After two years in which no interpretive tax positions were published, Israel’s Tax Authority has resumed issuing its annual “reportable positions” for 2025. The renewed activity is more than administrative housekeeping. It signals a clear policy direction: tax exemptions will be interpreted narrowly, particularly in areas perceived as vulnerable to erosion of the tax base.
This approach is clearly expressed in the authority’s position regarding trust taxation following immigration to Israel, a position that, in some cases, turns immigration itself into a tax disadvantage.
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Israel’s Tax Authority
(Photo: Yuval Chen)
A restrictive turn in trust taxation
Under Israeli law, when a foreign trust becomes an Israeli Residents Trust as a result of the settlor’s immigration, the trust may, in principle, enjoy the same tax benefits granted to new immigrants. These benefits are intended to encourage relocation by exempting foreign-source income for a defined period.
Complications arise in the case of so-called “Relatives Trust”, which includes at least one Israeli-resident beneficiary. Such a trust is often partially taxable in Israel even before the settlor immigrates, reflecting the Israeli nexus created by the local beneficiary.
In connection with the taxation of an Israeli Residents Trust and to simplify taxation, the law provides an election that allows all trust income to be attributed directly to the settlor and reported as if it were the settlor’s own income. Conceptually, this mechanism reflects the idea that an Israeli Residents Trust is, in substance, an extension of the settlor’s tax profile (i.e, the trust’s income and assets are deemed to be those of the settlor) .
Until recently, one could argue that this attribution mechanism would allow immigrant tax benefits to apply at the settlor level, even if the trust includes an Israeli beneficiary. The Tax Authority’s new position firmly rejects that assumption.
The authority’s position: No upgrade through immigration
According to the published position, where a Relatives Trust includes an Israeli beneficiary who is not an immigrant, the trust cannot benefit from immigrant tax
exemptions following the settlor’s immigration, even if it were possible to elect that all of the trust’s income be attributed to the settlor.
The rationale offered is straightforward. Income that was taxable in Israel before immigration should not become exempt merely because the settlor has moved to Israel. Allowing such an outcome, the authority argues, would undermine Israel’s taxing rights.
On its face, the argument appears reasonable. In practice, however, the consequences are far more sweeping.
When moving to Israel makes things worse
Consider a common structure: a Relatives Trust with one Israeli beneficiary and several foreign beneficiaries. Prior to immigration, only the Israeli beneficiary’s “share” of the trust’s income is subject to Israeli tax. The remainder, attributable to foreign beneficiaries, remains outside the Israeli tax net.
Following the settlor’s immigration, however, the inability to apply the attribution mechanism can result in the entire trust’s income becoming taxable in Israel, including income economically attributable to foreign beneficiaries with no Israeli connection.
In effect, immigration transforms a partially taxable structure into a fully taxable one.
From a policy perspective, this outcome is difficult to justify. Rather than at least preserving the pre-existing tax position, the new interpretation penalizes relocation. For internationally mobile families and individuals with established cross-border structures, the message is clear: moving to Israel may increase, rather than reduce, overall tax exposure.
The authority also relies on a procedural argument. The attribution election, it notes, must be made in the tax year in which the trust is created. Where a trust was established while the settlor was still a foreign resident, no Israeli tax return was required at that time, making such an election practically impossible or irrelevant.
Insisting on strict compliance with this requirement elevates form over substance. In other areas of Israeli tax law, flexibility has been shown where rigid deadlines produce unfair or economically distortive results. Extending similar flexibility here would not have compromised the tax base, particularly given that the law already contains safeguards preserving Israel’s right to tax income accrued before immigration.
Instead, the position reflects a broader trend: a preference for restrictive interpretation and procedural rigidity where exemptions are concerned.
What this means for immigration and capital
Beyond its technical implications, the position sends a wider signal about Israel’s current approach to taxing international wealth: increasing state’s revenue, even at the cost of neutrality and legal certainty.
Eyal Sandophoto: Courtesy
For high-net-worth individuals, family offices, and advisers considering Israel as a relocation destination, such signals matter. Tax incentives are assessed not only by their statutory wording, but by how they are applied in practice. A regime in which immigration can worsen one’s tax position risks undermining the very objectives those incentives were designed to achieve.
In many cases, careful planning before or after immigration can mitigate or even eliminate the effects of this interpretation. Yet reliance on planning alone is a second-best solution. A more balanced approach, allowing income attribution to the settlor (as if there was no trust exists), would better align with both the letter and spirit of the law.
As Israel continues to compete for global talent and capital, clarity, consistency, and economic neutrality in trust taxation may prove just as important as the incentives themselves.
The author is a CPA specializing in international tax.