Why is getting money into Israel so difficult? - opinion

The problem is not moving the money, it is being allowed by your Israeli bank to use it.

Calculating taxes (photo credit: INGIMAGE)
Calculating taxes
(photo credit: INGIMAGE)
As nearly everyone knows, it is no easy matter getting money into Israel. Immigrants 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 gate-keepers of Israel. They have been instructed by the government and international bodies (FATF, OECD) to keep out hot money – not only proceeds from terrorism or crime, but also money that might have been under-taxed somewhere in the world.
The banks tend to pass this hot potato to accountants or lawyers.
Consequently, banks typically demand their customers to 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 might 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.
What problems and questions arise?
– Misunderstandings by customers or their accountants about what the bank clerks meant.
– Misunderstanding by bank clerks about what their banks’ compliance departments meant.
– Compliance departments think of more things and ask for additional revised confirmation letters.
– How does an Israeli accountant know what happened, especially abroad?
– Why does it matter what happened abroad if immigrants are in their 10-year Israeli tax holiday for foreign income?
– How do you prove that money inherited from or gifted by parents was taxed abroad?
– For recipients of Holocaust reparations, the German or other governments’ single letter issued long ago might have easily been lost, and if not, might differ in their contents from the information the bank requested as confirmation.
– Complaints to a branch manager rarely helps since 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, such as, have you yet reported bank interest credited only last week to the Israel 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 that has been filed?
What can you do?
Ask the bank clerk for a form wherever 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 Israel 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.
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, such as the US or South African estate tax, the UK inheritance tax, and relevant taxes in many European countries.
If you paid a departure tax on your assets when immigrating to Israel, produce those returns, for example, from Canada or the Netherlands.
Keep probate documents of deceased family members.
Keep life insurance payout documentation. Insurance companies are heavily regulated.
For Swiss and offshore banks, ask for a good-standing confirmation regarding the payor.
Keep invoices, etc. from business transactions.
Never throw out documentation. Sometimes it is necessary to go back decades!
Possible solution?
The present remittance rules are harshly applied. Perhaps the banks should take collateral instead of blocking cash.
As always, consult experienced tax advisers in each country at an early stage in specific cases.
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The writer is a certified public accountant and tax specialist at Harris Horoviz Consulting & Tax Ltd.