How to file a tax return in Israel
The first step is to gather all of the relevant information regarding your income (for both spouses if relevant) during the year in question, as well as the relevant certificates and proofs that you may need in order to claim deductions and credits, as appropriate, as well as proofs of tax withheld at source.
All of this will be inputted into the main tax form (form 1301). Be careful though, there may only be three pages to the form, but there is a huge amount of information on there, and if necessary you will have to include other forms and appendices. Some of your year-end summary forms will tell you which box number to put the details into, but many other forms do not and you will need to work out where they properly go.
Particular attention needs to be paid to the capital gains appendices; the income from here does NOT carry through to the main tax return. Similarly, foreign taxes paid do not follow through from the foreign income appendix to the main return.
If you use an accountant, much of this should be fairly straightforward to them, but don’t expect them to know everything! Be prepared to answer queries that they may have.
Once everything is ready, you are ready to file. The first step is to file the numbers electronically. This is done either online (here, requires registration) or by the accountant directly into the tax computer. At this stage, a calculation of taxes due and paid will show (NOT Bituach Leumi), although internet filing does NOT show payments made on account via mikdamot (see here for more).
If you have filed on the internet, you will get a copy of the tax return to print out and sign. It is important to file this version as it confirms the electronic filing via the barcode that is generated.
There is a second stage to filing though, and that is physically handing in the return, together with all supporting pages and proof of electronic filing, to the tax office. You can hand in the paperwork at any of the offices around the country and they will pass it onto the right office if need be.
I cannot stress the importance of making a copy of your return before filing, and having the copy stamped as “received”.
Once the tax return has been filed, the authorities will issue an initial assessment, normally within 2-3 weeks. This should be based on your filed return, and will show any tax due or refundable. If you owe monies, there will be a payslip that can be used at the post office.
If you are due a refund, this will be processed as follows:
1. If you are not required to file a return, the authorities will want to check the return before approving the refund. Typically this takes 2-3 months, although the law allows a full year for the refund to be paid from the date of filing.
2. If you are required to file a return, small refunds will normally be refunded fairly swiftly (within a week or two of the assessment). For larger refunds (from approx. NIS20,000 and above), the authorities will pass your file on to be checked by a supervisor. The law requires the refund to be paid within 90 days of filing the return, but this is often ignored by the tax authority, and you may have to wait (significantly) longer.
The authorities didn’t hold back a refund to be checked, you can expect a second assessment to be issued a number of months later, once some clerk has had a chance to look a little closer at your return. It is possible that something may come up (most likely source being disallowable donations) and there may be a balance of taxes to be paid. Normally, that would be the last correspondence from the authorities, although there is of course the possibility that your affairs may be audited at a later date.