Form 150 – Report on Holdings in a Foreign Company
Israeli residents must report a holding in a foreign company in the appendix to the annual report. The reporting obligation is covered by section 130 and regulation and within those regulations, form 150 reporting is also a requirement. The form has drastically changed throughout the years, there is expectation it will further change during the 2024 year.
Our office has conducted lectures and training sessions regarding Form 150, including filling of the form practically, difficulties and limitations imposed by the form, the proper exposure to representatives in regards to filing out the form, among other topics.
Details about the lecture regarding filling out Form 150, which was part of a joint lecture initiative with the Council of Tax Advisors and Chamber of Tax Advisors can be found at this link.
Details about the lecture given at the annual conference of the Chamber of Accountants in Eilat can be found at this link. As well, you can see the video at this link.
Information regarding holdings in a foreign resident corporation is reported using a form that serves as an annex to the individuals annual report.
Downloading Forms
- Updated Form 150 starting from 2023 – click here – please notice-there are very few changes in the form!
- Income tax Form 150 for the years 2020-2022 click here.
- Form 150 for 2019 click here.
- Form 150 Tax Authority for the years 2012-2018 click here.
- Form 150 Word- Despite the form being available on the government website, the file itself is not fillable.
What is a Foreign Company?
In order to understand the implications of the information given to the Israeli Tax Authority, one must first understand some important terms and their definitions. A foreign company is called on form 150, “a non-resident human friend” a direct translation from Hebrew. These foreign companies are divided into four groups:
- Foreign Resident Company – registered abroad and has actual activity abroad;
- Foreign Resident Company – registered abroad but its activities are controlled and managed from Israel;
- HNZ – a foreign controlled company with passive income in a tax bracket of less than 20 percent;
- Hamiz – a foreign trade company with income from trade.
Each of the group has different characteristics as well as a different taxation method and different tax rates. Therefore, an accurate and correct classification for a group is of great and crucial importance.
Companies that belong to group 1 are considered foreign companies that are not taxed in Israel. Group 1 shareholders will be charged with income from dividends only in Israel when withdrawing funds from the company.
Companies in groups 2, 3, and 4 may be liable for their tax vase in Israel even though they are foreign companies and are not registered in Israel. The tax liability for their income will be credited to the Israeli shareholders as part of their income and in other cases such a company will be considered an Israeli company for all intents and purposes, its income will be taxed in Israel. In this situation, the company must be registered with the registrar of companies in Israel and submit reports as for any ordinary Israeli company.
Variables that affect Classifications
- Passive income such as interest, dividends, rent, or alternatively income from actual business activity;
- The Israeli holding rate – some of the company’s shareholders are residents of Israel;
- The foreign government’s tax policy;
- The tax rate applied to the foreign company and its income;
These variables and more have a decisive effect on the calculation and payment of tax in Israel.
The information provided in this form can and will be evidence by the assessing officer against future claims against the individual and must be filed with care and diligence.
Exposures Following a Change in Form 150
Form 150 was changed in April 2019 after undergoing a major overhaul in May 2012. The new form as of 2019 includes the need for additional information which creates significant exposure for the company’s owners
Obligations to Specify the Field of Activity of the Foreign Company
Filling out Form 150 for the first time is critical. In some cases, U.S. LLCs and a few other situations, it is possible to choose whether the shareholder sees the company as transparent or opaque.
In the situation where the company is declared transparent, the share of the company’s income becomes the owner’s personal income. Alternatively. Choosing the company as opaque, then there is no reference in the owner’s personal report in the company’s tax return. The shareholder is entitled to a dividend from the company, that could be taxed personally.
The Israeli Tax authority states that it is not possible to change the determination after the initial statement in the event that a shareholder chooses to change designations about the company.
Form 150 Not Submitted
A situation where a person who owns a foreign company has not submitted a Form 150 creates a problematic situation. The prosecuting tax officer will argue that in fact the Form 150 was not submitted to prevent and evade taxes. This situation can have several consequences.
The statue of limitations does not exist in the situation. Criminal sanctions exist for non-submission of the report. There are also fines for late submission, if they see the report was submitted on time as a trivial report, they can reject its submission and impose fines.
At Nimrod Yaron & Co., our firm assist and advises many accounting firms and shareholders holding foreign companies. We ensure proper and timely completion of the tax returns and reductions to possible tax liabilities.
