Unlike its neighbors, Israel has few natural resources, but its hi-tech industry has shown brainpower is enough. Now Israel is endeavoring to develop its financial-services sector. On January 1, 2006, a new trust tax regime became effective in Israel. Among other things, it includes special provisions allowing the creation of a Trust Owned Vehicle (TOV, which also means good in Hebrew). Trust Owned Vehicle A TOV is a trust formed in Israel or elsewhere that owns an Israeli "underlying company," which in turn does business and/or holds investments around the world. It may be depicted as follows: Trust-->Israeli company-->Business/investments outside Israel. A TOV may enjoy exemption from Israeli tax and reporting obligations on non-Israeli source income and gains if the TOV is established by or for the benefit of non-Israeli residents. Israeli source income is taxed at rates ranging from 20 percent to 46%; but exemptions apply to foreign-currency bank deposits, publicly traded bond interest and capital gains on Israeli securities. The underlying company may be incorporated in Israel or elsewhere. It is any company that holds assets for the Trustee of a Trust. An underlying company is Israeli resident for Israeli tax purposes if it is incorporated in Israel. Israel has a Trust Law, 1979, and recognizes trusts. The trustee may be Israeli resident without affecting the Israeli tax exemptions available to the TOV. Professional advisors in each country should review their pros and cons. Who does a TOV benefit? If the settlor of the trust is a non-Israeli resident, anyone may benefit from the trust, regardless of where they reside, if certain conditions are met. If the settlor of the trust is an Israeli resident, only non-Israeli residents may benefit from the trust, and certain conditions must be met. For an example, Mr. Jones is a non-Israeli resident. He settles a TOV containing an Israeli trust with non-Israeli resident beneficiaries and an Israeli underlying company. The Israeli underlying company invests in a US widget corporation. The investment costs $5 million and is later sold for $20m. Potential advantages of this structure include: no capital gains tax in the US or Israel; no exposure to estate tax in the US or Israel; no tax reporting in Israel; access to Israel's tax treaties; asset protection; orderly framework for personal finances; and wealth can be transferred to the next generation when ready. As always, consult experienced tax advisers in each country at an early stage in specific cases. firstname.lastname@example.org Leon Harris is an international tax specialist.