The Israel Tax Authorities published on May 22nd 2017 its’ Circular 3/2017 (“Circular”) containing implementation instructions regarding Israel’s Foreign Account Tax Compliance Agreement with the United States, after earlier this month also signing up on OECD’s multilateral Common Reporting Standard on May 12.

The FATCA Agreement signed by Israel with the US in 2014, ratified by Israel in 2016, obligates the Israeli government to instruct local financial institutions to report and transfer information regarding certain customer accounts held directly or indirectly by US citizens with qualifying Israeli Financial Institutions to the local income tax authorities (“ITA”).  ITA is to transfer this information to the competent authorities in the US, while Israeli banks and other relevant Israeli organizations required to identify US tax payers-account holders pursuant to Israel’s Agreement with the US regarding the US Foreign Account Tax Compliance Act.

The Circular was published only following various amendments of Israel’s Income Tax Ordinance, which introduced a number of legislative changes required not only by Israel’s FACTA agreement, but also under Israel’s commitment to implementation of the OECD Common Reporting Standard (“CRS”) by the end of 2018. Domestic tax law originally did not allow for the release of information regarding tax payers by the tax authorities nor for exchange of information in a multilateral (non-bilateral) context.  Hence on May 12, just now, the director of the Israel tax authorities went and signed on the multilateral CRS agreement.

The Circular reminds which are the financial institutions ("FFI") in Israel held to perform the relevant due diligence process.  and who are considered as individuals and entities that own financial accounts in Israel subject to the FATCA reporting obligations.

The two appendixes, which the Circular contains provide the guidelines with regards to the due diligence process which qualifying financial institutions in Israel must adhere to and the process of identification of account holders as ‘US citizens/residents’.  The second appendix sums up the FFI’s and financial accounts actually exempt from reporting. At the same occasion, ITA has published various administrative forms relevant for FATCA implementation.

If the due diligence procedure indicates that the holder to the account is – no matter whether directly or indirectly - considered an American citizen or resident for tax purposes (referred to as "American accounts") then the financial institution is obligated to notify of the account details and any refusenik holders of such accounts.

Many US holders of accounts in Israel may be praying that the day the recently proposed US switch of its taxation system to a territorial approach come sooner rather than later.