The Bank of Israel joined the global fight against tax evasion and sent recently to Israeli banks a draft practice concerning their clients who are foreign residents. The draft practice, sent by the Supervisor of Banks David Zaken, requires Israeli banks to receive from their foreign clients a singed declaration that they have paid tax on the income, generated in their Israeli bank accounts, in their country of residence. It seems that the new procedure will cause foreign residents to withdraw their money from Israeli banks.
The Practice in the Israeli Banks
The new procedure by the Bank of Israel follows a practice that was developed by the 2 big banks in Israel, Bank Hapoalim and Bank Leumi. Many Jewish foreign residents from Europe were asked by the Israeli banks to sign a declaration that the account and all the money in it had been reported to the relevant tax authorities and that they had paid everything that was due on it.
The banks in Israel developed this practice based on the experience with the Foreign Account Tax Compliance Act, or FATCA, which the United States has enacted to deal with tax evasion. Basically, FATCA requires overseas banks to provide information to the U.S. tax authorities on their American account holders.
The New Procedure
The new procedure requires that every foreign resident who is a new client of an Israeli bank or existing one will have to present information about the source of their capital and declare that the required taxes were legally paid in their country of residence. Furthermore, any client will be required to sign a document to waive their right to bank secrecy with respect to the overseas law authorities.
In addition, every bank in Israel will be required to clarify its procedures for classifying foreign resident customers as high-risk customers. The Bank of Israel will allow the banks not to open an account for such a foreign client who refuse to sign the said documents and provide all the required information and in certain cases to freeze an account.