Israeli Tax Reporting Rules

Israel Tax|file|online|resident

Dr. Avi Nov, Adv.

November 2011

Israeli residents over the age of 18 must, in principle, file a tax return unless they are eligible for a filing exemption (see below). Normally, the filing deadline is May 31 for online filers and for certain businesses. The filing deadline for other individuals is April 30. Time extensions for filing can be requested from the Israel Tax Authority.

Companies operating in Israel have to file a tax return. In principle, any entity that has income that is taxable in Israel must file an annual Israeli tax return, accompanied by audited financial statements.

Filing online

Online filings are required in these situations:

  •  if you have income from a business, employment, agriculture;
  •  if you sold a non-exempt Israeli real estate interest and didn‘t pay tax at the maximum rate;
  •  if you are a 10%-or-more shareholder in a CFC (controlled foreign company);
  •  if you carried out a reportable tax planning act according to the Israeli Tax Shelter Rules;
  •  if the Tax Authority requested it.

Exemption from filing online

In spite of the rule above, no online filing is needed in the following cases:

  •  if your income from a business, employment and agriculture didn‘t exceed NIS 78,670 nor did your spouse‘s income exceed that amount, nor did your joint income NIS 157,330;
  •  if you and your spouse have reached retirement age (generally 67 for men, 64 for women);
  •  if you are a 10%-or-more shareholder in an Israeli company;
  •  if you claimed ‘‘negative income tax‘‘ benefit.

Exemption from filing

There are certain filing exemptions, for instance, new immigrants and senior returning residents are exempt from Israeli tax and reporting obligations regarding non-Israeli source income and gains for 10 years after becoming Israeli resident.

Taxpayers that must always file
In spite of the above, Israeli resident individuals must generally file an annual personal tax return if they fall into any of the following categories:

1) Holders of a 10% or more interest in a privately held entity, directly or indirectly.

2) A married couple not entitled to claim separate tax calculations; for example, because their income is not from independent sources.

3) If income includes severance pay upon leaving an employment or death, or a pension lump sum that the Israel Tax Authority allowed to be spread over more than one year.

4) Sports persons.

5) An individual who was required to file a tax return in the previous year, unless this was because he or she was a residential property landlord.

6) If the individual, or the individual‘s spouse or child under 18, held at any time in the year any of the following: any right in a foreign-resident entity that is not publicly traded on a stock exchange; or other foreign assets if their value on any day in the year was NIS 1,768,000 or more; an account at one or more foreign banking institutions if the total balance in all foreign banking institutions on any day in the year was NIS 1,768,000 or more. .

7) If the individual conducted a taxable real-estate transaction (directly or via a real-estate entity) in the year unless tax was paid at the maximum rate, or if the tax was spread over more than one year.

8) With regard to trusts, annual tax returns are required from: the trustee of an Israeli Residents‘ Trust or an Israeli Residents‘ Testamentary Trust (the latter having at least one Israeli resident beneficiary) (on Form 1327); but if a settlor or beneficiary are elected to be ‘‘assessable or chargeable,‘‘ or a ‘‘representative settlor/beneficiary,‘‘ they file the return instead of the trustee (on Form 1301); the trustee of a trust that has income or an asset in Israel (Form 1327). The finance minister is empowered to exempt trustees from filing annual tax returns if all their income is exempt from Israeli tax. In various other cases it may be enough to file a trust notice form instead of a tax return. Trusts are complex and specific advice is strongly recommended in each case.

9) Holders of 10% or more of a passive controlled foreign corporation (CFC) or a foreign professional corporation (FPC), as defined in the tax law. This reporting requirement shall not apply to new and senior returning residents for 10 years, as outlined above.

10) Anyone else asked to file a tax return by an Israeli tax officer.

 Dr. Avi Nov Law Offices, Israeli & international tax law 

*This article is intended for informative purposes only and is in no way to be construed as tax advice or a legal opinion
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