As nearly everyone knows, it is no easy matter getting money into Israel. Olim are especially exposed to this issue.
The problem is not moving the money, it is being allowed by your Israeli bank to use it. The banks have become the anti-money laundering goal-keepers of Israel. They have been instructed by the Israeli government and international bodies (FATF, OECD) to keep out hot money – not only terror finance or crime proceeds, but also money that may have been under-taxed somewhere in the world.
The bank tend to pass this hot potato to accountants or lawyers.
Consequently, banks typically demand that their customers ask their accountants to confirm that monies from abroad have been lawfully reported and taxed in each country. Sometimes banks want the accountants’ confirmation on a form, sometimes in a letter. Until then, the money is frozen in a suspense account, does not appear on your bank statement and cannot be touched. And if you don’t hurry, the money may be bounced back abroad.
The bank clerks typically refuse to write down what a confirmation letter should say, they give it verbally to their client and hope their accountant gets it right.
Which problems arise?
- Misunderstandings by the customer or their accountant about what the bank clerk meant.
- Misunderstanding by the bank clerk about what the bank’s compliance department meant.
- The compliance department think of more things and ask for more revised confirmation letters.
- How does an Israeli accountant know what happened, especially abroad?
- Why does it matter what happened abroad if Olim are in their 10 year Israeli tax holiday for foreign income?
- How do you prove that money inherited from or gifted by parents etc. was taxed abroad?
- Holocaust reparations – the German and other governments may have issued a single letter that has long been lost, and do not always cooperate with requests for confirmation.
- Complaining to the branch manager rarely helkps, instructions come from the bank’s compliance department which you are not allowed to contact.
- Accountants are flooded with confirmation requests, which delays filing other tax returns.
CPA Institute Guidance:
The Israeli Institute of Certified Public Accountants (CPAs) has declared that some bank forms wrongly request confirmation of things that cannot be verified e.g. did deceased family members pay their full taxes? Or the banks may ask you to confirm a future act – e.g. have you yet reported bank interest credited only last week to the Israeli tax authority?
The CPA Institute has instructed its members to only confirm things that can be verified. Verification depends on the circumstances, but may include comparing one document to another document. For example, does investment income on a foreign bank statement appear on a tax return filed?
What can you do?
- Ask the bank clerk for a form where possible – preferably in English. If it is verbal, have the bank clerk dictate it word for word and write it all down.
- Don’t commit to paying for any property or any other transaction using foreign money by any fixed date. The banks don’t care about deadlines, only keeping out hot money.
- Instruct your accountants to report all taxable income to the Israeli tax authority, so they can confirm that they have been so instructed.
- As for foreign tax reporting, ask the relevant foreign accountant(s) to confirm to your Israeli accountant that your tax reporting abroad is up to date.
- Have the foreign accountants confirm how much income was reported year by year to the tax authority in their country – at least you can remit the total of such amounts.
- If the money was reported in a voluntary disclosure procedure (“amnestized”), produce that documentation e,g. the US, UK, South Africa and many other countries.
- If the money was remitted from South Africa or India with exchange control permission, produce that documentation.
- If capital was taxed in a country with an inheritance tax or wealth tax regime, produce the relevant tax returns e.g. the US or South Africa (estate tax), the UK (inheritance tax), and many European countries.
- If you paid a departure tax on your assets when making Aliya, produce those returns e.g. Canada or the Netherlands.
- Keep probate documents of deceased family members.
- Keep life insurance payout documentation. Insurance companies are heavily regulated.
- Swiss and offshore banks – ask for a good standing confirmation regarding the payor.
- Business transactions – keep copy invoices etc.
- Never throw out documentation – sometimes it is necessary to go back decades!
The present remittance rules are harshly applied. Perhaps the banks should take collateral instead of blocking cash?
If you plan to bring money into Israel, find out what your Israeli bank will need and prepare the paperwork. If in doubt, please contact us….