The Israeli Tax Authority published recently a draft bill regarding the implementation of the Foreign Account Tax Compliance Act (FATCA). This new bill follows negotiation between Israel and the United States on an agreement regarding the implementation of the FATCA.
The new agreement between Israel and the United would provide that financial institutions operating in Israel will be required to identify Bank Account holders and to verify whether they are "US persons". If they are US persons, the Israeli financial institution will be required to report the details of the accounts to the Israeli Tax Authority, which will transfer the information to the IRS.
The New Bill
The Israel Tax Authority distributed recently a draft bill concerning the application in Israel of the FATCA. The draft bill authorizes the Minister of Finance, with the approval of the Finance Committee, to circulate regulations that will require the financial institutions to identify the account holders and the way the information on the accounts should be transferred to the Israeli Tax Authority.
Once the new bill is enacted by the Knesset, regulations will be published by the Minister of Finance, with the approval of the Finance Committee, outlining the procedure for transferring the information to the Israel Tax Authority.
The Obligations of Financial Institution
The new bill defines the term "financial institution" in a very extensive way and it will apply to mostly to banks, but also to various insurance companies, brokerage firms and portfolio managers.
According to Annex 1 of the agreement between Israel and US, each financial institution in Israel would be obliged to inquire about the identity of the holder of the accounts deposited with it, and to determine whether the holder is a US person as defined in the agreement.
In the case the holder is a US person, the financial institution will be required to notify the Israel Tax Authority of the existence of the account for forwarding to the IRS. As to new bank accounts, it is expected that the obligation to identify the holders of the account will apply as of 1 July 2014.
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