The Tax Authority has published an updated Form 150 (declaration of holding a foreign resident entity directly or indirectly) for the 2023 and 2024 fiscal years. The form includes several changes compared to the previous Form 150 from the 2020-2022 fiscal years. It’s important to understand the new changes in order to fill out the form correctly.
In a lecture given by CPA Nimrod Yaron at the Institute of Certified Public Accountants Conference in Eilat in June 2024, Nimrod explained the form’s objective being, to provide the Israeli Tax Authority with comprehensive and accurate information on international taxation. Furthermore, how the form acts as an “annual declaration of assets” for holdings of foreign entities. To view a recording of the lecture click here, and to download the presentation click here.
The meaning is that, in fact, the representatives are required to conduct an “audit” and review the bookkeeping in the foreign country. As well as be well-versed in the tax laws of the company’s country of formation.
Changes to Form 150 for the 2023 and 2024 Fiscal Year
The difference between the updated Form 150 for the 2023 and 2024 fiscal year and the previous form from the 2020-2022 fiscal years, is the significant addition in information that the taxpayer (and their representatives) is required to report. This expansion has been added through 17 new questions. Below, the 17 questions are presented with our firm’s interpretation on them.
A. Information About the Structure
- Number of corporations held by the foreign entity; (Detail- directly and indirectly)
- Were there changes to the structure in the fiscal year? This refers to structural changes (corporate inversion, merger, split, restructure, etc).
- Is the foreign-held entity considered a ‘Closely Held Corporation’? This refers to a closely held corporation as defined by Israeli law and not the law of the country of incorporation. The goal is to enable the Israeli Tax Authority to examine the conditions of applying rules to a Professional foreign company. And possibly enforce compulsory profit distribution under Section 77 of The Ordinance, if indeed a committee for application of the section is established.
- Is there a business company within the cluster of companies? This is to examine the condition of passive income, in cases where there is a chain of companies, some of which are business companies.
B. Information Regarding Passive Income and Profits
- The ratio of passive income to total income
- The ratio of passive profits to total profits (if known). The intention is to allow the Israeli Tax Authority to examine how close the ratio of passive profits is to the 50% threshold of a ‘Controlled Foreign Company’ (CFC).
C. Income and Profits from a Special Profession
- The ratio of income from a special profession (if known).
- The ratio of profits from a special profession (if known).
- Is the source of most of the profits a special profession? The intention is to allow the Israeli Tax Authority to examine how close the ratio of passive profits is to the 50% threshold of a Professional foreign company.
D. Information Regarding Reporting to Foreign Tax Authorities
- Does the entity file a report on its income in the Reciprocating State? Most likely, because only in the reciprocating states can the Tax Authority receive additional information within the framework of information exchange procedures.
- Are there exempt incomes or those not in the tax base? This refers to exemptions in the domestic law of the incorporation country. The addition of “incomes not in the tax base” aims to avoid non-reporting of incomes that are not exempt (since there is no charge provision in the domestic law, there is also no exemption provision). For example, incomes generated outside a country that imposes territorial taxation.
- Does the entity file a consolidated report? In our firm’s view, the appropriate interpretation is a consolidated report in the incorporation country, from an accounting perspective, and not a consolidated report according to section 23 of the Encouragement of Industry (Taxes) Law, 1969. The goal is to understand if it’s necessary to file forms 1585 and 1685.
- Are there amounts deducted in the country that are not recognized in Israel as deductions or expenses? The intention is to examine if there is income that is not deductible in Israel, that is attributed to the entity being looked through, therefore reducing the tax charge in Israel.
- Has the entity’s classification changed from ‘transparent’ to ‘non-transparent’ in the past? This refers to a change made in the country of residence, for tax purposes and not from a commercial perspective. For example, an American LLC can be transparent or non-transparent and can change its classification every 60 months.
Explanation of New Terms in the Updated Form 150
As mentioned above, the updated Form 150 includes new terms that were not included in the previous version for the fiscal years 2020-2022. Those terms aren’t explained in the explanatory notes of the form. Below is a list of the terms and a brief explanation of their meanings.
- Reciprocating State – As defined in Section 196 of the Income Tax Ordinance, it is a country with whom there is an order to eliminate double taxation concerning income tax and any other similar tax imposed in that country (double taxation treaty).
- Closely Held Corporation – Defined in section 76(a) of the Income Tax Ordinance as a company controlled by no more than five individuals, which is not a subsidiary and in which the public does not have a substantial interest.
- Business Company – Defined in Section 75Ba(7) of the Income Tax Ordinance as a foreign resident entity that most of its income and profits are not passive income.
- Cluster of Companies – There is no definition in the Income Tax Ordinance or the general law. The intention is probably synonymous with the term “group of companies.”
Additional Notes
- Currently there is no official English version of this form. This situation causes problems for taxpayers who don’t speak Hebrew. Therefore, due to the increased responsibility that the information on Form 150 places on the representatives, we recommend that the taxpayer sign the form themselves after receiving all explanations. A translated English version of the previous form can be found here. We will soon publish an updated English form including all new additions.
- In addition to the changes in the new form, the Israeli Tax Authority plans to soon allow online submission of this form.
- The information used to fill out this form is also used in additional forms, such as Form 1585 and 1685, which will likely be filled out automatically when the form becomes available online on the Tax Authority’s website.
- The information provided in this form may be used by the Tax Authority for information exchange with treaty countries and within the framework of the MLI.
Our firm specializes in Israeli and international taxation and assists lawyers and accountants with all the relevant international taxation inquiries for them as well as their clients. To contact a representative from our firm, click here.
