Knesset Finance Committee ratifies US tax act

Local banks will report account holders with American citizenship to the IRS beginning in September

The Knesset Finance Committee on Monday approved a series of regulations by the Finance Ministry, paving the way to full implementation of the US Foreign Account Tax Compliance Act, which was signed between the two countries in 2014.

FATCA will require Israeli financial institutions to report American citizens who hold accounts in Israel, including dual citizens, to the Israel Tax Authority by September, which in turn, will hand over tax information to the IRS by the end of that month.

The committee backed the deal on Monday, but Israeli banks have already begun enforcing the act.

Under the agreement, US citizens who hold accounts in Israel, and who have less than $50,000 in their accounts, are exempt from the reporting requirements. However, if the IRS suspects the banks are withholding information, all accounts will be liable for review, according to a statement from the Finance Ministry.

The Israeli financial institutions must give their clients 30 days’ notice that their information will be handed over to the US authorities.

Under the regulations formulated by the Finance Ministry, the agreement will not apply to ultra-Orthodox free-loan funds and nonprofits, known asgemachim, until 2018.

The agreement applies to US Green Card holders and residents, as well as legal entities in which American citizens have substantial holdings.

When the agreement was announced, the deal was seen to be of particular concern to dual citizenship holders who have either failed to file tax returns or have not reported their income tax correctly. IRS audits have been on the rise in recent years, and with information from the banks at their disposal, IRS agents will have a much easier time catching such people.

The stricter regulations have prompted a growing number of US citizens around the world, including in Israel, to renounce their citizenship.