In September 2017 the Israeli Tax Authority published a press release according to which the process of transferring funds from Israel to foreign recipients for investment purposes will be easier and quicker. Until recently, any Israeli resident wishing to transfer funds abroad for investment purposes had to obtain confirmation from the Israeli Tax Authority (ITA) that the transfer is not subject to Israeli withholding tax. In the absence of such a confirmation, the payment was subject to withholding tax. The process of transferring funds caused difficulties and delays because the bank would not transfer the funds unless the Israeli resident provided a confirmation about the exemption of withholding tax. This rather cumbersome process originates in § § 164 and 170 of the Israeli Income Tax Ordinance according to which any payments are subject to Israeli withholding tax in order to assure that the recipient of the payment fulfills his Israeli tax duty. However, in most cases the Israeli resident just wishes to purchase assets abroad. In these cases the issue of Israeli tax obligation of the recipient is completely irrelevant.
On September 26, 2017 the Israeli Tax Authority published a press release which will ease the process of transferring funds to a foreign resident or foreign bank. The banks will in the future allow the transfer of funds from Israel to foreign banks without withholding tax based solely on a declaration signed by the transferor.
This automatic exemption from withholding tax will be granted if the following conditions are met:
- The funds are being transferred to a resident of a country that has signed an income tax treaty with Israel;
- The funds are being transferred to a bank account in a country that has signed an income tax treaty with Israel (the bank account and the residence of the foreign person do not have to be in the same country);
- The funds are transferred for one of the following :
- Investment in stocks;
- Investment in non-Israeli real estate;
- Investment in other non-Israeli tangible assets;
- For a loan to a non-Israeli resident;
- For a loan by an owner to a corporation.
- Completion of the form 2513/2 (“Declaration regarding payment to a foreign resident and exemption from withholding tax”) with signature;
It should be noted that the transferor must keep proper documentation of the payment and if asked provide this documentation. With the signature the transferor acknowledges that if the conditions of the automatic exemptions are not met, the Israeli Tax Authority is allowed to determine the withholding tax.
This new automatic exemption process will facilitate the investment in foreign corporations or foreign real estate by Israeli residents and will contribute to an easier and faster international business environment. In conclusion, hopefully in the near future there will be an easement and improvement in the process of receiving funds into Israel from foreign sources.