director, and shall set out —
(1)the particulars of each of the settlors and each of the beneficiaries, the particulars of the trustee and the trust protector if one exists, and the residency of each of them;
(2)the particulars of the assets conveyed to the trustee or of which the income was conveyed to the trustee, including the original cost, the balance of the original cost and the acquisition date as defined in section 88, the acquisition value and the acquisition date as their meaning in Chapter III of the Land Taxation Law and the balance of the acquisition value as defined in section 47 of that Law, as the case may be, as well as particulars of the income from such assets that was conveyed to the trustee;
(3)the date of conveyance of the said assets or income, as the case may be.
(c)
(1)Without derogating from the provisions of subsection (a), a settlor in a non-residents trust that became a residents of Israel trust or a non-resident beneficiary trust because the settlor became a resident of Israel shall be required to submit a notice to the Director by 30 April of the tax year following the tax year in which the settlor became a resident of Israel; however, if the settlor is required to submit a return under section 131 — at the time of submission of the return; such a notice shall be submitted in a form prescribed by the Director and shall set out the particulars referred to in subsection (b); however, with respect to the particulars of the assets and income referred to in subsection (b)(2), the settlor shall set out the particulars of the assets and income that the settlor conveyed to the trustee in the five years preceding the tax year in which the settlor became a resident of Israel;
(2)(deleted)
Duty to Submit Notice by Trustee§
75p2.
(a)A trustee in a trust shall submit a notice to the Director, in a form prescribed by the Director, with respect to the following matters:
(1)the establishment of a testamentary trust — within 90 days from the date of fulfilment of the provisions of the will regarding the establishment of the trust;
(2)a change in the type of an existing trust — by 30 April of the tax year following the tax year in which the type of the trust was changed; however, if the trustee is required to submit a return under section 131(a)(5b) with respect to that trust — at the time of submission of the return;
(3)the termination of a residents of Israel trust, the termination of a testamentary trust that is deemed to be a resident of Israel pursuant to section 75l(c)(1), or the termination of a trust that had assets in Israel at the time of its termination — by 30 April of the tax year following the tax year in which the trust terminated; however, if the trustee or the settlor is required to submit a return under section 131(a)(5b) with respect to that trust — at the time of submission of the return; such a notice shall include the particulars of the assets distributed to the beneficiaries upon the termination of the trust, and with respect to a trust that had assets in Israel at the time of its termination — the particulars of the assets in Israel distributed to the beneficiaries upon the termination of the trust.
(b)The provisions of subsection (a) shall apply to a settlor who chose to be the person assessable and liable to tax, to a representative settlor and to a representative beneficiary, as the case may be, in accordance with the provisions of sections 75f1, 75g(h) or 75l(e), with the necessary modifications.
(c)
(1)A trustee who is a resident of Israel in a trust and who is not required to submit a return under section 131(a)(5b) shall submit a notice to the Director, in a form prescribed by the Director, within 90 days from the date of creation of the trust, setting out the particulars of the controlling shareholders of the trust and the residency of each of them; in this subsection, "controlling shareholder" — as defined in paragraph (3) of the definition of "controlling shareholder" in section 135b;
(2)If a notice as referred to in paragraph (1) was submitted and the controlling shareholders of the trust have changed, the trustee shall submit a notice to the Director, in a form prescribed by the Director, by 30 April of the tax year following the tax year in which the controlling shareholders of the trust changed, setting out the particulars of the controlling shareholders of the trust after the change and their residency;
(3)The Minister of Finance, with the approval of the Finance Committee of the Knesset, may prescribe, with respect to a trustee as referred to in paragraph (1), provisions regarding the identification of a controlling shareholder, and provisions regarding registration, documentation, retention of documents and maintenance of records with respect to the identification particulars referred to above.
75p3.§
(Repealed — תשע״ג־2)
Restriction on Application§
75q.
The provisions of this Chapter shall not apply to any of the following:
(1)a trust fund as defined in section 88, and also a joint investment fund outside Israel;
(2)a provident fund;
(3)a trust created for the purpose of securing the performance of a specific obligation;
(4)an estate administrator, a guardian appointed by a court, a trustee in bankruptcy, an office holder under Chapter III of Part 9 of the Companies Law, a company liquidator, a receiver;
(5)an endowment that is a public institution as defined in section 9(2);
(6)a trustee as defined in section 102.
Authority of the Minister of Finance§
75r.
The Minister of Finance, with the approval of the Finance Committee of the Knesset, may prescribe:
(1)provisions regarding the granting of a credit to the trustee, the settlor, or the beneficiary in respect of taxes paid to a foreign state by a trustee, settlor or beneficiary in the same trust, on income that was taxed both in Israel and outside Israel;
(2)provisions regarding the computation of the taxable income of the trustee or the capital gain on the sale of the assets of the trustee, including with respect to the determination of the original cost and the acquisition date;
(3)provisions for the taxation of the income of the trustee on a proportionate basis in accordance with the proportion of individual beneficiaries who are non-residents of Israel, of individual settlors who are non-residents of Israel or of entitled residents as their meaning in section 75g(e), subject to conditions that it prescribed, and the required adjustments, and for this purpose provisions regarding the imposition of capital gains tax in respect of a conveyance, amendment of assessments and the determination of income also after the times prescribed in this Ordinance;
(4)conditions, restrictions, provisions and adjustments with respect to this Chapter, including with respect to a trust that has ceased to be a residents of Israel trust, a non-residents trust or a non-resident beneficiary trust.
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