Are you required to file a 2012 Tax Return?

The Tax Law states that every Israeli resident is required to file a tax return every year, and doing so late results in hefty penalties (in excess of NIS 1,000 for each month between the official deadline and the actual filing).

That being said, a supplementary ruling to the law grants exemptions from filing if you (and your spouse – assume this the whole way through this post) meet certain criteria.

The exemptions are in place in order to relieve the burden on the already-overstrechted tax authorities having to process tax returns for people who won’t have any supplementary tax to pay anyway.

There are though certain people whose circumstances dictate that they must file, regardless of their earnings. If you fall into at least one of the following categories, you must file a return:

(1) You are a controlling shareholder (10%+ ownership including holdings of close family) of a company or similar corporation. This applies to all Israeli corporations, and many overseas corporations.

(2) Income of husband and wife is assessed together, rather than seperate calculations.

(3) You received severance pay that was spread over a number of years – one of those years being 2012 (known as פריסת פיצויים).

(4) You were required to file a tax return for 2011, but not for one of these reasons.

(5) You own shares in a non-publically traded non-Israeli corporation.

(6) The value of your overseas assets at any point in 2012 exceeded NIS 1,839,000. This requirement is not relevant for those who fall into the “10-year exemption” for new olim.

So, assuming you do not meet any of the criteria above, you are exempt from filing a 2012 tax return if your income in 2012 was exclusively from the following list. If you had income from any other source, you are required to file:

(1) Salary (including pension and פיצויים) – if the gross amounts received were less than NIS 638,000 (per spouse) and tax was deducted at source.

(2) Rental income (above the exemption limit), provided that (a) the total gross rents were less than NIS 331,000 and (b) the 10% tax was paid by 30 January 2013.

(3) Foreign interest, dividends, capital gains etc, provided that (a) the total gross income was less than NIS 331,000 and (b) the tax (the rates depend on the exact nature of the income) was paid using the “short form” at the post office or online by 30 April 2013.

(4) Foreign pension, provided that (a) the total gross income was less than NIS 331,000 and (b) no tax is due in Israel under the provisions of section 9c of the tax law (beyond the scope of this post – perhaps I’ll address it some other time).

(5) Israeli-sourced interest and/or linkage income, provided that either (a) it is exempt from Israeli tax or (b) tax was deduced at source and the gross income was less than NIS 632,000.

(6) Capital gains made on the sale of publically listed shares provided that either (a) it is exempt from Israeli tax or (b) tax was deduced at source and the gross sales were less than NIS 1,823,000.

(7) Other types of income which are subject to tax and tax has been deducted at the maximum rate.

(8) Other income exempt from Israeli taxes.

If the total gross income of (7) and (8) combined is at least NIS 331,000, no exemption is granted.

Whilst this looks a little daunting, in many situations the requirement or exemption from filing is reasonably clear – but if in doubt, take professional advice.