Trusts & Israel real estate – a new tax haven?

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Put your trust in property, put your property in trust.

Nice. But does this apply to real estate in Israel?

The short answer is yes.

Essentially, a trust is a legal relationship whereby one party (the trustee) “holds” property for the benefit of another (this can be for a third party or the original owner of the property- the beneficiary) . The trustee has legal title to the property but owes a duty to respect the wishes of the original owner.

The connection between trusts and tax planning is legend. It places a sufficient legal distance between the the original owner of the property and the actual property to enable many tax avoidance (not tax evasion) opportunities.

Since the passing of the Israel income tax reform it is possible to establish a foreign-resident trust created by foreigners which can hold real estate in the hands of an underlying company which is owned by the trust itself.

The significance of this is profound. The real estate is not registered in the Israel Land Registry in the name of a foreign resident but in the name of an Israeli registered company, which is itself controlled by the trustees. The property is considered as if held by the trustee, although for registration purposes it is the company that is the owner of the property and it is the company name that appears on the title deed of the real estate.

The ability to park money into real estate in Israel in a way that provides discretion and privacy usually associated with Swiss banks is clear.

It is revealing that the first holes that appeared in Swiss banking privacy coincided with Israel’s recent real estate pricing spike. To be sure the, the signifiant increase in real estate prices in Israel can partly be attributed to the flight of capital from formerly discreet Swiss banks. As a result of the assault of US authorities on Swiss banking secrecy laws, (mainly) Jewish clients of Swiss banks found a perfect tax haven in Israel utilizing vehicles such as trusts. At bottom line, it became safer and less risky channeling funds into apartments in Tel Aviv, Jerusalem and Raanana then in keeping it in Swiss accounts.

This unique combination between available legal structures and ready overseas  capital provides just another reason why the Israel property market will not cool-off anytime soon.

The material in this article is for information purposes only. It should not be construed as providing legal advice and should not be relied upon as legal advice.