New Israeli Tax Rules for
Underlying Companies 

Underlying Company|Tax Law|Tax Authority 

Dr. Avi Nov, Adv.  

June, 2013 

The Israeli 2013 Economic Arrangements Bill proposes various changes to the Israeli underlying companies regime (companies which are exempt from Israeli tax on foreign-source income and gains in certain circumstances), including, inter alia, a new requirement to register with the Israeli Tax Authority within 30 days after registering the company. 

Present legislation

An Underlying Company is a company that holds trust assets on behalf of the trustee. According to Israeli tax law, an Underlying Company is disregarded for tax purposes. Accordingly, the assets of an Underlying Company are considered as the trustee’s assets and its income is considered as the trustee’s income. An Underlying Company is not required to submit annual tax returns. An Underlying Company does not need to open a tax file with the Israel Tax Authority. 

Proposed legislation

The draft law suggests for the first time a definition of an Underlying Company. According to the draft law, for a company to be regarded as an Underlying Company, the following conditions must be met: 

(i) The Underlying Company  is a new company, which has been established for the sole purpose of holding trust assets; 

(ii) The trust has notified the Israel Tax Authority of the status of the Underlying Company as such within 30 days of its incorporation date; 

(iii) The Underlying Company is registered in the trustee's name only, and the trustee holds 100% of the company directly or indirectly;

(iv) The Underlying Company will not be considered as an Israeli company for the purpose of Israel's tax treaties.


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