The recent reports that Benjamin Netanyahu held an offshore bank account in the tax haven of Jersey led to public discussions in Israel. Many Israelis are concerned if it is this going to become harder now to hold an offshore bank account.
See also: Tax Havens, an interview on TLV1 Radio, The Cost of Doing Business, January 20, 2014.
The Israel Tax Authority finds it very difficult to tax passive portfolio income in offshore bank accounts. In general, the Israel Tax Authority does not get information from banks around the world.
The Israel Tax Authority gets most of its information from the taxpayers that file tax returns. Consequently, if one does not report his income from foreign bank accounts, it will be very difficult for the Israel Tax Authority to get this information.
Israeli Tax Shelter Rules
To assist the Israel Tax Authority in its dealing with tax planning and hiding of money in offshore bank accounts, special rules were created. These rules are called the Tax Shelter Rules. If you completed any reportable tax planning act, you must report it on a special form that is added to your annual tax return. For example, the acquisition or holding by an Israeli resident of 25 percent of an entity resident in a country that has no tax treaty with Israel if any income is taxed there at a rate below 20 percent, or the receipt of NIS 1 million in the year from such an entity.
See also: Israeli Tax Reporting Rules
Voluntary disclosure of offshore income
The Israel Tax Authority devotes efforts to uncover unreported money held abroad by Israelis. This is done in various ways including seeking information via Israel tax treaties. The Israel Tax Authority issued a voluntary disclosure procedure. According to the Israel Tax Authority circular on the voluntary disclosure procedure, No use will be made in the criminal and civil arena with the information included in the application.
Tax breaks to new immigrants and returning residents
If you are a new immigrants or a senior returning resident, you do not need to worry about your foreign bank account or your tax haven company, due to Israel's extraordinary tax breaks. The tax breaks include a ten-year exemption on income taxes and the filing of returns on income from foreign assets. The exemption applies to all sources of foreign income, including dividends, capital gains, interest payments, rental income, business revenue, and professional fees. This special legislation effectively turned Israel into one of the world's best tax shelters.