There has been much discussion about the new mandatory savings plan for children in Israel but with the start of 2017, it is now law. That means, a minimum of NIS 50 is deducted from monthly child allowance payments for all children in Israel and placed in a high-interest account, locked, until the child reaches at least 18.
A parent has the right to increase the amount taken but one may not have less than the state-mandated NIS 50 deducted for long term savings.
The problem lies with the fact that these provident accounts are viewed as Passive Foreign Investment Companies (PFIC) by US tax officials; the Internal Revenue Service, and that means, the accounts are taxable before the gains are realized in the US and the holder of the account is required to file annually. If one fails to file/pay taxes, then one begins accumulating fines and interest so by the time the child reaches 18, the first option to withdraw the money, s/he will owe considerably more than the account is worth, not to mention being in hot water with tax authorities. This is because the bilateral agreements and tax treaties between Israel and the US do not cover these provident accounts.
Parents of children with US citizenship are urged to contact a US/Israel tax expert quickly to make the necessary arrangements to best benefit from the new arrangement and avoid complications in the coming years.
(YWN – Israel Desk, Jerusalem)
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3 Responses
Per wikipedia:
“, U.S. persons owning shares of a passive foreign investment company (PFIC) may choose between (i) current taxation on the income of the PFIC or (ii) deferral of such income subject to a deemed tax and interest regime”
Nothing new here.
How many American children have enough income that this small amoung would make any difference? At most they have to file on online form. Putting money in a child’s name to avoid taxed a well established. It would be much worse if it were treated as income only when the child turns 18, since at that point it would actually be taxed.
“That means, a minimum of NIS 50 is deducted from monthly child allowance payments”
This is not correct. Bituach Leumi will not deduct from the monthly child allowance payments. Bituach Leumi will deposit 50 in addition to what is already received, and will deposit it to a specialized account. They encourage parents to match this amount. If parents agree, then the matched amount is deducted from the monthly child allowance payments.