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The new Bill approved by the Parliament in July 2013 has dramatically changed the taxing and reporting obligations on trusts and foundations.

The Israeli Beneficiary Trust is also subject to the law. This trust is defined as follows:

1.     Since the date of the settlement of the trust and during the tax year, all the trust settlors are foreign residents and ;

2.     The trust has at least one Israeli resident beneficiary in the tax year.

 An Additional definition, "the Relative Trusts" (also called "Family Trusts") was also included in the new Law and relates to this new type of trust.

In general, there will be two alternative tax regimes for the "Relative Trust":

1.     The election of yearly tax reporting at a tax rate of 25% (notices to the ITA have to be filed within 60 days since trust creation date, or - for trusts established before August 1st, 2013 - by January 28th, 2014)

2.     The payment of 30% tax on distributions made to Israeli Beneficiaries. If the distributed asset derives from the funds (principal) and not from the income generated by the trust, they may be exempt from tax subject to Trustee proving so to the ITA.

 The abovementioned changes will also affect the beneficiaries reporting obligations.

For example, whereas an Israeli beneficiary who received cash distributions was not previously required to report it, he is now requested to file an income tax return, whether the distributions was in cash or in kind.