This year, changes to trust law enacted two years ago came fully into force. Earlier this month, the Israeli government announced tax breaks designed to encourage immigration to the 60-year-old state, which has a current population of about 7 million. For 10 years, an immigrant or returning expatriate will pay no tax on overseas assets and no reporting of these assets is required.

The changes will put Israel in contention to take on other financial centres as a favoured domicile for international and domestic investors, said Alon Kaplan, a senior advocate working in Israel as well as a long-serving member of the Society of Trust and Estate Practitioners, of which he is president of its Israeli branch.  A member of the New York Bar, hi s law firm has representative offices in Paris and New York.

A key change is that if a trust set up by a foreign settlor living abroad, the trust is exempt from tax and treated as an overseas-domiciled trust. This applies even if some of the trustees live in Israel, Mr Kaplan told WealthBriefing. He pointed  out that changes will benefit immigrants even if they are not of Jewish origin. For non-Jews, they can immigrate although they do not have an automatic right of entry, as Jews do.

“I have already had a few enquiries, mainly from legal practitioners,” Mr Kaplan said. “These trust structures are convenient. The laws for such trusts are based on Common law. And these can be set up in a country that is not branded as a tax haven,” he said.

Some forms of company can be held in a foreign-domiciled trust. As a result, a number of foreign firms are likely to want to make use of foreign settlor trusts as a way to minimise their tax burdens, Mr Kaplan said. Such a trust can be managed in Israel without suffering adverse tax consequences.

The changes to tax treatment of trusts came about in 2003 when the-then Israeli government decided to move the country from territorial to global taxation. However, the fine details and practical aspects of trust law have taken time to come into full effect.

“The changes involve a carrot and a stick: the stick is that it puts a tax on trusts but distinguishes between trusts of foreign settlers and Israeli settlers. For example, a family where the mother and the father settlers are in the US and the children have moved to Israel, the trust is set up for the children and the income from the trust is free of tax in Israel. For Israeli settlers of trusts, income is taxable in Israel,” Mr Kaplan said.

The actual tax rates on trust assets is 20 per cent on net income – a term that embraces capital gains for the sake of simplicity, he added.

Until the trust legislation came into full effect, settlers and practitioners preferred appointing foreign trustees because they were concerned that having an Israeli resident trustee could create tax liabilities in Israel. The new law enables trusts to be managed from Israel.

Foreign residents can set up a trust in any foreign jurisdiction, such as England or Gibraltar, Mr Kaplan added.

Geoffey Shindler, a partner of UK law firm Lane Smith and Shindler, and a prime mover behind the founding of STEP, is enthusiastic about the trust and taxation changes in Israel. “The government has totally revamped its tax regime to bring it more into line with systems in other parts of the world.”

“There is always a balance to be struck, of course, between how much business they want to bring into a country and how much tax relief is given,” Mr Shindler told WealthBriefing.