Tax Declaration In Israel: Step-By-Step Guide

Tax Declaration In Israel

Navigating the complexities of tax declarations can be daunting, especially for expats living in Israel. Fret Not! We’ve got your back!

This guide aims to simplify the process, providing clear and concise information on how to manage your tax obligations. Whether you’re new to the country or just need a refresher, understanding the Israeli tax system is crucial for staying compliant and avoiding penalties.

Let’s dive in!

What Is An Israeli Tax Return?

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An annual report summarising the taxpayer’s income is called an Israeli tax return. 

The Form 1301 is used to file taxes in Israel. 

This article will cover who needs to file a tax return in Israel. It is advisable to monitor the declaration’s completion process and due date closely. 

Penalties could be imposed for any delay or false representation.

How Do You File Your Tax Declaration In Israel?

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You must report your income for the relevant tax year on Form 13001. It would also help to list any tax credits and credits to which you could qualify.

Your tax return must first be posted on the Mas Ahnassa website (שידור מקוון) before it can be submitted to Mas Ahnassa.

May 31 of the tax year following the year the return is filed is the deadline for filing your tax return. As a result, the 2022 tax return needs to be turned in by May 31, 2023.

However, you can request an extension and file your return by November 30, provided a chartered accountant files it.

Who Is Required To File A Tax Declaration In Israel?

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We’ve seen how to file a tax return thus far, but who must do so?

There is a myth that only the “privileged few” in Israel are required to disclose their income. 

This notion most likely originated from the fact that Olim Hadashim’s foreign-earned income is tax-exempt for ten years following their aliyah.

Nonetheless, some taxpayers are required by Israel’s tax code to file a return, and the following is a non-exhaustive list of those taxpayers: 

Self-Employed Or Shareholders In Israeli Companies

  • A shareholder owns more than 10% of the shares of an Israeli company. (בעל מניות מהותי בחברה).
  • An Ossek Mourché.
  • An Ossek Patour.

Employees Or Taxpayers With “Passive” Income

  • An employee with a gross annual income of over Nis 665,000 (in 2021).
  • A taxpayer with an interest income over 659,000 Nis annually (in 2021).
  • A taxpayer who has received income from selling listed securities over 2,583,000 Nis (in 2021).

Persons Receiving A Pension From Abroad

  • If you receive a retirement pension from abroad, you must file your tax return in Israel. You may not have to pay tax on your retirement. However, you still have to file a tax return.
  • However, if the person is within ten years of his aliyah, he will be exempt from making it.

People Who Do Business Abroad

  • A taxpayer with foreign income.
  • A taxpayer who has made transfers abroad of over 345,000 Nis during the tax year. These transfers may be made all at once or in installments.
  • A taxpayer with assets abroad worth more than 1,917,000 Nis (in 2021). 

Therefore, you must file an annual tax return if you have a bank account abroad with assets over 1,917,000 Nis. However, there is an exception for Olim during the ten years following the date of aliyah.

People With Income From Real Estate

  • A taxpayer with property income over 345,000 Nis a year (in 2021).
  • A taxpayer with a monthly rental income of over 5,196 Nis (in 2022). Suppose the taxpayer has opted for the progressive income tax scale for rental income.
  • A person with a taxable income of surtax, Israeli wealth tax (מס יסף) gross taxable income over 663,240 Nis (in 2022).

How Are Taxes Calculated In Israel?

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Once you file your return, the Israeli tax authorities will assess whether you are eligible for a tax refund or whether you need to make further tax payments.

You need to be aware that the tax authorities will return any overpayment of taxes and interest.

However, you will also be required to pay interest during that time if you are required to pay more taxes.

How To Optimise Tax Returns For Companies In Israel?

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Businesses in Israel must also optimize their tax returns to reduce their tax liability and maximize their tax advantages.

To accomplish this, they must understand their tax responsibilities, practical tax planning techniques, and the tax advantages and deductions that apply to them.

Reporting Obligations For Companies

Companies in Israel are subject to various reporting requirements based on their activities and organizational structure. 

These include paying corporate taxes and disclosing earnings, losses, and expenses. 

In addition, businesses that supply goods and services must declare and pay VAT. Companies must abide by these reporting requirements to avoid fines and issues with the tax authorities.

Effective Tax Planning Strategies To Minimize Taxes

For businesses in Israel, careful tax planning is crucial since it helps them reduce their tax liability and improve their financial position. 

Businesses can use various tax planning techniques, such as investment tax credits, operating expense deductions, and tax-efficient dividend distributions to shareholders. 

To keep their tax planning efficient and in line with new laws and regulations, businesses must constantly review and modify it.

Tax Benefits And Deductions For Businesses In Israel

Businesses in Israel can lower their tax burden by utilizing several tax breaks and perks. 

For instance, they can benefit from tax credits for R&D expenditures, operational expense deductions, or tax breaks for employing specific types of people. 

To maximize their tax returns, businesses must stay informed about the tax breaks and benefits that apply to their circumstances and incorporate them into their tax planning.

To summarise, optimizing tax returns for firms in Israel involves adhering to reporting requirements, implementing efficient tax planning techniques, and utilizing all available tax benefits and deductions. 

By partnering with an accounting and tax professional, businesses can ensure compliance with these regulations and get the best possible tax treatment.

Conclusion

Filing your tax declaration in Israel doesn’t have to be an overwhelming task. By following the steps outlined in this guide, you can ensure that your taxes are filed accurately and on time.

Remember, staying informed and proactive about your tax obligations can save you both time and money in the long run.

Effortless Compliance!

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