By Meir Linzen, Herzog, Fox & Neeman
For practitioners who deal with private clients in Israel, 2016 has been a very significant year – there have been major changes in the legislation and the case law affecting many private clients. This article summarises the main developments on both the tax and the family law side.
Expanding the reporting obligations
The Knesset, Israel’s parliament, has enacted an important amendment to the Ordinance which significantly expands the reporting obligations of Israeli individuals who are beneficiaries of a trust; individuals presumed to be Israeli residents but who argue that they are not; and individuals who transfer money abroad.
In Israel, most individuals are not required to file annual tax returns, because the Israeli tax system is based on a strong withholding system. As a general rule, only self-employed individuals and employees with high salaries are required to file tax returns. The new amendment, which become effective from 2016, provides that the following individuals will also be required to submit annual tax returns:
International exchange of information
Similar to other countries, Israel is preparing for implementation of the automatic exchange of information under the OECD Common Reporting Standard and the FATCA. A few important developments have recently occurred in this respect.
Firstly, Israel has committed to apply the OECD Common Reporting Standard (CRS) from 2018. Under the CRS, it is expected that Israel will obtain financial information, with respect to non-Israeli residents, from its financial institutions and will automatically exchange it with other jurisdictions on an annual basis.
Secondly, the legislation regarding International Agreements for Exchange of Information was passed by the Knesset, by way of two separate amendments. According to these amendments:
These regulations were recently published, and it is expected that Israel will begin transferring information to the US under the FATCA legislation from September 2016.
Voluntary disclosure procedure
The ITA recently published an extension to the Temporary Voluntary Disclosure Procedure in Israel. The expiration date, originally set for 7 September 2015 and subsequently extended to 30 June 2016, has been extended to 31 December 2016.
The ITA has decided to extend the above deadline as a consequence of a new law in Israel which determines that certain tax offences will be considered money laundering offences. The purpose of the extension is to provide taxpayers with more time to settle their tax affairs with the ITA before this new law becomes effective.
As a result of this extension, taxpayers can still submit applications for a voluntary disclosure procedure under one of two routes:
Proposed legislation – reporting obligations for new immigrants
Recently, several suggestions by the Israeli government to amend the Israeli tax legislation have been published. Such proposed legislation is still in process. It is important to note that the tax authorities tried again to cancel the exemption from reporting obligations – this is provided to new immigrants, with respect to their foreign income and assets, in the first 10 years upon their immigration. However, this attempt failed and, at present, it appears that new immigrants will continue to benefit from this exemption.
Succession in Israel is governed by the Succession Law 5725-1965, which determines two ways of bequeathing: by will, or intestate in accordance with the law. There are no forced heirship rules in Israel, and each competent person can bequeath his or her estate in a valid will according to their wishes. The following are legally eligible to be heirs:
Four forms of will are recognised as valid, provided they comply with the requirements of the law: a handwritten will; a will made in the presence of witnesses; a will made before an authority; and an oral will.
The execution of a will is a personal act that must be performed by the testator personally. The testator can amend or revoke his or her will at any time.
The Succession Law also allows spouses to make and revoke mutual wills. Such wills can be made whether or not the beneficiary of the will is the spouse of the testator or a third party. A mutual will is valid if it is made in a single document, or by means of two separate documents executed simultaneously.
Family law and defined inheritance rules
If the deceased died intestate, the deceased’s spouse is entitled to all movable property, including a car that was part of the common household regime. Any additional share in the estate depends on the identity of other heirs. Generally, rights to which a spouse is entitled, according to the property relations between the parties, are not part of the deceased’s estate.
Property relations between spouses
In general, the Spouses Property Relations Law, 5733–1973 (SPRL) applies to spouses who were married on or after 1 January 1974, and generally when their place of residence at the time of their marriage was in Israel. This Law determines that upon the termination of a marriage through divorce or death of a spouse, each spouse has a right to half of the value of the couple’s assets except:
Regarding spouses who married before 1 January 1974, principles of joint ownership of property arising from decisions of the Israeli Supreme Court apply. These principles provide that, if there is proof of a “shared lifestyle” and “joint efforts” between the spouses (including common law spouses and civil partners), a presumption of joint property ownership arises, which encompasses all the spouses’ assets.
Nonetheless, it should be noted that spouses may reach a property agreement (prenuptial or postnuptial), in accordance with the SPRL, which regulates their property relations and which may provide for a different outcome to that outlined above.
It should also be noted that, even if the spouses made a property relation agreement declaring that certain assets are separate, it is necessary to execute a will with respect to the separate assets; otherwise the spouse will inherit a share of those assets in accordance to his or her right under the Succession Law.
Marriage and divorce
In Israel, the religious law governs marriage and divorce. Accordingly, with respect to Jewish couple, the Rabbinical courts are the authorised jurisdiction in cases of marriage and divorce.
In April 2016 the Israeli legislator, the Knesset, enacted a new amendment to the Legal Capacity and Guardianship Law, 5722-1962. This new and important amendment enables people to have more control over their property and life even if they are incapacitated or legally incompetent.
Prior to this amendment, a person could grant a power of attorney (whether specific or general) to another person, but such power of attorney would have been revoked if the grantor becomes incapacitated. This new amendment enables a person to sign an enduring power of attorney, in which he can designate a person of his choosing to act on his behalf even in case where the grantor is legally incompetent. There are certain formal requirements in order for the enduring power of attorney to be effective, including the need to deposit it at the General Custodian office, but provided such requirements are met, the enduring power of attorney will be effective in case the grantor becomes incapacitated. This new amendment will be in force towards the end of 2016.
Another important law that came into force in July 2016 is the Litigation Arrangement in Family Disputes Law (Temporary Provision) 5775-2014. The purpose of the law (and the regulations enacted to facilitate its enforcement) is to assist spouses, as well as parents and their children, in resolving a family dispute by common consent and in an amicable manner, and to reduce litigation taking into consideration the best interests of the children.
This law determines that a person who wishes to file a claim in the matter of a family dispute, will first file a petition for the resolution of the dispute with the judicial entity. Such an application will be dealt with by the Auxiliary Unit under the auspices of the Judicial Entity. During the period in which the matter is dealt with by the Auxiliary Unit none of the parties can file an action in the matter of the family dispute with any judicial entity, and no judicial entity will hear an action in the matter of the family dispute between the parties.