Taxation of Trusts in Israel – Types of Trust

A simple guide to four key types of Trust in Israel

Israeli Resident Trust (IRT)

In accordance with the Israeli Income Tax Ordinance a trust is taxable in Israel if it is defined as an Israeli Resident Trust (IRT).

According to the Ordinance an IRT is a revocable or irrevocable trust that at the time it was created, has at least one settlor and one beneficiary who are Israeli residents, and during the tax year at least one settlor or one beneficiary is an Israeli resident. A trust in which all settlors have passed away and at least one beneficiary is an Israeli resident shall also be an IRT. An IRT shall remain as such, even if the settlor ceases to be an Israeli resident.

When a trust is an IRT, the income and assets of the trustee shall be deemed as those of the settlor's for tax purposes. In an IRT in which all settlors have passed away, the trustee's income and assets shall be deemed to be as an Israeli resident individual’s for tax purposes.

With accordance to the Ordinance, the provisions of any law regarding the payment of tax, reporting, collection and penalties, shall apply to the trustee for the trustee's income and assets and the trustee shall be assessable and taxable for the trust's income and actions.

To conclude, an IRT is taxed in Israel for worldwide income and assets of the trust.

Israeli Resident Trust Beneficiary (IRTB)

An Israeli Resident Trust Beneficiary (IRTB) is a trust that, between being settled and the end of the previous tax year, all its settlors were foreign residents and, during the tax year, at least one of the beneficiaries was an Israeli resident. An IRTB that is not a Relatives Trust shall be taxed as an IRT as mentioned above.

A Relatives Trust is an IRTB in which all settlors and Israeli resident beneficiaries are relatives as follows:

  1. The settlor is a parent, grandparent, spouse child or grandchild of the beneficiary or
  2. Brother, sister, descendant or spouse's descendant, and spouse of any of the previously mentioned, and the tax assessor is satisfied that the trust's establishment and the transfers of assets to it were made in good faith and no beneficiary gave any consideration for his rights in the trust's assets

Foreign Resident Trust (FRT)

Under the terms of the Ordinance, a Foreign Resident Trust (FRT) is a trust, revocable or irrevocable, in which all settlors and beneficiaries were not Israeli residents during the tax year and no Israeli resident has been a beneficiary since it was settled.

Foreign Resident Trust Beneficiary (FRTB)

The Ordinance also defines a Foreign Resident Trust Beneficiary (FRTB) as an irrevocable trust in which all beneficiaries are individuals who are not Israeli residents but at least one settlor is an Israeli resident. Another condition is that the trust's documents do not allow the joining of Israeli resident beneficiaries and there is no Israeli resident beneficiary whose entitlement in the trust is conditional on their ceasing to be an Israeli resident.

A FRT and FRTB shall be taxable in Israel only for their income derived in Israel and on assets located in Israel.


Feel free to contact Hadar Simhi for additional information.