FATCA in Israel: Banks Demand Declarations

by Bruce Givner on February 19, 2015

In a move that was not well-publicized but widely expected, Israeli banks are now asking their new business customers to complete forms declaring whether they are incorporated in the US or whether any of their company shareholders or related entities are US citizens or residents in compliance with the American regulations.

The detailed forms are related to the US Foreign Account Tax Compliance Act (FATCA), which requires foreign financial institutions to report US-owned accounts to the Internal Revenue Service (IRS) or face up to a 30% withholding tax. Provided by the IRS, these forms are broader than those currently required of private customers, but are still less stringent than some European requirements which also seek declarations on the source of individual or corporate funds. Starting in February 2016, the forms will be required of standing business customers, as well.

Form W-8BEN-E, Certificate of Status of Beneficial Owner for United States Tax Withholding and Reporting (Entities), was released in its final form by the IRS in March 2014 and is used to report the status of a wide variety of entities under FATCA. The form is meant to address concerns that Americans will set up accounts under a company name in order to avoid US taxes. Without the form, companies can no longer open an Israeli bank account. Furthermore, companies must declare whether, above specified balance limits, their shareholders, nonfinancial entities, or nonparticipating financial institutions include any Americans in order to determine whether the accounts must be reported to the US.

In early January, a delegation from the IRS arrived in Israel to prepare mechanisms for a mutual exchange of information agreement. However, the exchange cannot be implemented until the necessary legislative amendments are passed into Israeli law, a move expected to occur sometime after national elections scheduled for March 17.

On the American side, US banks have already begun asking their Israeli account-holders to declare that they have disclosed their holdings to the Israel Tax Authority.

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