The Israeli filing season for tax returns has started. Who must file a tax return?
In principle, persons required to file an annual Israeli tax return include:
- Israeli resident individuals over the age of 18 unless they are eligible for a filing exemption (see below);
- Most trusts with an Israeli connection;
- Beneficiaries who received a trust distribution or are aged 25 or more and know they are trust beneficiaries.
The Israeli tax year ends December 31.
Filing deadline
For individuals, the filing deadline for 2022 returns is June 30, 2023, for online filers and May 31, 2023, for other individuals. For companies and their 10-plus% shareholders, the deadline is June 30, 2023. Time extensions for filing can be requested from the Israel Tax Authority (ITA) if you have a good reason.
Alternatively, most accounting firms spread out the filing of their clients’ tax returns over a longer period, according to a special arrangement between the ITA and the CPA Institute.
Who must file online?
Annual tax returns must generally be filed online. An exception exists for men aged over 67 and women over 62 years and four months.
Who is exempt from filing?
Residents may be exempt from filing a tax return if a number of conditions are met, as briefly summarized below:
New residents and senior returning residents (who lived abroad more than 10 years).
Olim (new immigrants) are exempt from Israeli tax and reporting obligations regarding non-Israeli source income and gains for 10 years.
Salary income may fall within the filing exemption if it was no more than NIS 663,240 in 2022 and the required tax was withheld at source.
Rental income may fall within the filing exemption if it was from residential accommodation in Israel, or the required tax was paid, or it did not exceed NIS 363,000 in 2022 and 10% tax was paid thereon.
Individuals may enjoy a filing exemption if annual income was below NIS 18,053 and not from business, employment or the items listed above.
A filing exemption is possible for other global income if it does not exceed prescribed levels AND applicable Israeli tax was paid.
Who must always file?
Notwithstanding the above, Israeli resident individuals must generally file an annual personal tax return if they fall into any of the following categories:
- Holders of a 10% or more interest in a privately held entity, directly or indirectly (for olim, see above);
- If income includes severance pay or a pension lump sum that the ITA allowed to be spread over more than one year;
- Sports persons;
- An individual who was required to file a tax return in the previous year, unless this was due to residential property, or if a dispensation is obtained;
- If the individual, or the individual’s spouse or child under 18, held at any time in the year any of the following: rights in a foreign-resident entity that is not publicly traded; or foreign assets if their value on any day in the year was over NIS 2,018,000; or foreign bank account(s) if the balance(s) on any day in the year totaled over NIS 2.018,000 (for olim, see above);
- Anyone who transferred NIS 0.5 million abroad in a 12-month period;
- Anyone who sold Israeli real-estate rights unless exempt.
- Anyone who sold oil or gas partnership units or who previously reported income or losses from them;
- Any individual who made more than NIS 663,240 in the year;
- Anyone who conducted a reportable (i.e., listed aggressive) transaction;
- Anyone claiming to be a foreign resident but was in Israel 183 days in the year or 425 days in the last three years, including 30 days in the latest year (Form 1348 must be attached);
- Anyone else asked to file a tax return by the ITA.
Children: Israeli resident children who were under 18 at the beginning of 2022 must file an annual tax return if they had taxable income of NIS 84,240 or more in the year.
Foreign residents: In principle, foreign resident individuals who derive taxable Israeli-source income in the year must file an annual Israeli tax return UNLESS the prescribed tax was withheld at source and the income is from one of the following: a business or profession conducted in Israel for no more than 180 days in the year, salary, pension, annuity, interest, dividend, rent or royalties.
Companies: Briefly, any entity that has income (taxable in Israel) must file an Israeli tax return, accompanied by audited financial statements.
The above is not exhaustive.
As always, consult experienced tax advisers in each country at an early stage in specific cases.
[email protected]The writer is a certified public accountant and tax specialist at Harris Consulting & Tax Ltd.
