Tax planning: Israeli CFC taxation

Dr. Avi Nov, Adv.

April 2009

‪There are several tax planning strategies that enable eliminating or minimizing exposure to the, Israeli CFC rules. Here are a few examples that avoid the CFC rules and delay payment of tax to the actual date of distribution of dividends.

The CFC rules may not apply if less than 50% of the CFC corporation shareholders are Israeli residents and also where each one of them holds less than 10% of the means of control.

It is possible to utilize a CFC corporation as an active business company. In such a scenario the company’s income will derive from business and will not be treated as passive income and the CFC rules will not apply.

Alternatively, if the CFC’s income is mostly passive income, it may be possible to increase the level of business activity in the CFC and thereby avoiding the CFC rules. See: Business income: avoiding the Israeli CFC tax rules

The CFC corporation may be incorporated in a jurisdiction imposing a tax rate of over 20% and thereby avoiding the CFC rules.

Under certain conditions, the CFC rules may not apply where the rights in the CFC are held by a trust.

Dr. Avi Nov Law Offices, Israeli & international tax law 

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*This article is intended for informative purposes only and is in no way to be construed as tax advice or a legal opinion 
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