Israeli tax law states that every Israeli resident or household is required to file a 2017 Israeli tax return, whether or not taxes are owed. The current deadline for filing your 2017 tax return is May 31, 2018; a late filing may result in hefty monthly penalties. However, a supplement to the law grants exemptions from filing if you meet certain criteria; exemptions are mostly focused on people who will not have to pay additional taxes.
Who Must File and Special Circumstances
Here is a list of households that must file Israeli tax returns, regardless of earnings:
- You are a controlling shareholder (10%+ ownership, including holdings of close family) of a company or similar corporation. This applies to all Israeli corporations, as well as many overseas corporations.
- Earned income of spouses are assessed together, rather than as separate calculations. See here for more.
- You received severance pay that was spread over two or more years, including 2017 (known as פריסת פיצויים).
- You were required to file a tax return for 2016, but not for one of the aforementioned reasons.
- You own shares in a non-publically traded non-Israeli corporation.
- The value of your overseas assets at any point in 2017 exceeded NIS 1,855,000. This requirement is not relevant for those who fall into the “10-year exemption” for new olim.
- Anyone who is a beneficiary of a trust (regardless of whether distributions are received), if:
- S/he is 25 years old or older
- The value of the trust assets exceeds NIS 500,000
- S/he is aware of being a beneficiary (it may be fairly difficult to prove otherwise)
- See here for the definition of a beneficiary of a trust
- Residency in Israel is based on a “center of life” test, but may also be subject to the number of days one has spent in Israel over the tax year. Anyone meeting the day test but still claiming non-residency must file a tax return in Israel – explaining why they are not considered a resident, as well as giving a report of their non-Israeli income that is arguably exempt from Israeli taxation. In addition, a new form, the 1348, has been issued by the tax authority. You must fill it out in order to make your case for non-residency.
- Anyone who has, over a 12-month period, transferred a sum of NIS 500,000 or more out of Israel. Seemingly, this includes transfers to a personal account abroad. The logic would seem to be that perhaps the Israeli is purchasing an asset abroad, and must therefore report any subsequent income. The rules say that a tax return is also required in the tax year following the transfer.
Who Is Exempt From Filing a Tax Return?
So, assuming you do not meet any of the criteria above, you are exempt from filing a 2017 tax return if your income in 2017 was exclusively from the following list:
- Salary (including pension and פיצויים) – if the gross amounts received were less than NIS 643,000 (per spouse) and tax was deducted at source.
- Rental income – if the total gross rents were less than NIS 334,000 and the 10% tax was paid by January 31, 2018.
- Foreign interest, dividends, capital gains, etc., if the total gross income was less than NIS 334,000 and the tax (the rates depend on the exact nature of the income) is paid using the “short form” at the post office or online by April 30, 2018.
- Foreign pension, provided that the total gross income was less than NIS 334,000 and no tax is due in Israel under the provisions of section 9c of the tax law (see here for more).
- Israeli-sourced interest and/or linkage income, provided that either it is exempt from Israeli tax or tax was deduced at source and the gross income was less than NIS 637,000.
- Capital gains made on the sale of publicly listed shares, provided that either they are exempt from Israeli tax or tax was deduced at source and the gross sales were less than NIS 2,500,000.
- Other types of income which are subject to tax, where the tax has been deducted at the maximum rate.
- Other income that is exempt from Israeli taxes.
- Your total taxable income from all sources was less than NIS 640,000.
If the total gross income of (7) and (8) combined is over NIS 334,000, no exemption is granted.
While it is not difficult to figure out the parameters of Israeli tax filing requirements, please contact us for professional guidance.