Since 1948 112,000 US born citizens have arrived in Israel and it is estimated that there are 250,000 – 300,000 Israelis holding dual citizenship with the US living in Israel.
All US citizens and green card holders are required to file income tax reports the same way as those residing in the US.
In addition, under FATCA legislation US citizens living abroad are required to report annually their assets held in foreign banks and Financial Accounts. (FBAR)
The penalties are severe and include a penalty of 10,000 USD for failure to file each year and an additional 10,000 USD each month after the tax payer is aware of the delinquency and 10% of the value of the asset/s. If the reporting error is deemed willful (that the taxpayer was aware that he had to report and chose not to or reported falsely on purpose) the penalty could be up to 100,000 USD a year and 100% of all the assets.
US Citizens residing in Israel and saving and investing
US citizens residing in Israel have special investment challenges and tax issues that are still not resolved and expose Israeli US citizens to significant tax exposures.
The challenge of a PFIC (Passive Foreign Investment Company)
A passive foreign investment company (PFIC) is a foreign-based corporation<https://www.investopedia.com/terms/c/corporation.asp> that exhibits either one of two conditions. The first condition, based on income, is that at least 75% of the corporation's gross income is "passive," income that is derived from investments<https://www.investopedia.com/terms/i/investment.asp> rather than from the company's regular business operations. The second condition that determines a company as a PFIC, based on assets, is that at least 50% of the company's assets are investments that produce income in the form of earned interest, dividends<https://www.investopedia.com/terms/d/dividend.asp> or capital gains.
All foreign investment managers and companies are PFICs and all investment vehicles managed by Israeli or Foreign Companies are PFIC.
In this capacity all managed accounts, mutual funds, provident funds and pension funds are PFIC and subject to severe tax penalties including:
1. Tax must be paid on all income derived each year regardless if the asset has been sold or is still being held at the highest level in the US (40%) and regardless of the tax rate or exemptions in the country of the origin of the residing US citizen.
2. The taxpayer cannot deduct bad years losses from Good year gains.
This presents a unique opportunity as whoever finds a solution that has a “kosher” marking can take most of this mark