Yesterday (7th September 2014), the Israeli tax authority finally published their long-awaited and anticipated Voluntary Disclosure scheme. Anyone who has committed a tax felony, be it related to Income Tax, VAT, Mas Shevach (Land Appreciation Tax) or Customs, can now come forward, report the income, pay the tax (including all interest and fines), and – provided they meet the other criteria – get immunity from criminal prosecution. The immunity from prosecution is dependent on the taxpayer meeting a number of criteria. In general, these require that a full and thorough disclosure be given. Furthermore, it is a requirement that the taxpayer cooperates fully with

Feel free to join the Tax in Israel Facebook group One of the suspected tax planning methods that the Israeli government doesn’t like is for those investing overseas to form a company on a tax haven to hold the investments. The thinking would be to hold the investments within the company without withdrawing any funds, and thereby not pay any Israeli tax on the income until funds are needed. As such, the tax law includes a section on Controlled Foreign Companies (CFC), whereby the Israeli shareholders are deemed to have received a dividend based on their share of the profits of the company, even if

It is fairly common for people to invest overseas, be it in businesses or other assets (eg property, shares etc.). One of the most common ways to invest is to set up a company in the country of investment, owned by the foreign investors. The first issue that Israelis must consider when setting up a foreign company is the residency of the company. Any company incorporated in Israel is automatically considered Israeli-resident, but an overseas company can also be considered Israeli-resident if it is “controlled and managed” from Israel. The concept of “control and management” refers to the activities of the company

Feel free to join the Tax in Israel Facebook group As previously mentioned, tax files in Israel are joint between husband and wife. The question therefore arises as to how joint income is taxed. In this respect, the law differentiates between earned (eg salary, self-employment, pension) and passive income. Passive income In general, passive income is treated as joint income and added to the earned income of the higher-earning spouse. However, with the exception of using the exemption for Israeli residential properties, any income arising from an asset owned by one spouse for at least one year prior to marriage or from an asset received by inheritance

Feel free to join the Tax in Israel Facebook group Over the last fortnight or so, the tax authority has sent out a number of letters to Israeli residents whom it suspects have not reported of the income that they are thought to receive – and hence not paid the relevant taxes. The head of the tax authority told a gathering at which a colleague was present that approximately 93,000 such letters were sent out. There seem to be two main possible lines of approach by the tax authority: (1) Those owning 3 apartments or more – it is an assumption that there will

With much fanfare, the tax authority announced last week a one-page tax return for the smallest of businesses. The form can be found here. The form is designed to allow the smallest businesses – who wouldn’t reach the tax threshold anyway – to just report their income, without the extra pages relating to deductions and credits. However, it must be noted that the tax authority reserves the right to ask for a full tax return anyway, as well as any other paperwork deemed necessary; making this process somewhat meaningless is my opinion. Who can use the report? The explanation notes (which can be seen here) list five

The taxation of pension income is one of the most complicated areas of law due to the various and numerous exemptions available. Fully exempt pensions Pensions which are not subject to tax whatsoever include the Bituach Leumi old-age and bereavement pensions and reparations received by Holocaust survivors. Also fully exempt are disability pensions, whether received from Israel or abroad. A person receiving a survivors pension can receive the first NIS 8,470 per month (correct for 2014) tax free. Of any excess, 35% of the pension is also tax free, with the rest subject to tax. Other pensions In short, the exemptions start when the taxpayer reaches

Once you have filed your tax return properly (see here for more), the tax authority will issue an assessment of the taxes that you owe based in what you have filed. This is normally on three blue-backed pages (first single-sided and the other double-sided) of A4 size. They also send some explanatory pages. The first page is the summary of income and the tax calculation. The very bottom of the page is reserved for a payslip with which you can pay the taxes that you owe. Interest for a few weeks is normally built into the calculation; there will be a date by

A number of years ago, the government introduced a scheme designed to help workers earning very little. This grant, based on average monthly earnings in the previous tax year (hence the term “income tax”), was initially available only to those living in certain parts of the country. Who is eligible? You must meet the following criteria: 1. Be aged 55+ or aged between 23 and 54 and have at least one child. 2. You, together with your spouse, own no more than a 50% stake in any land or property (worldwide) that is not your residence. 3. Your average monthly earnings in 2013 (salary or