Israel Holding Companies have great world-wide tax advantages

November 2008 New Israeli Offshore Company – TOV (Trust Owned Vehicle)

1. Introduction
On January 1, 2006, a new trust tax regime became effective in Israel. Among other things, it includes special provisions allowing the creation of a Trust Owned Vehicle (TOV, which also means good in Hebrew). A TOV is a trust that owns an "underlying company", which in turn does business and/or holds investments around the world.

A TOV may enjoy a complete exemption from Israeli tax and reporting obligations on non-Israeli source income and gains if the TOV is established by or for the benefit of non-Israeli residents. Israeli source income may also be exempt in Israel if it consists of interest on foreign currency deposits at an Israeli bank (PATACH) and certain capital gains . .

The Underlying Company may be incorporated in Israel or elsewhere. It is any company that holds assets for the Trustee of a Trust. An Underlying Company is Israeli resident for Israeli tax purposes if it is incorporated in Israel. There are no Israeli exchange control restrictions as Israel abolished exchange control in 1998. Israel has a Trust Law, 1979 and recognizes trusts, The trustee may be Israeli resident without affecting the Israeli tax exemptions available to the TOV. Professional advisors in each country should review their pros and cons.

2. Who Does a Trust Owned Vehicle (TOV) benefit?
A Trust Owned Vehicle (TOV) may be beneficial to almost anyone, wherever they reside.

Non-Israeli residents may benefit as follows:
• No tax in Israel on non-Israeli source income and no need to report it
• No tax on certain Israeli source income as well
• Israeli resident underlying company – potential access to Israel's tax treaties with over 40 countries
• Not on most or all blacklists
• No Israeli exchange control
• Anti-money laundering rules usually not intrusive.
• Confidentiality
• Asset protection
• Orderly framework for personal finances
• Facilitates gradual transfer of wealth to the next generation in Israel or abroad.

Israeli resident family members and others may benefit as follows:
• No tax in Israel on non-Israeli source income if certain conditions are met
• No estate tax or inheritance tax on investments in many countries such as the USA, UK, etc
• Confidentiality
• Asset protection
• Orderly framework for personal finances
• Facilitates gradual transfer of wealth to the next generation

3. Case Study
Mr Investor settles a TOV containing a Jersey trust with discretionary beneficiaries and an Israeli underlying company. The Israeli underlying company invests in a US widget corporation. The investment costs $5 million and is sold for $20 million.

Potential advantages of this structure include:
• No capital gains tax in the US or Israel
• No exposure to estate tax in the US or Israel
• No tax reporting in the US or Israel
• Access to Israel’s tax treaties
• Asset protection
• Orderly framework for personal finances
• Wealth can be transferred to the next generation when ready

4. Further Information
For further information about forming and administering a TOV please contact us at daniel@dnerasmus.com * * * * *