Israel Tax Authority Targets Israeli Assets in Cyprus Amidst Growing Concerns of Tax Evasion

The Israel Tax Authority (ITA) has launched a sweeping operation aimed at uncovering assets, income, and businesses owned by Israeli nationals in Cyprus, potentially subject to Israeli taxation. This move, as reported by Israeli news outlet Globes, is part of ITA's concerted effort to combat tax evasion and address revenue shortfalls.

The initiative, spearheaded by ITA head Shay Aharonovich, targets Israelis conducting business in Cyprus who may not be reporting their income in Israel while maintaining Israeli residency. A senior source from the ITA revealed to Globes that the focus on Cyprus has intensified due to a noticeable trend of Israelis relocating to the island, investing in real estate, and establishing businesses there.

"In recent years, Cyprus has become an attractive destination, among other things thanks to a taxation policy that has earned it the title of 'one of the last tax havens in the world'," the source informed Globes.

The investigation encompasses various strategies, including analyzing travel patterns of businesspeople between the two countries, scrutinizing offshore companies linked to Israelis, and leveraging information-sharing agreements with several nations to uncover connections between Israeli individuals or entities and Cypriot companies.

Cyprus' corporate tax rate of 12.5 per cent, along with favorable tax treatment for foreign residents, has made it an appealing tax haven for many Israelis, particularly in sectors such as fintech, investment, real estate, and foreign exchange trading. Globes estimates that between 10,000 to 20,000 Israelis currently reside in Cyprus, with many more involved in business activities there.

The article also highlighted concerns raised by tax lawyers, who have been approached by anxious owners of companies and businesses in Cyprus receiving various demands from the ITA, such as declarations of assets and income there.

"Cyprus is a party to some 65 tax treaties that provide for reduced withholding taxes on dividends, interest, royalties, and pensions from overseas. Israel does not yet have such a treaty with Cyprus," the ITA source explained to Globes.

"There are discussions between the countries and good intentions, but these have yet to mature into a treaty to prevent double taxation. We are pretty much in the dark when it comes to information from Cyprus, and we want to emerge from it so that Cyprus will not be used as an illegitimate tax haven."

The operation underscores ITA's commitment to closing tax loopholes and ensuring compliance among Israeli taxpayers, particularly concerning overseas assets and income. As discussions between Israel and Cyprus continue, the outcome could significantly impact the taxation landscape for Israelis with financial ties to Cyprus.

By fLEXI tEAM