Use the Lexology Navigator tool to compare the answers in this article with those from other jurisdictions. 

Private trusts, foundations and charities


Are trusts legally recognised in your jurisdiction? If so, what types are available and most commonly used?

Under Israeli law, trusts are not considered legal entities. However, the trust relationship is recognised under the Trust Law 1979. Additionally, Israeli tax law enables foreign legal structures such as foundations, establishments and trusts established in foreign legal jurisdictions, to be recognised as trusts for taxation in Israel.

The most common types of trust are:

  • trusts created by law – the trusteeship relation in this case is imposed by legislation (eg, in the case of statutory fiduciaries);
  • trusts created for estate planning – there is a growing use of private trusts in estate planning, both under Israel’s Trust Law and the laws of foreign jurisdictions; and
  • public endowments – this type of trust is settled and must be for the benefit of public purposes (eg, education, culture or religion).

As Israeli trusts are not separate legal entities, an underlying company (Israeli or foreign) is used to hold their assets on behalf of trustees. The underlying company will generally be transparent for tax purposes.

What rules and procedures govern the establishment and maintenance of trusts?

Under the Trust Law, there are various forms of trust relationship – namely:

  • trusts created by law;
  • trusts created by agreement (there are no formal rules regarding the form of such an agreement); and
  • trusts created by written deed of the settlor, by a written will or under the Inheritance Law 1965.

How are trusts taxed in your jurisdiction?

For tax purposes, trustees are treated independently in their capacity as trustees. The default rule is that the trustee, in its capacity as a trustee with respect to a particular trust, is the taxpayer and is the party subject to reporting requirements in Israel. The trust’s income or losses may not be offset against the beneficiaries’ or settlor’s income or losses. However, in certain circumstances, an election can be made to allocate the trust’s income to the settlor or a beneficiary so that they take over the reporting obligations.

The Income Tax Ordinance classifies trusts based on the tax residency of the settlors and beneficiaries. Notably, all trusts are subject to Israeli tax on Israeli-source income and gains. The below classifications therefore pertain to a trust’s overall reporting obligations and its tax obligations with respect to non-Israeli-source income. There are five different classification of trusts for tax purposes.

Israeli resident trusts

An ‘Israeli resident trust’ is defined as a trust:

  • that, in the year in which it was formed, had at least one Israel-resident settlor and one Israel-resident beneficiary and, in the current tax year, has at least one Israel-resident beneficiary; or
  • whose settlors are all deceased and which has at least one Israeli beneficiary.

In addition, a trust that does not qualify as another type of trust is defined as an Israeli resident trust.

Israeli resident trusts are subject to tax and reporting on their entire worldwide income.

Foreign resident trusts

A ‘foreign resident trust’ is defined as a trust in which:

  • all of the settlors are foreign (ie, non-Israeli) residents or deceased; and
  • all of the beneficiaries are foreign (ie, non-Israeli) residents or public interest beneficiaries (ie, certain charitable institutions), provided that there have never been any Israeli resident beneficiaries.

Trusts that qualify as foreign resident trusts are exempt from tax and reporting in Israel on all of their non-Israel-sourced income and gains.

Israeli beneficiary and family trusts

An ‘Israeli beneficiary trust’ is a trust in which the settlor is a foreign resident and at least one beneficiary is an Israeli resident. An Israeli beneficiary trust that meets the following conditions is subject to a special tax regime:

  • the settlor must be alive. For this purpose, the settlor is considered alive if the spouse of the deceased settlor is still alive, provided that the couple was married at the time of at least one of the transfers of assets to the trust; and
  • the trust qualifies as a family trust. Generally, a ‘family trust’ is a trust in which the settlor and the beneficiaries are first-degree relatives.

Israeli beneficiary trusts that meet none of the above criteria will be subject to the same rules as Israeli resident trusts. Israeli beneficiary trusts that meet both criteria are subject to a special tax regime, allowing the trust to take an irrevocable decision between being subject to tax on:

  • actual distributions to Israeli beneficiaries at a rate of 30%; or
  • current income attributable to Israeli beneficiaries at a rate of 25%.

Foreign beneficiary trusts

A ‘foreign beneficiary trust’ is a trust settled by an Israeli resident but whereby all beneficiaries are foreign residents who are identified and named individuals. Such trusts must be irrevocable (under the Income Tax Ordinance, the ‘irrevocability’ of a trust is defined very broadly, such that a settlor’s power to influence the trust will threaten its irrevocability). In addition, the trust deed must provide that no Israeli beneficiaries may be added to the trust at any time. Additional reporting conditions, which are material conditions, must also be met in order for the trust to qualify as a foreign beneficiary trust. A foreign beneficiary trust is treated as a foreign resident for tax purposes and therefore subject to tax and reporting obligations only to the extent that it recognises Israeli-sourced income.

Testamentary Trust

A ‘testamentary trust’ is defined as a trust:

  • which was established through a last will and testament; and
  • whose settlors were the testators and were Israeli residents on the day on which they passed away.

In addition, Israeli resident trusts in which all of the settlors have passed away follow the rules of testamentary trusts. Generally, if no Israeli beneficiaries exist, the trust is treated as a foreign beneficiary trust (notably, no tax is imposed on the transfer of assets from a deceased settlor to the trust, as there is no inheritance tax in Israel). If there is at least one Israeli beneficiary, the trust is treated as an Israeli resident trust.

Trusts are generally subject to the tax rates applicable to individuals. However, in contrast to individuals, trusts are not entitled to:

  • progressive tax rates (whenever the income is subject to a marginal tax rate, trusts are subject to the highest marginal rate (47% as of 2018) and additional surtax); and
  • credit points (personal credits) or exemptions that are limited by a cap (ie, exemptions provided to certain rental income or disabled persons).

Foundations and charities

Are foundations and charities legally recognised in your jurisdiction? If so, what forms can they take?


There are number of charities legally recognised under Israeli law, the most common of which are:

  • amutot – legal entities established under the Amutot Law 1980, which cannot distribute profits to their members;
  • non-profit corporations (ie, charitable companies) – these are incorporated under the Companies Law 1999 for one of the public purposes specified in the applicable schedule to the Companies Law (eg, protection of the environment, education, sport, charity or welfare); and
  • public endowments – trusts created under the Trust Law 1979 which have a public purpose.


Under Israeli tax law, foundations established under the laws of the Netherlands, Lichtenstein, Panama, The Bahamas or the Netherlands Antilles, as well as establishments and registered trusts under Lichtenstein's laws are considered 'trusts' for the purposes of Israeli tax law. The legal and tax treatment of these entities is the same as that applicable to trusts.

What rules and procedures govern the establishment and maintenance of foundations and charities?

The rules and procedures governing the establishment and maintenance of charities depend on the type of charity:

In order to establish an amuta:

  • there must be a minimum of two founders; and
  • the founders must be at least 18 years old.

An amuta is prohibited from distributing any profits to its members. In addition, it cannot be registered if any of its objects negate the existence or democratic nature of Israel or if there are reasonable grounds for concluding that the amuta may be used as cover for illegal activities.

The articles of association of non-profit corporations (ie, charitable companies) must prohibit any distribution of dividends to their shareholders. Additional obligations apply to a corporation's officers.

How are foundations and charities taxed?

Foundations are generally treated as trusts for tax purposes and are subject to tax accordingly.

Charites which satisfy the definition of a ‘public institution’ under the Income Tax Ordinance are exempt from income tax on non-business income (including dividends or interest paid by an underlying company which conducts a business activity). For this purpose, a ‘public institution’ is defined as a body of at least seven persons, a majority of whom are not related to each other:

  • which operates for a public purpose; and
  • whose income is used only to achieve this public purpose.

Click here to view the full article.