September 1, 2015

Under FATCA, (the Foreign Account Tax Compliance Act) that was enacted in 2010, non-U.S. foreign financial institutions (banks, hedge funds, pension funds, insurance companies, etc.) are required to report to the U.S. tax authorities (the IRS) information regarding accounts held by U.S. taxpayers or by foreign entities in which U.S. taxpayers hold substantial ownership interest, i.e., 10%. Failure to do so will result in a U.S. withholding tax of 30% on most U.S.-sourced income payments to the foreign financial institution.

According to the information transfer agreement implementing FATCA, that was signed between Israel and the USA on June 30, 2014, the first deadline for filing FATCA information reports with the IRS by Israeli foreign financial institutions was supposed to be September 30, 2015. The United States government agreed to Israel's request to postpone this date to September 30, 2016.

In order for the transfer of information to take place, the Israeli government has to approve the proper legislation for conducting transfer of financial sensitive and confidential information.  This is still in progress, and is due to be finalized and approved in the upcoming months.

It is important to note that according to the agreement signed between the two countries, the United States is also supposed to transfer information regarding Israeli citizens who possess financial accounts in the United States, although the timeframe for such a transfer is yet to be decided.

The content of this article is intended to provide a general guide to the subject matter and is not a substitute for legal consultation. Specific legal advice should be sought in accordance with the particular circumstances.