Israel homing in on citizens doing business in Cyprus

The Israel Tax Authority (ITA) has initiated a comprehensive operation aimed at identifying assets, income and companies owned by Israeli nationals in Cyprus that should be subject to Israeli taxation, according to a report published by Israeli news outlet Globes.

Driven by the necessity to address revenue shortfalls and as part of the authority’s head Shay Aharonovich’s campaign against tax evasion and the black economy, ITA has turned its attention to Israelis conducting business in Cyprus who may not be reporting their income in Israel while maintaining Israeli residency.

A senior source from the ITA disclosed to Globes that the focus on Cyprus stems from the growing 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 told Globes.

According to the same source, the investigation includes analysing travel patterns of businesspeople between the two countries, examining offshore companies linked to Israelis, and leveraging information sharing agreements with several countries to uncover connections between Israeli individuals or entities and Cypriot companies.

Globes also reported that Cyprus’ corporate tax rate of 12.5 per cent, coupled with favourable tax treatment for foreign residents, has made it an appealing tax haven for many Israelis, particularly in sectors like fintech, investment, real estate and foreign exchange trading.

The publication also estimated that between 10,000 to 20,000 Israelis reside in Cyprus, with many more engaged in business activities there.

“Tax lawyers have recently been consulted by worried owners of companies and businesses in Cyprus who have received various kinds of approaches from the ITA, such as demands for declarations of assets and income there,” Globe said.

“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 result being that Israel has no information on assets and income of Israelis there,” the ITA source told 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.”